Did You Know That Health Care Providers Who Accept Assignment of Medicare Must Reduce Their Bills?

By Terri Todd & Ted Smith

It has been estimated that 77% of the doctors in Indiana currently accept Medicare assignment in all cases. If Medicare has paid a portion of your client’s medical expenses, can the client’s doctors and other healthcare providers still have outstanding balances which they can collect from the client when he/she settles a third party claim for personal injuries? If so, what amount can the health care providers collect?

In addressing this issue, a distinction must first be made between Part A and Part B Medicare benefits. Medicare Part A helps to pay for in-patient hospital care; care in a skilled nursing facility following a hospital stay; home health care; hospice care; and, blood. Medicare Part B pays for a wide range of medical services and supplies, but perhaps most importantly, it helps to pay doctors’ bills. In addition, Medicare Part B covers out-patient hospital treatment; x-rays and other diagnostic tests; laboratory tests (including, but not limited to, blood tests and urinalysis); ambulance transportation; ambulatory surgical services; physical and occupational therapy; speech language pathology services; out-patient mental health services; arm, leg, back and neck braces; durable medical equipment, including wheelchairs, walkers and hospital beds; artificial limbs and eyes; and, medical supplies, such as surgical dressings, osteotomy bags, splints and casts.

Doctors, other healthcare providers and medical suppliers who accept “assignment” of Medicare agree to accept the Medicare “allowed” or “approved” amount for a particular service or supply as full payment for the services or supplies covered under Medicare Part B. Medicare usually pays 80% of the approved amount(1) directly to the doctor, other health care provider or medical supplier after the Medicare beneficiary has met the annual Part B deductible of $100.00. The beneficiary pays the other 20%. The doctor or other provider cannot charge the patient more than the 20% coinsurance amount.

The fact that a Part B healthcare provider has received some payment from Medicare does not preclude the provider from billing the patient for:

1. Services not covered by Medicare;

2. The Medicare deductible; or

3. Co-insurance.(2)

However, if a Part B health care provider has accepted assignment of Medicare, anything above the Medicare “allowed amount” for the medical service may not be billed to the patient.(3) The provider may not accept payment from Medicare and then seek to recover more than 20% of the Medicare-approved amount from the patient. This is true even if the doctor, hospital, or other health care provider would normally charge (or did initially bill the patient for) more than the Medicare allowed amount(4).


In Evanston Hospital, Robert Hauck came into contact with a live electric wire, and as a result was an in-patient at Evanston Hospital for over a year. The hospital bill totalled $270,760.24. Hauck did not have private health insurance and was not able to pay the hospital bill with his own funds. Therefore, Evanston Hospital decided to accept partial payment of $113,424.00 from Medicaid. Under Illinois law, the hospital’s acceptance of that payment was conditioned on the understanding that it would constitute payment in full and whatever claims the hospital may have had against Hauck were relinquished to the Illinois Department of Public Aid.

Approximately five (5) years after he was released from the hospital, Hauck obtained a $9.6 million jury verdict for the injuries that he sustained when he was electrocuted. Evanston Hospital then sought to give back to the state Department of Public Aid the $113,424.00 that it had previously accepted in full payment of Hauck’s bill so that it could sue Hauck for the full amount of the original hospital bill: $270,760.24.

The trial court dismissed the hospital’s suit against the Department of Public Aid(5) for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) and the 7th Circuit Court of Appeals affirmed. In its opinion, the 7th Circuit rejected the hospital’s argument that by refusing to accept its offer of a refund, the Department of Public Aid had “forced” it to abandon its right to sue Hauck. On the contrary, the Court pointed out that:

[N]o one coerced the hospital into cashing a $113,424 check from the taxpayers as partial reimbursement for Hauck’s medical bills. Rather, the hospital could have simply forsaken Medicaid and taken its chances that Hauck would somehow come up with the money to pay the bills himself. By opting for reimbursement from Medicaid, Evanston Hospital bought certainty. It purchased a guarantee of partial payment in lieu of possibly full payment or possibly no payment at all. Risk-adverse companies that are owed money (or which do not want the hassle) make this same deal all the time with collection agencies — something secure is traded for a crack at a higher sum. Evanston Hospital wants out of its agreement with Medicaid now only because its gamble, in retrospect, was unwise.(6)

The 7th Circuit noted that under both Illinois and federal law, a state must take all reasonable measures to ascertain the legal liability of third parties to pay for care and services available under the plan and where legal liability is found to exist and the amount of reimbursement the state can reasonably expect to recover exceeds the cost of such recovery, the state or local agency is required to seek reimbursement for the medical assistance that was provided to the extent of the third party’s legal liability.(7) The Court pointed out that the federal statute does not say anything about the state or local agency turning over this right of reimbursement to hospitals or doctors who have already received some compensation for their services.

