Issue #21       September 19, 2005
 

CMS ANNOUNCES POLICY ON TREATMENT OF FUTURE PRESCRIPTION DRUG COSTS IN MEDICARE SET ASIDE ARRANGEMENTS

 

By John J. Campbell, CELA, MSCC

 

          Ever since the passage of the Medicare Prescription Drug, Modernization and Improvement Act of 2003 (MMA), Medicare Set Aside (MSA) practitioners have anxiously awaited word from the Centers for Medicare and Medicaid Services (CMS) on whether future prescription drug costs would become a necessary component to MSA allocations in worker’s compensation (WC) settlements.  CMS has continuously advised that MSA arrangements currently do not need to provide for such costs.  At the same time, CMS has repeatedly stated that policy on treatment of future prescription drug costs in MSA arrangements after January 1, 2006, when Medicare Part D prescription drug coverage goes into effect under the MMA, would be “forthcoming.” 

 

          CMS’ finally made its initial policy announcement on treatment of future prescription drug costs in MSA arrangements on September 10, 2005 at the International Association of Industrial Accident Boards and Commissions annual conference in Philadelphia, Pennsylvania.  According to representatives from CMS, proposed MSA 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.

 

          Projected future prescription drug costs for elderly and seriously disabled WC claimants can be substantial.  For many, expected future costs for prescription medications may even be the most significant category of future medical expenses.  It is almost certain that CMS’ new policy will result in a large financial impact on WC claimants and on WC carriers.

 

CMS’ new policy regarding set aside amounts for prescription medications will result in a dramatic increase in MSA funding amounts.  Conversely, CMS’ new policy will result in a decrease in the portion of settlement funds that will be available to the claimant for non-Medicare purposes. 

 

Further, beginning January 1, 2006, Medicaid will no longer cover prescription medications covered under Medicare Part D for persons who are eligible for both Medicaid and Medicare Part D.  As a result, many claimants who would otherwise have planned for Medicaid to cover prescription drug costs may be forced to demand higher overall settlements to ensure sufficient funds to pay for their medications.  

 

These factors could conceivably discourage settlement of WC claims.  If not, they will certainly cause an increase in WC settlement amounts for elderly and seriously disabled claimants.  In either case, the result will be an increase in costs to the WC insurance industry.

 

          WC claimants and carriers who may be considering settlement of WC claims for which the submission of MSA arrangements are required are strongly advised to attempt to reach a settlement and ensure that their proposed MSA arrangements are received by the COBC before January 1, 2006.  It is not enough to come to an agreement on settlement terms before January 1, 2006 if any required MSA arrangement will not be received by the COBC until after that date.

 

          The prescription drug benefits which will be available under Medicare Part D, beginning January 1, 2006, are confusing and difficult, if not impossible to predict for any single WC claimant.  These benefits will depend on whether the claimant enrolls in a Prescription Drug Plan (PDP) or Medicare Advantage Prescription Drug Plan (MA-PD) providing basic benefits only; or in a PDP or MA-PD offering additional benefits at a higher premium.  These benefits will also depend upon whether the claimant may qualify for low income benefits under Medicare Part D.

 

          CMS states that it will look to the average wholesale price of any projected prescription medications to determine the reasonableness of the prescription drug portion of a proposed MSA allocation.  It remains to be seen whether this approach to pricing will result in some claimants being unfairly required to provide for Medicare’s interests in excess of what is reasonable.

 

          Determining which of a claimant’s projected future prescription drugs will be covered by Medicare may also be problematic in some cases.  While CMS has published guidelines[1] on core medications that must be covered by every PDP and MA-PD in its drug formulary, there will be some medications that may not receive consistent coverage treatment under the various PDP’s or MA-PD’s.

 

          For settlements that cannot be agreed upon in time to ensure receipt of any required MSA submission by the COBC before January 1, 2006, MSA practitioners should be prepared to advocate for a reasonable prescription drug set aside amount.  This will require familiarity with which drugs will be included and which drugs will be excluded from Medicare coverage.  It will also require familiarity with appropriate average wholesale prices for included medications.