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Practice Tip: The Medicare Second Payer Statute

By Sharon L. Caffrey, Christopher L. Crosswhite and John M. Lyons

On Jan. 1, 2010, extensive new Medicare reporting obligations took effect. They apply to insurance companies and other businesses, including product liability and toxic tort defendants that make payments to Medicare beneficiaries as a result of verdicts or settlements resolving liability claims. These organizations ' known as Responsible Reporting Entities (“RREs”) ' will be required to report virtually all settlements, judgments, awards, and other resolutions of claims establishing responsibility for payments to Medicare beneficiaries, so that Medicare may determine whether it has a stake in any part of the payment. The reporting will also enable Medicare to refuse payment for future medical care relating to the injuries that were the subject of the liability claim. Failure to report may result in significant financial penalties against the RRE.

Congress established these reporting obligations in Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (“MMSEA”), codified at 42 U.S.C. Section 1395y (b)(8). Section 111 of MMSEA requires RREs to report any payment obligation to a Medicare beneficiary when the obligation results from a claim potentially involving past or future medical expenses. RREs must notify Medicare, regardless of whether there is an admission of fault, and must provide Medicare the total amount to be paid by the RRE ' including compensatory and punitive damages, as well as payments made to spouses. Although Medicare will consider the allocation of damages agreed to by the parties or that made by a court, Medicare takes the position that it is not bound by these allocations and is free to recover amounts in excess of those designated for medical expenses by a court or settlement agreement.

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