Chapter 20: Billing and Reimbursement
Learning Outcomes
 Explain principles of billing & reimbursement
 Define common pricing benchmarks
 List various payers of pharmaceuticals & pharmacy
services
 Describe differences in reimbursement processes
 Describe information needed for 3rd party claim
 Use knowledge to identify reason for rejected claim
Key Terms
 Adjudication average
 Manufacturer price (AMP)
 Average sales price (ASP)
 Average wholesale price (AWP)
 Coinsurance
 Copayment
 Cost sharing
 Coverage gap
Key Terms
 Deductible
 Diagnosis related group (DRG)
 Dispensing fee
 Federal upper limit (FUL)
 Fee for service
 Formulary
 Healthcare common procedure coding system
(HCPCS)
Key Terms
 Indemnity
 Institutional patient assistance programs (IPAPs)
 Maximum allowable cost (MAC)
 Network
 Patient assistance programs (PAPs)
 Pharmacy benefit manager (PBM)
 Premium
 Prior authorization
Key Terms
 Prospective payment
 Quantity limits
 Retrospective payment
 Revenue
 Step therapy
 Third-party payer
 Wholesale acquisition cost (WAC)
Pharmacy Accounting Basics
 Margin = Amount paid by patient–acquisition cost of drugs
 Net Profit = Total revenue – total expenses
 Total revenue must exceed total expenses
 Significant changes in reimbursement for drugs
 affects pharmacy profits
 Pharmacy technicians
 knowledge of reimbursement is significant role
Reimbursement Basics
 Based on many factors including:
 practice setting
 type of drug
 who is paying for drugs
 Prospective payment
 all costs associated with treating condition
 deliver drugs at or below predetermined rate
 Retrospective, or fee for service
 drugs are dispensed & later reimbursed
 predetermined formula in contract between pharmacy & 3rd
party payer (insurance company or PBM)
rd
3
Party Contract Formula
 Ingredient cost
 benchmark (several options in later slide)
 Dispensing fee
 covers costs of dispensing prescription
 Copayment aka “copay”
 cost-sharing amount paid by patient or customer
 Pharmacy profit
 Reimbursement > costs to dispense prescription
 reimbursement= (ingredient cost + dispensing fee) – copayment
Cost Terms
 Average wholesale price (AWP)
 commonly used benchmark
 created in 1960s
 available from MediSpan & First Databank
 Known as “sticker price”
 AWP usually set at 20–25% above wholesale
acquisition cost (WAC)
Cost Terms
 Wholesale acquisition cost (WAC)
 set by each manufacturer
 “list price” manufacturer sells to wholesaler
 Does not include discounts or price concessions
 If AWP is basis for reimbursement, formula is usually
AWP less some percentage
 If WAC is basis, formula is usually WAC plus small
percentage
 Neither AWP nor WAC represent actual cost of drugs
Cost Terms
 New benchmarks
 Average sales price (ASP)
 based on manufacturer-reported selling price data
 includes volume discounts & price concessions
 Average manufacturer price (AMP)
 average price paid to manufacturers by wholesalers
 includes discounts & other price concessions
DRA
 Budget Deficit Reduction Act of 2005 (DRA)
 requires AMP to calculate federal upper limit for drugs
paid through Medicaid
 FUL=funds from feds to state Medicaid programs
 Patient Protection & Affordable Care Act of 2010
 AMP was established as 175% of ASP
 Reimbursement formula for generic product different
than for brand product
 Brands reimbursed based on AWP or WAC
MAC
 Maximum allowable cost
 based on cost of lowest available generic equivalent
 Used by insurance companies & Medicaid
 Presents challenge to pharmacies
 not published
 widely variable among insurance companies
Payment
 2008 Stats:
 private insurance paid for 42%
 Medicare and Medicaid paid for 37%
 consumers paid 21%
 Cash price is “usual & customary price”
 3rd party contracts may pay which ever price is lower
 contract formula price
 usual & customary price
PAPs
 Patient assistance programs (PAPs)
 low-income patients who lack prescription drug
coverage and meet certain criteria
 Criteria for PAPs are widely variable
 determined by individual drug companies
 mostly proprietary drugs in PAPs
 patient is required to complete application
 Drug company sends drug to licensed pharmacist or
physician on patient’s behalf
IPAPs
 Institutional patient assistance programs
 Medications are provided to institution
 Institution verifies patient meets established criteria
