Insurance Industry Beware – CMS Finally Implementing Independent Rx Pricing in WCMSAs Effective June 1, 2009

Medicare Set-Aside Blog on April 7, 2009 | Posted by


April 6, 2009, CMS released a memo dated April 3, 2009 finally implementing an independent pharmaceutical pricing plan. As most of you
are likely aware, CMS began requiring the inclusion of prescription drugs in
MSAs effective January 1, 2006 upon the implementation of Medicare Part D,
however never provided any guidance as to how to actually price the drugs.
Effective June 1, 2009, only 3 ½ years later, the industry has finally been
told to utilize average wholesale pricing (AWP) in the calculation of
prescription drugs in MSAs, the effect and implementation of which is


wholesale price is a term referring to commercially published lists of the
average price at which wholesalers report that they sell drugs to their various
customers. The Red Book, published by Thomson Medical Economics, is one example of such a list with
pricing information based on data obtained from manufacturers, distributors,
and other suppliers. Note
that there is more than one published list of AWP and not all manufactures
provide all publishers with their proprietary information, yet CMS has not
included in its memo which list it may be utilizing nor how to reconcile
pricing differences among them. Given the additional fact that there are
several NDCs for the same drugs, which are listed in the AWP CMS is using is
vital information.


the term average wholesale price is intended to indicate just that, an average
price, in practice it is just a figure reported by commercial publishers of
drug pricing data and has little bearing in the reality of pharmaceutical
sales. AWP is like a “sticker” price on a car – it is a drug pricing benchmark
for payers throughout the health care industry but no one actually ever pays
it. Drug pricing is typically based on AWP minus some negotiated discounted
percentage and the more buying power the buyer has, the lower the price will
ultimately be. In the context of CMS’s latest policy change, this is a huge
expense to the insurance industry as this will require carriers to fund amounts
greater than any obligation they would have under state law on an open claim
paying for drugs at their negotiated rates. CMS is effectively taking away the
ability to settle insurance claims, which may be its end game. So long as all
insurance claims remain open, Medicare will always be secondary and never have
to concern itself with any of its MSP monitoring or recovery efforts.


and disputes concerning AWP pricing is nothing new or unknown to the public. In
2002, a class action lawsuit 
was filed in Massachusetts
involving 23 pharmaceutical companies charging AWP for certain physician
administered drugs treating cancer and serious illnesses, essentially holding
serious ill individuals hostage at the high AWP price if they wanted to pursue
certain drug treatments. To date more than half the defendants have settled for
more than $225 million, an industry acknowledgement that the practice, if not
unlawful, was at least unethical. Even the United States government ceases use
of AWP in Medicare reimbursement rates when it passed the MMA in 2003, implementing instead reimbursements
based upon a competitive acquisition program or an average sales price (42 USC 1395u(c)), both of which methods the
statute actually goes on to define, unlike AWP.


with regard to Rx memo are great. Not only is CMS holding WC insurers to a
greater obligation than that which they have under state law, it is failing to
address state law in certain states. Most notably, states such as California have workers’
compensation fee schedule pricing for pharmaceutical drugs. How does CMS
justify implementing a unilateral application of AWP nationwide when certain
states’ laws dictates otherwise? Clearly the constitution and states’ rights
were not a consideration in the writing of this latest memorandum, which is not
surprising as it is not the first time. In May 2008 CMS implemented a policy depriving female workers’ compensation beneficiaries out of an average of 2
years of medical benefits by disregarding years of statistical data concerning
race and gender collected by the CDC in the compilation of the widely
recognized and accepted life expectancy tables and implementing a unilateral
use of Table 1 in
determining life expectancy used for purposes of calculating a WCMSA.


CMS review is not required in any way and there
is no guarantee that CMS will not change its policies in the future and
disregard any promises it may have made in the past such as it did with
rescinding the ability to reevaluate or terminate an MSA after 5 years and a 20% reduction in treatment. Parties to an insurance settlement can accomplish
all that they need to under the MSP without any interaction with CMS and
clearly that is an avenue that needs to be investigated immediately.

look for yet another significant increase in the size of MSAs in general to
begin immediately. More irritatingly, be cautions of situations where you
purposely do not include Rx in your MSA and CMS holds a different opinion as
they have stated in the memo that not only will it counter with the Rx
allocation amount that they see fit, it will be doing so at brand name prices.
Additionally drugs priced as a generic that CMS decides does not have an AWP
will be re-priced as a brand name as well. Given that there is no mention of
which AWP list CMS will use let alone the NDCs included on that list, it is
almost certain that we will be seeing a lot of “re-pricing” for months to come.
And although the memo is silent to the fact, we are fairly certain that its Rx
allocation determinations will not be appealable.





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