Issue #33     July 28, 2006
 

CMS RELEASES SECOND, REVISED POLICY MEMORANDUM REGARDING MEDICARE PART D AND WCMSAs

 

By John J. Campbell, JD, CELA, MSCC

 

On December 30, 2005, the Centers for Medicare and Medicaid Services (CMS) issued a written policy memorandum, entitled “Part D and Workers’ Compensation Medicare Set-aside Arrangements (WCMSAs) Questions and Answers.” [1] This memorandum addressed the implementation and application of CMS’ new policy regarding the treatment of future prescription drug costs in workers’ compensation (WC) settlements. 

On July 24, 2006, CMS released a second policy memorandum regarding Medicare Part D and WCMSAs.[2]  The new memorandum essentially attempts to clarify existing policy memoranda regarding treatment of future prescription drug costs, as part of the overall projection of post-settlement medical costs in WC settlements.  However, for the most part, the policies announced in the December 30, 2005 memorandum, although superseded, are not significantly altered. 

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.  If the claimant’s current treatment records indicate that medications have been prescribed or that there may be a need for future prescription medications, the WCMSA amount must include future prescription drug costs, regardless of whether the claimant is actually enrolled in Medicare Part D.  Only those settlements meeting CMS’ review criteria[3] must be submitted for CMS review and approval.    

CMS still 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 continues to extend 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, if the WC did not “settle” before January 1, 2006.  The memorandum defines a “settlement” as “an executed settlement agreement that is approved by the court of competent jurisdiction for the applicable state.”  However, the memorandum does not address settlements in states that do not require approval by a court. 

The July 24, 2006 memorandum addresses the situation where a WCMSA is submitted to CMS and the submitter later submits additional documentation after the initial submission.  If the WC case did not settle before January 1, 2006, the WCMSA is treated as a new submission and must be revised to include future prescription medications in the MSA amount.  If the WC case settled before January 1, 2006, it is still treated as a new submission, but need not be revised to include future prescription drug costs related to the WC injury.

The cover letter must 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.  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.  Finally, 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.  Separate annuities should not be used for prescription costs and other medical costs.

The new memorandum continues to list actual costs and average wholesale costs as methods for calculating future prescription drug expenses, and to suggest that there may be other acceptable methods not specifically listed.  However, the memorandum clearly states that CMS has not published any guidelines for how to price for future prescription drug costs in WCMSAs.

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 independently review and price those costs right away.  The December 30, 2005 memorandum indicated that independent review and pricing of prescription drug costs in WCMSAs would begin on January 1, 2007.  However, the July 24, 2006 memo indicates that this will not be the case; and that CMS will announce in advance when it plans to begin independent review and pricing for prescription drug costs.  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.

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 new memorandum clarifies that future prescription drug costs are to be included as part of the total settlement amount for purposes of the threshold review criteria.   

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.  WCMSA funds may not be used to cover prescription drug expenses if the WC claim settled before January 1, 2006.