 Pharmacies receive “replacement” product
 Pharmacy technicians play important role
340B
 340B drug pricing program covered entities:
 federal qualified health centers (FQHCs)
 disproportionate share hospitals (DSH)
 state-owned AIDS drug assistance programs
 Drastically reduced drug prices to eligible patients
 Administered by The Office of Pharmacy Affairs
 within Health Resources and Services Administration
Private Insurance
 Most common purchasers of private insurance
 employers
 labor unions
 trust funds
 professional associations
 individuals
Private Insurance
 Managed care (based on network of providers)
 lower cost than indemnity
 must use network providers
 Indemnity (non network- based coverage)
 more expensive
 more choices of physicians & hospitals
PBMs
 Pharmacy Benefit Managers
 administer pharmacy benefits for private or public 3rd
party payers
 aka plan sponsors
 Major PBMs
 CVS Caremark
 Medco
 Express Scripts
 Walgreens Health Initiatives
 Wellpoint Pharmacy Management
PBMs
 Sponsor pays PBM fee
 Fee covers total cost of pharmacy benefit
 PBM administers pharmacy benefit under direction of
sponsor
 PBM manages benefit so cost of prescriptions does not
exceed amount of money paid to PBM by sponsor
 Formulary cornerstone of PBM activities
 Preferred & nonpreferred
 may charge different copays or copay tiers
PBMs
 Prior authorization
 requires prescriber to receive preapproval from PBM
 used for newer drugs
 Step therapy
 must try & fail on recognized first-line drug before
expensive second-line drug is covered
PBMs
 Quantity limits
 amount of drug or total days of therapy
 physician or pharmacist may request an override of any
restrictions PBM places on therapy
 Administering benefit is balancing act
 managing costs
 providing quality service & value
 Mail order
 90-day supply
 reduced copayment
Specialty Services
 High-cost drugs
 newer biotechnology drugs
 Includes
 special delivery of medication to beneficiary’s home
 free nursing visits to help train patient
 24-hour hotline for beneficiary to call pharmacist
 PBMs provide complex & valuable service
Processing
rd
3
Party Scripts
 Prescription drug benefit identification (ID) card
 Necessary information to file claim on ID card:
 BM (Any PBM) or drug benefit provider
 telephone number for PBM customer service
 employer
 member name
 member ID number
 participant’s name
 BIN # (000012) bank identification number
Processing
rd
3
Party Rx
 Prescription & 3rd party info entered into computer
 PBM either accepts or rejects claim
 codes standard across all prescription benefit plans
 “Missing or Invalid Patient ID”
 “Prior authorization required”
 “Pharmacy not contracted with plan on date of service”
 “Refill too soon”
 “Missing or invalid quantity prescribed”
Public Payers
 Medicare is largest public payer
 Medicaid
 Department of Veterans Affairs
 Department of Defense
 Indian Health Service
Medicare Serves Cover:
 Elderly
 qualify for Medicare at 65 years of age
 Disabled
 People with end-stage renal disease (ESRD)
 Amyotrophic lateral sclerosis (ALS)-Lou Gehrig disease
4 Parts to Medicare:
 Part A (hospital insurance)
 Part B (medical insurance)
 Part C (Medicare Advantage plans)
 Part D (prescription drug coverage)
Medicare Part A
 Part A (hospital insurance)
 inpatient care (hospitals, skilled nursing facilities )
 hospice care
 home health care
 pre-paid through payroll taxes
 processed by fiscal intermediary
 diagnosis-related group (DRG) is basis for
reimbursement
 DRG=set rate paid for procedure based on cost &
intensity
Medicare Part B
 Optional medical insurance
 Covers:
 outpatient physician & hospital services
 clinical laboratory services
 DMEPOS- acronym for:




durable medical equipment
prosthetics
orthotics
supplies
Medicare Part B
 May cover medical services that Part A does not cover
 Requires active enrollment
 Costs
 monthly premium
 annual deductible
 coinsurance
Medicare Part B
 Covers some preventative services & specialty meds
 pneumococcal vaccines
 cancer screenings (cervical, breast, colorectal, prostate)
 immunosuppressive drugs
 erythropoietin stimulating agents for home dialysis
patients
 oral anticancer drugs
 oral antiemetic drugs
Medicare Part B
 Medicare Part B payment
 does not always pay 100% for Part B covered items
 payment category determines amount Medicare pays.
