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Good news on a Monday – CMS’ change in MSA ‘accounting’

When you get a call late on a Friday, it’s usually good news – if it was bad, they’d usually wait till Monday rather than ruin your weekend.
The call I received from Kent Takemoto, MD, President of PMSI Settlement Solutions on Friday was definitely good news. Takeomoto has been working with CMS for over a year in an effort to revise/revamp/redo the methodology used by CMS to calculate/estimate drug costs in Medicare Set-Aside allocations.

After multiple meetings, lots of analysis (both mathematical and scientific) of drugs commonly used in comp v drugs not commonly used, drug substitution, and plenty of persistence Kent’s efforts have borne fruit.
An internal CMS memo obtained from sources states:
“For a Part D drug to be covered by Medicare, and thus included properly in a WCMSA, the drug should be prescribed for an outpatient use that is approved under the Federal Food, Drug, and Cosmetic Act [21 U.S.C.A. Sec. 301 et seq.]”.
So…that means…what?
Some background would be helpful…
First, understand that the whole MSA process/regulation/motivation is to to make sure private industry pays for the medical care for work comp – and other – conditions, injuries, and illnesses and not taxpayers.
Unfortunately, in attempting to implement a process to achieve this noble goal, CMS came out with what most in the industry were rather heavy-handed and inappropriate ways for payers to calculate their liability for drug costs. When one considers that drugs accounted for 26% of MSA costs for PMSI’s pre-6.1.2009 MSAs, that’s a lot on the table.
Moreover, about 17% of open work comp claims were for individuals that were already Medicare beneficiaries, half of whom were under 65. Settling these claims cost an average of 63% more to settle due to CMS’ drug pricing methodology. In addition, CMS required payers to price drugs at the lowest Redbook published rate (not factoring in the discount which most PBMs provide, which tends to be somewhat to significantly less than Redbook AWP) for the entire life expectancy or rated age of the claimant. This essentially assumed the claimant would be taking the same drugs, at the same frequency and dose at list price, as long as they were alive; CMS specifically refused to consider the potential change in drug usage due to Drug Utilization Review tools and processes.
It’s no wonder many payers stopped settling claims, as the cost would have been prohibitive.
The methodology developed by PMSI and approved last week by CMS is a major step in the right direction and incorporates what Takemoto feels is the most significant change to the calculation of MSA drug allocations – the exclusion of drugs not covered by Medicare Part D. Drugs that are not covered by Part D comprise approximately 2/3 of the most commonly prescribed drugs in workers compensation including the overutilized and exorbitantly expensive opioid, Actiq.
Although CMS is implementing this change on June 1, 2010, PMSI has been excluding non-Part D medications from MSAs for about 9 months now. This requires a deep understanding of occupational diagnoses and how they relate to the FDA approved uses of a medication as well as appropriate medication substitution for the disallowed medications. When done properly,their experience shows that about 70% of CMS submitted MSAs contained drugs that were excluded from coverage under Medicare Part D.
So…why is this a big deal?
It will mean big reductions in the amounts payers have to ‘set aside’ for Medicare for drugs – Takemoto’s estimates range from ‘tens of thousands of dollars to hundreds of thousands per MSA’.
And payers can go back to settling claims.

9 thoughts on “Good news on a Monday – CMS’ change in MSA ‘accounting’”

  1. Joe – I am usually impressed by your blog’s insight into the industry, but in this case I wonder what sources you used to confirm Mr. Takemoto’s statements about his involvement in this matter. Numerous industry organization and company’s have been involved in this issue since 6/1/09. The “internal memo obtained from sources” was published publicly to the entire world on Friday morning. I don’t know, seems like you’re giving to much credit to one individual. Keep up the usual good work.

  2. John – welcome to MCM.
    I’m aware that numerous organizations and companies have been involved; I’ve also been impressed with Dr Takemoto’s ability to work thru the significant issues that until last week had prevented a solution. While others participated, my understanding is the proximal cause of the CMS change was primarily due to his work.
    Re the internal memo, my understanding is it was exactly that, an internal memo. CMS has not (to my knowledge) released it “to the entire world”, I received it from two sources.
    As to who gets credit, when someone goes above and beyond, and by so doing helps an entire industry, I’m a big believer in recognizing that effort..
    Joe Paduda

  3. The change itself is positive and one that benefits the entire industry in the CMS approval process. I would caveat this by saying that the exclusion of non-covered Part D drugs has been our position and allocation method since 1/1/06. For our clients, the only change now is that CMS will approve our Part D amount when this occurs. The cause of such change remains a matter we can agree to disagree on. I enjoy the blog and thank you for keeping it relevant and timely.

  4. John – I don’t see this as a matter of us agreeing to disagree. If you’d care to send me documentation that clarifies or corrects my understanding please do. The documentation and conversations I’ve been privy to appear to support my original post. I don’t pretend to know everything about this or any other matter, so will be happy to amend my post if necessary.

  5. Joe,
    A colleague forwarded your blog comment above, but I am not fully understanding the meaning of the announcement. Can you enlighten me? I would very much appreciate it. Thanks!

  6. I appreciate your offer to amend your post. Unfortunately, we are on opposing sides. You consult for PMSI. Sharing my internal client and CMS communications with you would be a conflict of interests. I wouldn’t want to place you in that situation. Thank you again for sharing your opinion.

  7. John
    thanks for the note; I appreciate your desire to avoid placing me in a potential conflict of interest situation.
    PMSI is NOT a client. If PMSI was a client I would have noted that in the original post.

  8. Joe: How can you say PMSI is not a client when they are a member of CompPharma and you are a principal of CompPharma? Doesn’t PMSI pay a fee for membership in CompPharma?

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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