According to the 7th Circuit:

Again, Congress’ intent that state Medicaid agencies, not hospitals or doctors, seek reimbursement from third parties is evident in another section of the Medicaid statute that requires indigent recipients of benefits to assign to the government whatever rights they might have in payment for medical care from other sources. 42 U.S.C. SS1396a(a)(45) and 139K(a). If this arrangement is not acceptable to doctors and hospitals, they should not take Medicaid money in the first instance.(8)

The Court stated that the hospital’s argument that states may not condition Medicaid disbursements on the understanding that payments are full and final is directly contradicted by federal statute:

[I]n the case of an individual who is entitled to medical assistance under the State plan with respect to a service for which a third party is liable for payment, the person furnishing the services may not seek to collect from the individual (or any financially responsible relative or representative of that individual) payment of any amount for that service. …(9)

Therefore, the 7th Circuit characterized what Evanston Hospital was attempting to do as being:

[T]o turn Medicaid upside down by converting the system into an insurance program for hospitals rather than for indigent patients. It wants to be reimbursed when the patient is indigent and still retain the right to sue patients who later become solvent — a classic example of wanting to both have and eat cake.(10)

Medicare had also paid for a few thousand dollars worth of out-patient services that Hauck received after his release from Evanston Hospital. In its opinion, the 7th Circuit noted that “[l]ike Medicaid … once the government has paid, the hospital or doctor accepting the money agrees to abandon all rights to further payment.(11) … The point is not to give doctors and hospitals an ongoing right to return Medicare’s money when it becomes expedient. … There is recourse against Hauck for the cost of his care, but the recourse belongs to the government, not to Evanston Hospital.”(12)


In order to calculate the amounts that a healthcare provider who has accepted assignment from Medicare may collect from the patient (your client) at the time a third party claim for personal injuries is settled, subtract the Medicare payments that have been made to each provider from the Medicare “allowed amount” for each service. The product of that subtraction equals the amount of co-insurance and the amount which the client may still have to pay each provider.(13) For example:

John Williams, M.D.

Allowed amount: $42.69
Medicare payment: – 34.51

$ 8.18 Amount client still owes

Irvington Radiology

Total bill: $ 45.00
Allowed amount: $ 11.14(14) Amount client still owes

The information relative to the Medicare “allowed amounts” and application of certain payments to the client’s Medicare deductible can be obtained from the Explanation of Benefits forms that Medicare sends to the beneficiary (your client). In addition, that information can be obtained by contacting Medicare directly. A letter that can be used to request this information from Medicare is as follows:

June 6, 1996Kenneth Williams
BlueCross BlueShield
8115 Knue Road
Indianapolis, IN 46250RE: Our client/Medicare recipient: Kathy LongMedicare Health Insurance Claim #: 414-48-5478Dear Ken:I am writing to advise you that our office represents Kathy Long in a claim for personal injuries which she sustained in an automobile collision in which she was involved on March 21, 1996. It is my understanding that Medicare has paid some of the medical expenses which Ms. Long has incurred as a result of the injuries she sustained in that wreck. At this time, I am enclosing an itemized list of the medical expenses which we have submitted to the tortfeasor’s insurance carrier. I would appreciate it if you would provide me with an itemized list of the bills which Medicare has paid; a list of the Medicare “allowed amounts” relative to each expense; and, a statement as to the total amount of the subrogation lien that Medicare is claiming.Thank you for your anticipated assistance. Sincerely, SMITH TODD & FARRELL__________________
Ted Smith

In order to be sure that there is no dispute about the amount of the client’s outstanding medical expenses/the amounts which the client must still pay his/her healthcare providers at the time of the settlement of the third party liability claim, plaintiff’s counsel should call each provider and inquire as to the amount of the client’s outstanding balance. If the balance is more than the calculations described above indicate it should be, counsel needs to contact the provider and advise the provider of the limitation on the amount which they are permitted to collect from the client and obtain an agreement from the provider in that regard. A letter which can be used for that purpose is as follows:

