Issue #26      January 2, 2005
 

CMS RELEASES NEW POLICY MEMORANDUM REGARDING MEDICARE PART D AND WCMSAs

 

By John J. Campbell, JD, CELA, MSCC

 

On September 10, 2005, the Centers for Medicare and Medicaid Services (CMS) made a policy announcement on treatment of future prescription drug costs in Worker’s Compensation Medicare Set Aside (WCMSA) arrangements.[1] That announcement stated generally that proposed WCMSA arrangements received by Medicare’s Coordination of Benefits Contractor (COBC) on or after January 1, 2006 must include a reasonable allocation to cover future prescription drug costs that would otherwise be covered by Medicare, with pricing based upon either actual costs or average wholesale costs.

Not surprisingly, the September 10, 2005 policy announcement raised more questions than it answered.  (See, “CMS Announces Policy on Treatment of Future Prescription Drug Costs in Medicare Set Aside Arrangements,” The Medicare Set Aside Bulletin, Issue #21, September 19, 2005.)  On December 30, 2005, just two days before the effective date of CMS’ new prescription drug policy regarding WCMSAs, the agency issued a written policy memorandum, entitled “Part D and Workers’ Compensation Medicare Set-aside Arrangements (WCMSAs) Questions and Answers.” [2] This memorandum discusses the policy previously announced on September 10, 2005, and further addresses the implementation and application of this new policy.

All workers’ compensation (WC) settlements occurring on or after January 1, 2006 must protect Medicare’s interests regarding future expenses for both Medicare covered medical services and Medicare covered prescription drugs related to the WC injury.  Only those settlements meeting CMS’ review criteria[3] must be submitted for CMS review and approval.  However, CMS expects every WC settlement to reasonably consider Medicare’s interests regarding future medical care and prescription drug costs, whether or not submission is required. 

CMS recommends the use of a WCMSA as the preferred method for protecting Medicare’s interests.  Presumably, this recommendation extends even to those WC settlements that are not required to be submitted through the COBC for CMS review and approval.  

All WCMSA proposals meeting CMS’ review criteria and submitted to the COBC on or after January 1, 2006 must now include provisions in the cover letter stating separate amounts for future medical care and future prescription drug costs.  The cover letter must also state the method by which prescription drug costs were calculated, in addition to the currently required disclosure of the method used to calculate other future medical costs. 

When CMS first announced its new policy on September 10, 2005, it stated that future prescription drug expenses were to be based upon either actual costs or average wholesale costs.  This created an apparent contradiction with existing policy, in that future medical expenses other than those for prescription medications may also be calculated at applicable workers’ compensation schedule rates.  There seems no cogent reason not to allow prescription medication costs to be based upon workers’ compensation rates as well, to the extent such rates may apply. 

The new memorandum lists actual costs and average wholesale costs as methods for calculating future prescription drug expenses, but also indicates that there may be other acceptable methods not specifically listed.  If state WC schedules applicable to a particular settlement cover prescription medications, it may be appropriate to calculate future costs for those medications using the applicable WC schedule rates.

If the WCMSA cover letter fails to include a separate projected amount for future prescription drug costs, one of two results will follow.  If the available medical records indicate that medications have been or are expected to be prescribed for WC related injuries, the WCMSA will not adequately consider Medicare’s interests.  However, if the claimant’s current treatment records contain no indication that prescription drugs will be needed in the future, CMS will accept that Medicare’s interests have been adequately protected.  Of course, this assumes that the WCMSA provisions regarding other future WC related medical expenses are reasonable.

As a matter of good advocacy, the cover letter, as well as any Medicare Set Aside (MSA) allocation report or life care plan included in the WCMSA submission, should refer to the appropriate treatment records and pricing method used to project future prescription drug costs.  Further, the cover letter and MSA allocation report or life care plan should clarify which prescription medications are projected and why.   

Although WCMSAs submitted on or after January 1, 2006 must contain an allocation to future prescription drug costs, CMS will not begin independently reviewing and pricing those costs until January 1, 2007.  In the mean time, CMS appears content to accept the pricing calculations proposed by the WCMSA submitter, so long as the method of calculation is identified and justifiable. 

Where the overall WCMSA proposal is reasonable, CMS will provide approval of the entire proposed set aside amount; and will note the portion of that amount proposed for prescription medications.  The total WCMSA amount must be reflected in the WC settlement agreement and deposited into an interest-bearing account.  On the annual accountings to the appropriate Medicare lead contractor, the administrator of the account must identify which expenditures were for prescription medications and which were for other Medicare covered medical expenses. 

