Settlements: Medicare Set Aside Future Drug Costs and Uniform Pricing

6-20-09

Employers may soon see a spike in future drug costs for settlements going through the MSA approval process after June 1, 2009. Medicare will begin independent pricing of future drug costs in Workers Compensation Medicare Set Aside proposals as of June 1, 2009 using Average Wholesale Price (AWP) for drugs based on prices listed in the RED BOOK (r) Drug References.

CMS will no longer recognize other pricing methods using workers compensation contractual discounts for prescription drugs in Medicare Set Aside proposals. What does this mean?? Carriers and employers will be required to fund future drug costs based on the average wholesale price of drugs in use before any contractual discounts, before any WC state fee schedule discounts or before any future shift from brand names to generics. MSA submissions can no longer take advantage of pricing in the "Doughnut hole" into MSA proposals by excluding funds for Medicare Part D prescription deductibles.

The new pricing will assume a lifetime supply of drugs in use at the time of the MSA proposal. CMS will also look to the past 2 years of drugs used and to the expectations for future drug use based on the treating doctor's recommendations.

This recent change adopting uniform pricing is designed to eliminate some of the past abuses in under pricing MSA drug proposals such as "Doughnut hole" pricing and utilization review assumptions of tapering use of narcotics which were not supported by the treating physician's records.

The upshot for most employers is that future drug allowances in a MSA proposals may cost more than if those medical rights had remained open under workers compensation. Carriers may be better off leaving the prescription drug rights open under a settlement and paying for the future drugs using a qualified assignment and purchasing an annuity. That option would allow the carrier or employer to continue to use discounted pricing or use applicable state fee schedules and also let an employer be the residual beneficiary on the annuity policy (should the worker die early) and stand to receive a return of some portion of the money rather than fully funding lifetime drugs at average wholesale prices to satisfy Medicare MSA pricing requirements.

MEDVAL compared the increase in costs from their normal prescription pricing methods to the new average wholesale pricing (AWP) and came up with an astonishing $1.4MM difference on the first 17 cases reviewed. If that jump in pricing is reflective of expected average MSA cost increases under the new AWP pricing requirements, it would truly be a bitter pill to swallow for most employers and most workers comp carriers.

Contact our Chicago workers comp attorneys for questions on Illinois workers compensation settlements and MSA requirements.

(8-23-09) Update: PMSI records significant increase in MSA allocations under new prescription drug guidelines

Chicago workers compensation Attorney -- 6-20-09