John Williams, M.D.
9302 North Meridian
Indianapolis, IN 46016RE: Your patient/our client: Kathy LongDate of birth: 6/18/30
Social security #: 414-48-5478Dear Dr. Williams:Our office represents Kathy Long in a claim for personal injuries which she sustained in an automobile collision in which she was involved on March 21, 1996. We are currently in the process of negotiating a third-party settlement relative to Ms. Long’s case. Therefore, we recently contacted your office to inquire as to Ms. Long’s outstanding balance. We were advised that her balance with your office is currently $625.17. However, we believe that Ms. Long’s balance is actually only $51.22.Ms. Long is a Medicare patient. According to the enclosed Explanation of Medicare Benefits form, your group may only bill Ms. Long $43.04 for the treatment which she received on March 21, 1996. The records in my file indicate that Ms. Long also received treatment from you on April 22, 1996. According to the Medicare representative with whom I spoke, the Medicare allowed amount for the services which you rendered to Ms. Long on April 22, 1996 is $42.69; and, Medicare made a payment to you in the amount of $34.51. Therefore, according to the Medicare representative, Mr. Long owes your group $8.82 relative to the treatment which she received on April 22, 1996.It appears that Ms. Long’s actual outstanding balance with you is only $51.22 [$43.04 + $8.18] rather than $625.17. I would appreciate it if you would confirm that Ms. Long, in fact, has an outstanding balance of only $51.22 with your office. At the time her third-party claim is resolved, we will then issue a check to you in that amount out of Ms. Long’s portion of her settlement.Sincerely, SMITH TODD & FARRELL ___________________________
Teresa L. Todd


If an agreement relative to your client’s outstanding balance cannot be reached with a health care provider, counsel should report the situation to Medicare. Any health care provider (or other person) who knowingly presents to any person a request for payment which is in violation of the terms of: (1) an assignment under S1395u(b)(3)(B)(ii)of USCA Title 42 or (2) an agreement with a state agency (or other requirement of a state plan under subchapter XIX of USCA Title 42) not to charge a person for an item or service in excess of the amount permitted to be charged or (3) an agreement to be a participating physician or supplier under S1395u(h)(1) of USCA Title 42 or (4) an agreement pursuant to S1395cc(a)(1)(G) of USCA Title 42 is subject, in addition to any other penalties that may be prescribed by law, to a civil money penalty of not more than $10,000.00 for each item or service. Such a person is also subject to an assessment of not more than three (3) times the amount claimed for each such item or service in lieu of damages sustained by the United States or a State agency because of such claim. In addition, the Secretary may make a determination to exclude the person from participation in the Federal health care programs (as defined in S1320a-7b(f)(1) of 42 USCA) and may also direct the appropriate State agency to exclude the person from participation in any State health care program.(15)


There is also a maximum amount which a doctor may charge a Medicare beneficiary for a covered service is the doctor does not accept assignment of the Medicare claim. This is called a “limiting charge”. The limit is 15% above Medicare’s approved or allowed amount for a particular service. Federal law prohibits a doctor who does not accept assignment from charging a Medicare beneficiary an amount more than 15% above the Medicare approved/allowed amount; and, any overcharges must be refunded.(16)


In our judgment, when a personal injury case involving Medicare payments to some or all of the client’s health care providers is resolved, the following language should be included on the client’s settlement statement:

It has been explained to me that Medicare will only allow my Part B medical providers to accept as payment from me 20% of the Medicare allowed amount for the services they have rendered to me. It has also been explained to me that some or all of my medical providers may take exception to that payment. If they demand payment for more money from me other than the amounts set out above, I should contact the recovery coordinator for the Medicare secondary payer unit (317-841-4595) before paying any further amounts.


1. The approved or allowed amount is the amount Medicare determines to be reasonable for a service that is covered under Medicare Part B — which may be less than the actual amount charged.

2. 42 CFR S489, including S489.30.

3. Evanston Hospital v. Hauck, 1 F.3d 540 (7th Cir. 1993).

4. Part A providers, such as hospitals, nursing facilities, et cetera, are paid differently; and, there is no Medicare “allowed amount” that they are obligated to accept. In fact, Part A providers have different reimbursement systems for different services.

5. In which the hospital sought a court order forcing the Department of Public Aid to accept a refund of the amount it had previously paid to the hospital so that it could recover the full amount of the original bill from Hauck.

6. 1 F.3d 540 (7th Cir. 1993), at p. 542.

7. 42 U.S.C. S1396(a)(25)(A)-(B).

8. 1 F.3d 540 (7th Cir. 1993), at p. 543.

9. 42 U.S.C. S1396(a)(25)(C).

10. 1 F.3d 540 (7th Cir. 1993), at p. 544.

11. Id.

12. Id.

13. 42 CFR S411.35.

14. Medicare did not pay any of this bill. Medicare applied the allowed amount ($11.14) to the client’s deductible. Therefore, the client still owes Irvington Radiology $11.14.

15. 42 USCA S1320a-7a. Civil Monetary Penalties. SubS(a)(2).

16. Your Medicare Handbook 1996, U.S. Department of Health & Human Services.

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