Medicare Set-Asides and Pharmacy Liens: Future Medical Allocation Guide

James Wong — Founder & Pharmacist, LienScripts | March 26, 2026 | 7 min read

A Medicare Set-Aside (MSA) allocates a portion of a PI settlement to fund future medical expenses that Medicare would otherwise cover. When pharmacy liens are also present, attorneys must understand how MSA allocations interact with lien-funded medication costs to avoid both CMS penalties and settlement shortfalls.

A Medicare Set-Aside (MSA) is a financial arrangement that allocates a portion of a personal injury settlement to pay for future medical treatment that Medicare would otherwise cover, required when the plaintiff is a Medicare beneficiary or has a reasonable expectation of Medicare enrollment within 30 months. Pharmacy liens cover past medication costs already dispensed, and they are satisfied from settlement proceeds separately from the MSA allocation — the two do not compete for the same funds.

• MSAs allocate future medical costs; pharmacy liens recover past medication costs already dispensed
• CMS requires MSA consideration when the claimant is a Medicare beneficiary or expected to enroll within 30 months
• Prescription medications included in the MSA are future fills — not medications already dispensed under a pharmacy lien
• The MERIT report from LienScripts documents past medication usage, which informs but does not overlap with the MSA's future allocation
• LienScripts generates a MERIT (Medication Evaluation & Rationale for Injury Treatment) report with clinical documentation that supports both lien resolution and MSA allocation analysis

What Is a Medicare Set-Aside?

The Medicare Set-Aside requirement arises from the Medicare Secondary Payer Act (MSP), 42 U.S.C. § 1395y(b). The MSP Act establishes that Medicare is a secondary payer — it does not pay for medical expenses when a primary payer (like a liability insurer or tort settlement) is available. When a PI settlement includes compensation for future medical expenses, CMS expects the settlement to fund those future expenses before Medicare begins paying.

The MSA is the mechanism for compliance. It is a segregated account funded from the settlement that pays for Medicare-covered future medical services. Once the MSA is exhausted through legitimate medical expenses, Medicare resumes as primary payer.

[!KEY] MSAs are forward-looking. They allocate funds for future prescriptions, future procedures, and future medical services. Pharmacy liens are backward-looking — they recover costs for medications already dispensed during the case. There is no overlap between the two allocations when properly structured.

When MSA Consideration Is Required

CMS's current guidance triggers MSA consideration in two scenarios:

The plaintiff is a current Medicare beneficiary. If the plaintiff is enrolled in Medicare (Part A, Part B, or both) at the time of settlement, CMS expects MSA consideration for settlements above $25,000.

The plaintiff has a reasonable expectation of Medicare enrollment within 30 months. This includes plaintiffs who are within 30 months of age 65, have applied for Social Security disability, have end-stage renal disease, or have ALS.

CMS does not require MSA approval for all PI settlements, but failure to consider Medicare's interests can result in CMS refusing to pay for future injury-related medical expenses — effectively punishing the plaintiff.

According to Amar Lunagaria, PharmD, LienScripts' Chief Pharmacist, "When we see a Medicare-eligible patient in our system, we flag the case for the attorney's office. The MERIT report for Medicare cases includes detailed medication histories with clinical justifications that MSA allocation professionals use to project future prescription needs. Past medication usage documented in the MERIT informs the MSA calculation without duplicating it."

How Pharmacy Liens Fit in the Settlement Waterfall

The settlement distribution when both an MSA and a pharmacy lien are present follows a clear sequence:

1. Gross settlement received into trust account
2. Attorney fees and costs deducted per retainer agreement
3. Medicare conditional payment reimbursement — amounts Medicare already paid for past injury-related treatment (see Medicare Conditional Payments)
4. Medicare Set-Aside funding — allocated for future Medicare-covered medical expenses
5. Pharmacy lien — satisfied from remaining net proceeds for past lien-funded medication costs
6. Other medical liens — if applicable
7. Client net recovery — remaining funds disbursed to client

The pharmacy lien and the MSA draw from different pools: the MSA covers future costs, the pharmacy lien covers past costs. They do not compete.

[!TIP] When negotiating the MSA amount, the MERIT report from LienScripts serves a dual purpose: it documents past medication usage (supporting the pharmacy lien) and provides the clinical foundation for projecting future prescription needs (informing the MSA). Request the MERIT early in the MSA preparation process.

Prescription Medications in the MSA

The MSA must include an allocation for future prescription medications that are:

• Related to the injury
• Expected to continue after settlement
• Covered by Medicare Part D

Common PI-related medications included in MSAs: pain management drugs (gabapentin, pregabalin, NSAIDs), muscle relaxants (cyclobenzaprine, tizanidine), nerve agents, anti-anxiety medications prescribed for accident-related PTSD, and anti-inflammatory compounds.

Critical distinction: The MSA allocates for future fills of these medications. The pharmacy lien covers fills that have already occurred. If a patient received gabapentin through the pharmacy lien for 14 months, the MSA projects gabapentin costs going forward from the settlement date — it does not include the 14 months of fills already covered by the lien.

The MERIT report documents what was dispensed and when, providing the factual basis for the MSA professional to calculate the duration and dosage of future prescription allocations.

Common Mistakes in MSA-Pharmacy Lien Coordination

Mistake 1: Double-counting medication costs. Some MSA allocation companies include the full cost of past medications in the MSA projection, effectively charging the settlement twice — once through the pharmacy lien for past fills and again through the MSA for the same period. The MERIT report with clear dispensing dates prevents this by establishing exactly when past medications were dispensed.

Mistake 2: Underfunding the MSA to preserve pharmacy lien funds. The MSA amount is determined by projected future medical needs, not by how much is left after the pharmacy lien. Underfunding the MSA to maximize the pharmacy lien payout risks CMS refusing to cover future treatment. Both obligations must be satisfied fully.

Mistake 3: Treating the pharmacy lien as part of the MSA. The pharmacy lien is a past-cost obligation. The MSA is a future-cost allocation. They are separate line items in the settlement waterfall and should never be combined or conflated.

[!KEY] The pharmacy lien and the MSA serve different temporal functions — past vs. future medication costs. When properly documented with the MERIT report, there is no overlap and no conflict. Both can be satisfied from the same settlement without either being shortchanged.

CMS Approval and the Pharmacy Lien Timeline

CMS review of MSA proposals can take 30-60 days or longer. During this period, the settlement is typically held in trust. The pharmacy lien does not need to wait for CMS approval — it can be calculated and agreed upon as soon as the settlement amount is confirmed.

However, the pharmacy lien should not be disbursed until the MSA amount is confirmed, because the total of all obligations (attorney fees + conditional payments + MSA + pharmacy lien + other liens) must not exceed the settlement. If the MSA amount comes in higher than expected, there may be insufficient funds for full lien satisfaction, requiring negotiation.

LienScripts works with attorneys to provide early pharmacy lien totals so that MSA professionals can build accurate projections and attorneys can assess whether the settlement will cover all obligations.

Related Resources

• Medicare Conditional Payments and Pharmacy Liens
• Medicare Secondary Payer and Pharmacy Lien Strategy
• What Is a Medicare Set-Aside in Personal Injury?
• ERISA Preemption and Pharmacy Liens: Attorney Guide