SCOTUS Decision Opens Door to Big Savings in Workers’ Comp Medicare Set-Asides Nationwide

It’s not often that a legal issue impacts all workers’ compensation programs in all states.? It’s also not often that a U.S. Supreme Court decision impacts workers’ comp law.? When we have both together, it is important to get the news out.

????????????????? The issue is Medicare Set-Asides.? They impact settlements in all states.? Due to an anachronism in the CMS Guides, ?drugs in MSAs are priced at ridiculous prices that can be 100 times higher than normal.? Attached is an article on why and how use of archaic Red Book AWP grossly inflates MSAs.? It highlights a case in which the MSA for drugs should have been about $2,000 but was submitted for over $600,000.

????????????????? The U.S. Supreme Court case at issue is Loper Bright Enterprises, decided June 28, 2024.? In a nutshell, this case changed the standard and opened the door to judicial review of administrative agency interpretations of ambiguous language.? A great example of the types of challenges that can now be raised is the decision by CMS to require use of Red Book AWP as a pricing mechanism for MSAs in comp cases.? I’ve included some thoughts about this development as an update to the attached article.?

?Bottom line:? Now more than ever, if a vendor suggests submission of a WCMSA to CMS and the WCMSA includes prescription drugs, take a close look at the pricing used.? Generally, drugs in workers’ comp cases are common, cheap generics.? If the set-aside includes more than $25,000 for future prescription drugs, take a deep dive into the issue of whether the drugs were priced at Red Book AWP.? If they were, you may now have an avenue for a direct challenge to CMS’s anachronistic Guides.? Please share this information with your colleagues in the workers’ compensation community and let me know if I can be of help.? Best, Cliff Goldstein, Esq.

CMS Double Standard on Drug Pricing Wastes Billions in

Comp Settlements With WCMSAs

????????????????? In most high-dollar workers’ compensation settlements (and in some liability cases), a Medicare Set-Aside is considered.? The intent of the MSA is to provide a fund from which future medical expenses will be paid on behalf of the injured person so that Medicare won’t be on the hook for payments if the person burns through the settlement money and has no other insurance to pay medical bills.? The parties typically submit proposed MSAs to the Centers for Medicaid and Medicare Services (“CMS”) for approval, and these submissions include estimated future costs for drugs for the worker’s predicted life expectancy.[1]

????????????????? Complicated rules govern how the MSA should be calculated.? An entire industry has developed to calculate the MSA and to obtain CMS approval.? MSAs include projected costs for prescription drugs, but these projections are based on bizarre and unrealistic drug prices.

????????????????? Here’s the problem as exemplified by a recent case:? A worker has been taking a drug for 2 years and is expected to continue the drug indefinitely.? The worker is 40 years old, and the drug can be obtained from an online retail pharmacy for $5 a month.? The worker’s predicted life expectancy is another 40 years, so one would expect that the MSA would include a set-aside of $2,400 ($5 per month, 12 months a year, for 40 years).?

?????????????????? But this isn’t what happened.? Instead, CMS Guides require that the drug be priced based on “AWP” (average wholesale price) as reported in Red Book.? The Red Book AWP price has nothing at all to do with the actual cost of the drug and AWP is a misnomer.? AWP has nothing to do with the average price paid by pharmacies to acquire the drug at wholesale.?? It is merely a number given by a manufacturer to Red Book with no disclosure or explanation of how it was derived and with no verification of any price actually paid.? CMS, the federal courts, and the US Inspector General concluded long ago that AWP amounts are “fictitious”, and “totally unrelated to the amounts paid at wholesale.”

????????????????? The drug in the case mentioned above retails for $5 but has a Red Book AWP of $1,296.? This is not an unusual case.? The AWP in Red Book can be 100 to 150 times higher than the actual cost of buying the drug at retail. ?The MSA is based on a presumed lifetime on the same drug, thus compounding the error, and the MSA, which should have been $2,400 if real prices had been used in the calculation, soared to $622,080 using the fictitious price listed as AWP in Red Book.?

????????????????? AWP has been the source of litigation, challenges and legislation for decades.? CMS no longer allows Red Book AWP to be used as a basis for pricing drugs under Medicare.? Federal comp programs no longer allow Red Book AWP to be used in their programs. Nearly all private insurance carriers and many state comp systems got rid of AWP years ago.? The Pennsylvania Commonwealth Court recently banned use of Red Book AWP.? But because the CMS Guides have not yet been changed to drop reference to Red Book AWP in pricing drugs for MSAs, nearly all MSAs are dramatically overpriced, and carriers and employers have been hit for billions of dollars in unnecessary expenses to settle cases.?

????????????????? The MSA calculation and submission companies, lawyers, and MSA annuity companies have no financial incentives to change the status quo.? Insurers and employers may be unaware of this monumental waste of money or may have been habituated into thinking that Red Book AWP reflects true drug prices.?Others see the problem but don’t see a solution.?? But since CMS itself jettisoned AWP as a standard for pricing, it is ridiculous for CMS to require carriers and employers to continue using this totally irrelevant and wildly inflated pricing scheme for MSAs.