 pays percentage of approved amount after deductible
has been met
 patient pays remaining portion-known as coinsurance
(& premium, deductible)
Medicare Part B
 Coinsurance may be submitted to secondary insurer if
patient has coverage
 Part B claims are processed by local Medicare carrier
 DMEPOS items are processed by DME Medicare
administrative contractors (DME MACs)
 Claims must be filed within 1 year or
 Medicare reduces allowed amount by 10% for payable
claims
Medicare Part C
 Medicare Advantage Plan combines Part A & B
 Benefits provided by Medicare-approved private
insurance companies
 Often include prescription drug benefits
 Medicare Advantage Prescription Drug plans (MAPDs)
 Therefore, Part C beneficiaries should not enroll in
Part D prescription drug plan
5 Types of Part C Plans
 Health maintenance organizations (HMOs)
 Preferred provider organizations (PPOs)
 Medical savings account plans
 Private fee-for-service plans
 Medicare special needs plans
Costs of Medicare Part C
 Beneficiaries pay
 premiums
 deductibles
 copayments
 coinsurance
 Medicare Advantage Plans
 charge 1 combined premium for Part A & B benefits &
prescription drug coverage (if included in plan)
Medicare Part D
 Federal prescription drug program paid for by
 Centers for Medicare and Medicaid Services (CMS)
 individual premiums
 Part of Medicare Prescription Drug, Improvement, &
Modernization Act of 2003
 Voluntary insurance benefit
 outpatient prescription drugs
 Must enroll in Medicare Part D
Medicare Part D
 Prescription drug plans administered by PBMs
 Each plan varies in terms of cost & drugs covered
 4 enrollment & plan change opportunities:
 beneficiary turns 65 & is eligible for Medicare
 beneficiary receives Medicare as result of disability
 from November 15-December 31 of any year

open enrollment period
 when beneficiary qualifies for Extra Help
Medicare Part D
 Late enrollment penalty
 monthly charge of 1% of national base beneficiary
premium (calculated by CMS) for every month that
beneficiary does not join Part D plan
 Creditable coverage
 coverage that is at least as good as Standard Medicare
Drug Benefit
 can be from current or former employer, union, Veterans
Administration, Department of Defense, or Federal
Employees Health Benefits Program
Medicare Part D
 Customers –contact employee benefits manager or
CMS (1-800-MEDICARE or www.medicare.gov) for
questions about joining Medicare Part D
 Costs
 monthly premium
 annual deductible
 either coinsurance or copayments for each prescription
Medicare Part D Gap
 Coverage gap- “donut hole”
 No coverage period
 occurs after initial coverage limit
 must pay all costs for prescriptions
 Catastrophic coverage threshold ends gap
 Gap considered “deductible in the middle”
Medicare Part D
 Beneficiaries receive notice in October
 outlines how plan will change for following year
 can keep plan or switch during open enrollment
 Special populations can receive Extra Help
 aka Low-income Subsidy
 automatic enrollment if



already receive full Medicaid benefits
 referred to as “dual eligibles”
Medical Savings Programs (MSP)
Supplemental Security Income (SSI)
Medicare Part D
 Extra Help not used to capacity
 >2 million people eligible but have not applied
 Drug formularies for Medicare Part D
 vary from plan to plan
 plans must cover at least 2 drugs in each therapeutic
category
Medicare Part D Formularies
 6 protected categories must include almost all drugs
1.
2.
3.
4.
5.
6.
