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Medicare’s Secondary Payer Statute (42 U.S.C. ?1395y) has existed in some form since the inception of the Medicare program in 1965. While the statute has been amended several times since then, the most significant amendments occurred in 1980, when the list of primary payers was expanded from workers’ compensation only to also include liability, automobile and no-fault insurance; and in 2007, when the Medicare, Medicaid, & SCHIP Extension Act of 2007 (MMSEA) imposed significant reporting requirements on workers’ compensation, liability and no-fault plans (including self-insured plans).

The 1980 revisions have, themselves, undergone changes over the years, but the following provision of the Medicare Secondary Payer statute has been in existence in substantially the same form since December 1980:

Payment under [Medicare] may not be made . . . with respect to any item or service to the extent that. . . (ii) payment has been made or can reasonably be expected to be made under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.

CMS interprets this language as providing that any settlement that closes out future medical expenses in a claim against a primary payer represents a situation in which “payment has been made” for an item or service otherwise covered by Medicare, precluding future Medicare coverage for those items or services until the payment has been exhausted on future medical expenses related to the injury. This provision of the Secondary Payer Statute gave rise to the use of the first Medicare Set-Aside Arrangement (MSA) in a workers’ compensation settlement in 1995. This same provision also forms the basis for statements from several representatives of CMS over the past four years that Medicare’s interests as secondary payer must be reasonably considered in liability settlements, just as they must be in workers’ compensation settlements. As a result, the use of MSAs in liability settlements is becoming more and more common.

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