CMS Pub. 100-05, ch. 5, § 40.5.3

The amount of the Medicare secondary payment is computed and is based on the amount of the

primary payer's liability, as determined by the receiver, and the terms of the payments made by the

receiver on behalf of the primary payer.

If the receiver determines that the provider or physician/supplier may pursue collection of the portion

of the charge not paid by the receiver, a Medicare secondary payment may be made. The Medicare

secondary payment is computed based on the amount the receiver pays on behalf of the bankrupt or

insolvent entity (i.e., the amount paid by the receiver constitutes the primary payment on which

Medicare bases its secondary payment). In effect, this means that the Medicare secondary payment

makes up for the liability of the primary payer that was not satisfied because of lack of funds.

EXAMPLE: A participating physician furnishes a service for which the approved charges of the

primary payer and Medicare are $100 and $90, respectively. The primary payer would normally pay

80 percent of $100, or $80, and Medicare would make a secondary payment of $100 minus $80, or

$20. However, the primary payer is bankrupt and, after a long delay, its receiver pays the physician

only $32. Medicare pays the physician $100 minus $32, or $68, which is $48 more than its normal

liability (i.e., $68 minus $20).

If the receiver determines that the fractional payment must be accepted as full discharge of the

amount the primary payer would have been obligated to pay were it not bankrupt or insolvent, the

Medicare secondary payment amount would be the amount payable had the receiver paid the full

primary payment (i.e., Medicare pays only $100 minus $80, or $20).

If the receiver determines that the provider and physician or other supplier is required to accept the

fractional payment as full discharge of the entire bill, Medicare may not make a secondary payment.

Thus, in the above example, the receiver might determ ine that the physician must accept the $32 it

pays as payment. In the above example, the receiver might determine that the $32 it pays fully

discharges the liability of the primary payer for the $80 the primary payer would have paid if it were

solvent (i.e., in this situation, the full discharge of the physician's bill). In this case, Medicare makes

no secondary payment.