Issue #52     April 6, 2009
 

CMS RELEASES NEW POLICY MEMORANDUM ON PRICING OF PRESCRIPTION DRUGS IN WCMSAs

 

By, John J. Campbell, CELA, MSCC

 

          On April 3, 2009, the Centers for Medicare and Medicaid Services (CMS) released its 12^th policy memorandum dealing with Workers’ Compensation Medicare Set-Aside Arrangements (WCMSAs).  The new memorandum updates previous memoranda from CMS on December 30, 2005 and July 24, 2006 dealing with the pricing of prescription drugs in WCMSAs.

 

          Since January 1, 2006, all WCMSAs have been required to contain a future prescription drug component.  This component must be calculated and stated separately from the future medical expense component in the WCMSA submission.  Initially, CMS indicated that it would “note” the prescription drug component in any WCMSAs submitted for review, and would begin evaluating the pricing of the prescription drug component, as it currently does with the medical expense component, beginning January 1, 2007.  However, CMS later announced that its pricing of the prescription drug component in WCMSAs would be postponed indefinitely and that this component would continue to be “noted” as part if CMS’ review of submitted WCMSAs.[i]

 

          CMS’ previous memoranda regarding treatment of prescription drugs in WCMSAs also provided that the prescription drug component could be priced according to actual costs or average wholesale costs; and implied that there may be other pricing methods considered appropriate by CMS.  As a result, many MSA practitioners  have taken to using some rather “inventive” pricing methods, such as taking into account Medicare Part D deductibles, co-pays and even the “doughnut hole” in their calculation of the prescription drug component in WCMSA submissions.  In order to minimize anticipated prescription drug costs, many practitioners have also argued in their prescription drug cost projections for the substitution of generic drugs for brand name drugs at some point in the future when it is predicted that the generic will become available. 

 

          CMS’ new memorandum states that, for new submissions received on or after June 1, 2009 and for submissions that are re-opened on or after June 1, 2009, CMS will begin independently pricing the required prescription drug component.  Thus, CMS will now independently evaluate whether the prescription drug component adequately considers Medicare’s interests.  Further, the memorandum clarifies that, beginning June 1, 2009, CMS will only recognize the use of average wholesale price (AWP) in arriving at the prescription drug amount in any WCMSA.  Specifically, the new memorandum states as follows:

"CMS’ independent pricing of the prescription drug amount will be calculated and priced using average wholesale price (AWP). The CMS will not use or recognize any other pricing, discounting, or calculation methods when determining the adequacy of the prescription drug amounts in WCMSA proposals.”  Emphasis added.

           Clearly, the amount attributable to future prescription drug costs in WCMSAs will now have to be based upon the average wholesale price of each projected medication.  However, CMS’ memorandum appears to go further.  The language CMS chose to use in its memorandum indicates that its policy of using

AWP will apply not only to the pricing of prescription drugs, but also to the calculation method used; and that CMS will not consider any other method of discounting the prescription drug amount.  Further, the attachment to the memorandum indicates precisely the method CMS will use to price future injury-related prescription medications of the type normally covered by Medicare Part D.

 

          The language quoted above and the attachment to the new memorandum, in the context of CMS’ long time policy disallowing the use of Medicare approved amounts, deductibles and co-pays in the calculation of future medical expenses, indicate that if the amount attributable to future prescription drugs in WCMSA submissions on or after June 1, 2009 is based upon Part D deductibles, co-pays or the “doughnut hole,” the amount will likely be recalculated by CMS. 

 

           CMS' declaration that it will only accept AWP as a pricing/calculation method is problematic.  Many states have adopted WC pricing for prescription drugs that varies from AWP.  To the extent that CMS' new policy ignores or even attempts to abrogate state law regarding the underlying liability of the WC carrier as primary payer, the policy would appear to violate federal law and will undoubtedly be a source of contention or litigation in the future.

 

          The new memorandum also addresses specifically the use of generic drugs in projecting future prescription drug costs.  Quite simply put, if a generic drug is not available at the time of the WCMSA submission, CMS will re-price the prescription drug component using AWP for the applicable brand name drug.  This will also be CMS’ default method of pricing for prescription medications which are indicated for treatment of the claimant’s injury but which are not included in the WCMSA proposal.

 

It appears that at least one argument currently used to limit projected prescription drug costs in WCMSAs continues to be valid.  The argument is that a given prescription medication should not be automatically projected for the claimant’s entire remaining life expectancy where the claimant’s physician indicates that the particular medication should be discontinued after a given period of time.  Nothing in the new memorandum would indicate that such a limitation, if properly stated in the available medical records and other supporting documentation, should not be honored by CMS in determining the proper projected costs for prescription drugs.    

 

          The new memorandum does not appear to change any other CMS policies regarding treatment of prescription drugs in WCMSAs.  Therefore, the provisions of CMS’ previous policy memoranda regarding prescription drugs appear to remain in effect, to the extent they are not overridden by the contents of the new memorandum. 

 

The cover letter included with WCMSA submission still must state the method by which prescription drug costs were calculated, in addition to disclosure of the method used to calculate other future medical costs.  Further, the cover letter should contain an explanation where there are no drugs prescribed for the work-related injury or if prescription drugs are excludable under Medicare Part D.  Where the MSA is to be funded by a structure, the cover letter must disclose whether any portion of the projected prescription drug expenses has been included in the lump sum required to cover the first surgery procedure and/or replacement and the first two years of annual payments. 

 

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, CMS will calculate and price these medications at AWP.  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 with a $0 projection for future prescription drug expenses.  Of course, this assumes that the WCMSA provisions regarding other future WC related medical expenses are reasonable.

 

The total WCMSA amount must still be reflected in the WC settlement agreement and deposited into an interest-bearing account.  On annual accountings or self-attestations sent to the Medicare Secondary Payer Recovery 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 still 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.

 

Finally, WC settlement should continue to 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.  Future prescription drug costs must continue to be included as part of the total settlement amount for purposes of the threshold review criteria.  

 

The new policy memorandum can be viewed in its entirety at:   http://www.jjcelderlaw.com/April2009WCMSARXMemo.pdf