Off-Label Drugs and Workers’ Compensation Medicare Set-Asides

Off-Label Drugs and Workers’ Compensation Medicare Set-Asides

 By Jennifer C. Jordan, Esq., General Counsel, MEDVAL, LLC

With the addition of Part D to the Medicare program in 2006, Medicare set-aside allocations (“MSAs”) grew exponentially overnight. The problem was further exacerbated by the April 9, 2009 CMS memo mandating that the preferred method of drug pricing was the use of average wholesale price and that there would be no discounting for things such as patent expirations or off-label indications. Despite guidance published on June 1, 2009 stating that consideration would be given to issues potentially influencing the future drug use or cost thereof, CMS proceeded to require funding of the last known drug regimen at AWP pretty much without a second thought.

For over a year, CMS refused to acknowledge that Medicare Part D is governed extensively by statute and regulations that detail what Part D actually covers, or more importantly what it does not. The one exclusion that obviously proved to be problematic for CMS was the fact that coverage of off-label drug use is expressly excluded. On May 14, 2010 CMS issued a memo to provide clarifying guidance about covered drugs, of which it acknowledged that off-label indications are not to be included in WCMSAs unless supported by one or more citations included or approved for inclusion in any of the compendia described in subsection (g)(1)(B)(I) of 42 U.S.C. Section 1396r-8. While it entertained off-label exclusions at first, CMS has been systematically bringing all of those drugs back into WCMSAs on the basis of compendia support. 

CMS publishes a rather extensive series of manuals designed to supplement understanding of the Medicare program. The Medicare Benefit Policy Manual contains several chapters designed to clarify coverage guidelines within much broader service categories. Chapter 15 addresses the coverage of medical and other health services, including prescription drugs.  More specifically, section 50.4.5 enumerates the coverage of drugs approved by the FDA when those drugs are prescribed for a non-FDA approved (i.e. “off-label”) use. Section 50.4.5 indicates that drugs may not be denied based solely on the absence of an FDA-approved labeling for the use, if the use is supported by the peer-reviewed literature or any of the following compendia:

  • American Hospital Formulary Service – Drug Information (AHFS-DI)
  • National Comprehensive Cancer Network (NCCN) Drugs and Biologics Compendium (Effective 06/05/2008)
  • Thomson Micromedex DrugDex (“Micromedex”) (Effective 06/15/2008)
  • Clinical Pharmacology (Effective 07/02/2008)

Of these four compendia, Micromedex has the most utility among health care professionals in search of drug information, particularly pharmacists. Micromedex is a very comprehensive and proprietary database containing practical, relevant information for each drug approved by the FDA. Micromedex contains a listing of FDA approved uses and non-FDA approved uses (within Micromedex, non-FDA approved uses are sometimes also referred to as “therapeutic uses”). For each of the non-FDA approved uses, Micromedex assigns an evidence rating based on the available data (randomized controlled trials, expert opinion or consensus, case reports, etc.). The evidence ratings are summarized using the combination of a Roman numeral with or without a lower case letter, as well as supplemental phrases, such as “evidence supports efficacy”, “evidence is inconclusive” and “evidence does not support efficacy.” Section 50.4.5 indicates that CMS considers a use to be medically accepted if the use carries a Micromedex evidence rating of I, IIa or IIb. Conversely, CMS does not consider a use to be medically accepted if that use carries a Micromedex evidence rating of III. It is important to note that evidence ratings of I, IIa and IIb are not necessarily limited to situations where the narrative text indicates that the “evidence favors efficacy.” Micromedex may assign a favorable evidence rating to uses that simultaneously carry a notation that the “evidence is inconclusive.” A common criticism of CMS’ reliance on Micromedex is that in terms of the evidence required to establish a use as medically accepted, the bar has been set too low.

In the context of WCMSAs reviewed by CMS, this reliance upon Micromedex has effectively negated any obligation by CMS to exclude a drug for an off-label indication if anything has been published about the drug. CMS does not cite its source and frequently it is impossible to independently locate it for verification. Because there is no appeal to a CMS counter-offer, challenges to or requests for disclosure of the compendia source remain unanswered.  Basically if CMS determines that off-label drugs are appropriate in a WCMSA, there is little you can do about it.

One may ask why this is such problem if the workers’ compensation carrier was paying for these drugs during the claim anyway? It is because CMS calculates a lifetime supply at the current dose and frequency at the average wholesale price.  Common, and some of the most costly, off-label indications found in workers’ compensation claims include Lidoderm patches (approved for treatment of pain associated with shingles – AWP $8.14), Neurontin (approved as an anticonvulsant – AWP $5.11), Lyrica (approved for treatment of fibromyalgia, seizures, post herpetic neuralgia, and diabetic neuropathic pain – AWP $3.09), Seroquel and Abilify (antipsychotics used to treat schizophrenia or bipolar disorder – AWP $15.61 & $27.46 respectively), Adderall (treatment of Attention Deficit Hyperactivity Disorder (ADHD) and Narcolepsy – AWP $7.84), and fentanyl based drugs such as Actiq and Fentora (approved only for management of breakthrough cancer pain in narcotic-tolerant patients – AWP $104.77 & $53.83 respectively). As you can see, fills between 30 and 120 pills per month multiplied by twenty plus years can add up quickly and significantly. Never mind the fact that no one could remain on the same exact regime for that long a period of time, let alone if the drug could remain an effective treatment. It is a ludicrous assumption that represents the inherent cost of obtaining CMS’ approval of WCMSAs.

The goal of Medicare Secondary Payer Act is to protect Medicare’s interests by preventing it from making payment in situations where another entity is responsible for medical treatment, or seeking reimbursement should payment have been made conditionally. In furtherance of that goal, it would seem reasonable to identify only payment Medicare may be exposed to paying and allocating accordingly. If statutorily excluded from Medicare coverage, off-label drugs should not be appropriate in MSAs and CMS should not be looking for loopholes to extend those drugs coverage. Ironically there are probably Medicare beneficiaries out there fighting to obtain payment for those same drugs.

The author wishes to thank Leah Hohn, PharmD, JD, for her contributions to this article.

© Copyright 2011 MEDVAL, LLC. All rights reserved. Reprinted with permission.


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Tim Nay, Esq. of the Law Offices of Nay & Friedenberg, Portland, Oregon, specializes in estate planning and elder law, and is a co-founder of the National Alliance of Medicare Set-Aside Professionals (NAMSAP).

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  • 06-22-2011

I love the closing comment about beneficiaries fighting for coverage of the drugs in question.