MSP Services: What They Are and Why They Matter

MSP services play a major role in healthcare and claims, yet they’re often misunderstood. MSP stands for Medicare Secondary Payer, the federal rules that determine when Medicare should pay second instead of first. While the concept is straightforward, the regulations behind it are complex and heavily enforced. That growing complexity is exactly why MSP services have become essential.

What Does Medicare Secondary Payer Mean?

At its core, MSP determines who pays first for a Medicare beneficiary’s medical care.

Medicare was never intended to be the primary payer when another insurer is responsible. Under Medicare Secondary Payer rules, Medicare pays second if another type of coverage should pay first.

That primary payer may include:

• An employer group health plan
• Workers’ compensation insurance
• Auto or liability insurance
• No-fault insurance

If Medicare pays first by mistake, it can issue a conditional payment. However, once the correct payer is identified or a settlement is reached, those funds must be reimbursed to Medicare.

All MSP rules and enforcement are overseen by the Centers for Medicare & Medicaid Services (CMS) as part of the broader Medicare program.

Why Do Medicare Secondary Payer Rules Exist?

Simply put, MSP rules exist to protect Medicare’s financial future.

These regulations prevent Medicare from paying claims that should be covered by another insurer. When coordination breaks down, improper payments increase and those costs add up fast.

In Fiscal Year 2025:

• Medicare Fee-for-Service had an estimated improper payment rate of 6.55%, totaling $28.83 billion
• Medicare Advantage (Part C) saw an estimated improper payment rate of 6.09%, totaling $23.67 billion
• Medicare Part D had an estimated improper payment rate of 4.00%, totaling $4.23 billion

A significant portion of these improper payments stem from coordination of benefits issues, which are situations where Medicare should have been the secondary payer but paid anyway. MSP rules and MSP services exist to prevent exactly that.

What are MSP Services?

MSP services are specialized solutions that help organizations identify, manage, report, and recover Medicare payments when Medicare is not the primary payer.

In practical terms, MSP services support organizations by helping them:

• Identify other available insurance coverage
• Determine primary versus secondary payer responsibility
• Track and recover conditional Medicare payments
• Comply with federal reporting requirements
• Reduce audit risk and financial penalties

These services are commonly used by:

• Insurance carriers
• Self-insured employers
• Third-party administrators (TPAs)
• Healthcare systems
• Law firms handling injury-related settlements

Example:

A Medicare beneficiary is injured in a car accident. The auto insurance carrier is responsible for paying medical costs related to the crash. However, before the auto claim is settled, the provider bills Medicare, and Medicare issues a conditional payment. An MSP services team identifies the auto insurer as the primary payer, reports the claim to CMS, and ensures Medicare is reimbursed once the settlement is reached. Without this intervention, the improper payment could trigger compliance issues, audit exposure, and repayment demands down the line.

Why MSP Compliance is Getting More Complicated

Understanding MSP services is only part of the challenge. Managing MSP is becoming more difficult every year.

By 2025, more than 54% of Medicare beneficiaries are enrolled in Medicare Advantage plans, which are administered by private insurers. This shift means more payers, more plan types, and more layers of coordination. The result is more opportunities for MSP errors when determining who pays first.

At the same time, CMS is tightening oversight around Section 111 reporting, which requires insurers and self-insured entities to report certain claims data so Medicare can properly coordinate benefits. Starting in January 2026, CMS will audit 250 MSP records per quarter, significantly increasing enforcement activity.

The financial risk is real. Penalties for noncompliance can exceed $1,000 per day per record, with higher fines for records reported years late. For organizations handling large claim volumes, even minor reporting mistakes can quickly add up.

Together, these trends have raised the stakes for MSP compliance. That’s why MSP services are no longer optional. They’ve become a critical safeguard against audits, penalties, and improper payments.

Why MSP Services Matter More Than Ever

MSP rules are complicated. They involve multiple payers, evolving Medicare structures, strict reporting requirements, and significant financial consequences for noncompliance.

MSP services exist to:

• Reduce improper payments
• Prevent audit findings
• Protect organizations from escalating penalties
• Ensure Medicare pays only when it should

As Medicare Advantage enrollment continues to grow and CMS enforcement accelerates, MSP compliance is becoming a core operational priority, not just a regulatory afterthought.

Protect your organization from costly MSP mistakes. Learn how our MSP services help identify primary coverage, manage conditional payments, and ensure compliance. Contact us today to get started.

Check out our sources:

Centers for Medicare & Medicaid Services. Fiscal Year 2025 Improper Payments Fact Sheet. CMS.gov, 15 Jan. 2026, https://www.cms.gov/newsroom/fact-sheets/fiscal-year-2025-improper-payments-fact-sheet.

Centers for Medicare & Medicaid Services. Mandatory Insurer Reporting for Non-Group Health Plans (NGHP). CMS.gov, https://www.cms.gov/medicare/coordination-benefits-recovery/mandatory-insurer-reporting.

Centers for Medicare & Medicaid Services. NGHP Civil Money Penalties. CMS.gov, https://www.cms.gov/medicare/coordination-benefits-recovery/mandatory-insurer-reporting-nghp/nghp-civil-money-penalties.

Ochieng, Nancy, et al. Medicare Advantage in 2025: Enrollment Update and Key Trends. Kaiser Family Foundation, 28 July 2025, https://www.kff.org/medicare/medicare-advantage-enrollment-update-and-key-trends/.