????????????????? Carriers and employers can and should get much more aggressive about challenging the CMS double standard on use of AWP for drug pricing.? Some strategies involve intervention before MSA submission to CMS and others are designed to challenge, and if necessary, litigate, to force use of realistic drug pricing.? Whereas carriers can adjust premiums to cover overpayments for the drug portion of an MSA, self-insurers suffer loss of profit from CMS’s anachronistic reliance on Red Book AWP.

????????????????? One strategy that should be considered is the filing of a declaratory judgement action on behalf of a representative group of self-insurers seeking an injunction against CMS’s continuing use of Red Book AWP as the basis for drug pricing for WCMSAs.? Contemporaneously, a group effort should be made to lobby appropriate government officials to amend the Guides to allow for use of Red Book AWPs for medications, unless a state’s workers’ compensation laws set lower prices for same, in which case the state-mandated prices may be used in WCMSAs.

????????????????? By increasing focus on this issue, particularly among self-insureds, by initiating litigation, and by lobbying for changes to the CMS Guides, perhaps there will be movement to more realistic drug pricing for WCMSAs.

?

IMPORTANT UPDATE:? Supreme Court of the United States opens path to challenging the CMS decision to require use of Red Book AWP in WCMSAs

????????????????? On June 28, 2024, the Supreme Court of the United States issued its decision in Loper Bright Enterprises and a companion case, Relentless, Inc. ?This decision overturned the longstanding doctrine established in Chevron, U.S.A.? The Chevron doctrine ?directed courts to defer to an agency’s interpretation of a statute in circumstances in which the law in question is vaguely written. ?This meant that, for example, CMS had the right to promulgate the Guides for WCMSAs, and upon review by a court, the court would have to defer to the expertise of the administrative agency, making it quite difficult for a court to overturn a rule established in the CMS Guides.

??????????? The Loper decision is brand new, and no one really knows the impact that it will have, but it seems that the Court paved the way for a challenge to the portion of the CMS Guides requiring use of Red Book AWP in pricing drugs for WCMSAs.? The meaning of AWP is ambiguous, as demonstrated by the fact in other contexts, CMS itself outlawed use of Red Book AWPs.? In light of Loper, on review by a federal court, the court does not have to defer to and accept the administrative agency’s position in a knee jerk fashion.? Instead, where there is ambiguity, the federal court itself can resolve the ambiguity even if such resolution is contrary to the position of the administrative agency.

??????????? Insurance carriers and self-insurers should jump on this opportunity to file suit in federal court seeking to declare that AWP, as used in the CMS Guides for WCMSAs, is an ambiguous term, and seeking a court interpretation of whether Red Book AWP must be used for MSAs.? There is ample precedent in the state and federal courts for not using Red Book AWP because the numbers in Red Book have nothing at all to do with average wholesale price and are inflated to the point of utter fiction.?? The industry needs to step up and mount this challenge now that it has a pathway to overturning this provision of the Guides.? Doing so could save the industry billions of dollars a year. ?In the example above, the carrier would have saved over $600,000 in a single case for a single claimant by using an accurate AWP instead of Red Book AWP.

[email protected] ??215 588 4901

?Cliff Goldstein, Esq., formerly the CEO and a Senior Litigator at Chartwell Law, has 37 years of experience in litigating complex workers' compensation cases.? He now concentrates solely on addressing excessive pricing, fraudulent practices, abuse, and waste regarding drugs used in workers' compensation cases.? He can be reached at 215 588 4901 and [email protected]

This article does not provide legal advice.? All cases are unique and if appropriate, should be discussed with an attorney of the client’s choosing.? This article is intended only to stimulate discussion and its contents are not a substitute for independent research and legal consultation before taking or refraining from any action.? This article is merely an expression of opinions of the author.? This article does not create or imply an attorney client relationship.? Do not take or refrain from taking any action based on this article and be sure to consult with an attorney of your choice about the risks of taking or refraining from any actions.? The prices and other numbers in this article are examples taken from websites at the time the article was written. Actual prices and other data will be different and change frequently, and the figures presented are only examples.? Not all MSA vendors work under the same standards, formulae, and terms, and contracts vary.? Each bill from each pharmacy for each drug must be considered on its own merits and issues in addition to or instead of AWP may warrant further review.? This article is not intended to suggest that any given result can be obtained under any set of circumstances.? All cases are unique and price reductions may not be possible in all cases.?? This article does not represent the opinions of any company or law firm and is the copyrighted property of the author.? It may not be reproduced in whole or in part without the permission of the author.? Cliff Goldstein is licensed to practice law in Pennsylvania and maintains an office in Merion Station, PA.? For more information, please contact Cliff Goldstein at [email protected] .?

?

[1] Technically, CMS approval of an MSA is not required.? However, recent rule changes make it clear that not obtaining CMS approval poses a serious risk to the employer/carrier, and as a practical matter, almost all carriers/employers seek CMS approval.? In liability cases, MSAs are less common.