The WCMSA amount does not have to be treated as two separate accounts for distribution purposes.  That is, the entire WCMSA amount will be available for all WC injury related medical and prescription drug expenses of the type covered by Medicare, regardless of the original allocation of the WCMSA amount between medical and prescription drug costs.

Beginning January 1, 2007, WCMSA submissions must also include the WC carrier’s payment history for prescription medications related to the injury.  CMS will want to see the last two years’ payment history or the payment history from the date of the injury, whichever period is shorter.  The WCMSA should also contain a thorough discussion of projected needs and costs for prescription medications, as well as the projected needs and costs for other medical services. 

CMS will review and price the proposed WCMSA amount for prescription medications based upon the WC carrier’s payment history; the information in the MSA allocation report or life care plan regarding anticipated prescription drug treatment and costs; and Medicare Part D data.  If the WCMSA does not provide a payment history or if the payment history does not reflect WC carrier payments for the prescription medications anticipated for the claimant in the future, CMS will price future prescription drug costs independently based upon Medicare Part D data alone.  Therefore, the thoroughness of the MSA allocation report or life care plan in discussing the WC payment history and applying that history to the calculation of future prescription drug expenses will be extremely important in preventing needless over-funding of the WCMSA.

The new policy memorandum states that WC settlements after January 1, 2006 should contain an allocation to future prescription medications of the type normally covered by Medicare, in addition to allocations to other Medicare covered and non-covered medical expenses, indemnity, attorney’s fees, and any other allocation categories listed in the WC settlement.  The allocation to future prescription drug costs must be included with all other categories in calculating the total settlement amount for purposes of determining whether CMS’ WCMSA review criteria are met. 

Finally, the memorandum clarifies that WCMSAs that have previously been submitted and approved by CMS need not be resubmitted.  However, if a previously approved WC settlement contains an allocation to future prescription drug expenses, CMS will require the allocated amount to be expended on prescription medications from general settlement proceeds (i.e., NOT from proceeds in the WCMSA account) before Medicare will pay primary for prescription drugs related to the WC injury.

An important issue left unresolved by the new memorandum is how to determine which prescription medications to include in the WCMSA cost projection.  The difficulty arises because of the fact that each Medicare Part D prescription drug plan (PDP) and Medicare Advantage prescription drug plan (MA-PD) is permitted to determine its own drug formulary.  CMS has identified a core list of prescription medications that must be on every formulary.[4]  However, PDPs and MA-PDs are free to include additional medications on their list of covered drugs. 

Some medications, such as benzodiazepines and over-the-counter medications, are excluded from Medicare coverage altogether.  Will CMS provide coverage for these medications or exclude additional drugs from Medicare coverage at a later date?

There is no way to determine what drugs, other than those on CMS’ core list, will be covered by any particular PDP or MA-PD in the future.  PDPs and MA-PDs are permitted to add or remove non-core drugs from their formularies on a regular basis.  Further, how can CMS predict which PDP or MA-PD a claimant will choose or whether the claimant will exercise his or her right to change to a different PDP or MA-PD?  Even CMS’ core drug list is subject to change. 

It would seem that CMS reasonably can only require costs for those medications contained on its core list of covered drugs to be included in the WCMSA amount.  Whether any medication not on the core list would be covered in the future for any particular WC claimant is just too speculative.  Unfortunately, the new memorandum does not address this issue, one way or the other.

One thing is certain:  CMS’ new policy will drastically increase the costs of funding the majority of WCMSAs.  This will be especially true in WC settlements involving catastrophic and chronic injuries.  WC carriers are likely to be less apt to settle these cases without the claimant assuming total responsibility for WCMSA funding from the overall, total settlement amount.  However, there may be some strategies that will help to minimize the impact of these increased costs of settlement.

MSA professionals, especially allocators and life care planners, will need to become intimately familiar with CMS’ core drug list; and will need to stay aware of changes that may be made to that core drug list from time to time.  Generic or over-the-counter medications should be substituted for brand name prescription medications wherever possible.  At the same time, it will be important to reconcile projections for future prescription drug costs with the available treatment records and the WC claim payment history in every case. 

Finally, where a state’s WC schedule rates are applicable to prescription medications, those rates should be used to price the prescription drug portion of the WCMSA.  Otherwise, average wholesale prices should be used.

Although CMS will not begin independent pricing of prescription drug costs in WCMSAs until January 1, 2007, MSA professionals should incorporate these new strategies into their practices now.  When CMS does begin scrutinizing the prescription drug components of WCMSAs more closely, it will likely incorporate what it learns from practitioners over the intervening year into its review policies.  By developing its own best practices now, the MSA industry can play a part in guiding the development of reasonable CMS policies regarding Medicare Part D and WCMSAs.