Antipsychotics
Antidepressants
Antiepileptics
Immunosuppressants
Cancer drugs
HIV/AIDS drugs
Medicare Part D Formularies
 Some classes not required to be covered by Medicare
Part D
 over-the-counter drugs
 benzodiazepines
 barbiturates
 drugs for weight loss or weight gain
 drugs for erectile dysfunction
 Medicaid plan may cover some drugs that are not
covered by Medicare Part D
Medicare Part D Formularies
 If Prior Authorization Required
 Medicare Part D covers 1-time 30-day supply
 allows time for physician to complete paperwork
necessary for prior authorization
 If drug not on formulary
 beneficiary/prescriber can request exception to
formulary
 if not granted by Part D plan, beneficiary can submit an
appeal
Medicare Part D Prescriptions
 Similar to other 3rd Party
 National Provider Identifier (NPI)
 or non-NPI prescriber ID can be submitted
 Prescription ID card from Part D plan
 or pharmacy can submit an eligibility query online
 E1 transaction returns “4Rx data”

RxBIN, RxPCN, RxGrp, RxID, 800 phone # of Part D plan
Medicaid
 Jointly funded by federal & state governments
 wide variation in Medicaid coverage from state to state
 Covers 3 main groups of low-income Americans
 parents & children
 elderly
 disabled
 Federal poverty limits (FPL)
 May qualify for Medicaid if medical expenses exceed
certain threshold = “spend down”
Dual Eligibles
 Medicaid recipients who qualify for Medicare are
known as “dual eligible”
 Medicare is usually considered primary payer
 Medicaid can supplement Medicare benefits by


providing coverage for benefits not be covered by Medicare
providing assistance with copayments for prescriptions
 Medicaid is “safety net” or payer of last resort
Medicaid
 States must cover minimum set of Medicaid benefits
for eligible patients
 Provide coverage for prescription drugs
 prescribed by licensed physician
 dispensed by licensed pharmacist
 medication must be recorded on written prescription
 all prescriptions must be electronically prescribed or
written/printed on “tamper resistant” paper
 need for med must be supported in medical record
Medicaid
 Pharmacies sign contract with state Medicaid agency
 Obligates provider to accept payment Medicaid
provides as payment in full
 Most prescriptions have low or zero copayments
 Certain categories of eligible patients are exempt from
cost sharing
 children
 pregnant women
 nursing home residents
Medicaid
 By law, Medicaid recipients may not be denied services
based on their inability to pay assigned cost sharing
 When Medicaid patient is unable to pay for
copayments for prescription drugs, pharmacy
reimbursement is reduced
Other Public Payers
 Department of Veterans Affairs
 Department of Defense
 Indian Health Service
 All veterans of active military service (Army, Navy, Air
Force, Marines, and Coast Guard) are potentially
eligible for health benefits from Department of
Veterans Affairs (VA)
 eligibility is not just for veterans who served in active
combat
 beneficiaries usually pay copays
Other Public Payers
 VA prescription benefit is considered creditable
 it is at least as good as Medicare Part D
 can opt out of Medicare Part D & do not incur late
enrollment penalty as long as they continue their VA
pharmacy benefits
 VA uses a national drug formulary
 prescriptions & refills are available at VA pharmacies or
mail order facilities
Other Public Payers
 TRICARE
 health benefit program from Department of Defense
 Active military personnel, retirees, & their families are
eligible for TRICARE
 TRICARE retail & mail-order prescription benefit is
administered by Express Scripts
 based on national TRICARE formulary
 prescription coverage is considered creditable with
Medicare Part D
Other Public Payers
 The Indian Health Service (IHS)
 provides comprehensive federal health care delivery
system


American Indian tribes
Alaska Native tribes
Billing for Drugs & Services
 Billing procedures for
 inpatient hospital
 outpatient hospitals, clinics, & physician offices
 outpatient community settings
 Each setting-different billing requirements &
reimbursement methods
Inpatient Hospital Setting
 Primary Methods of payment
 per diem
 prospective payment
 Drug costs included in DRG
 DRG assigned when patient admitted
 Steps to determine PPS payment on CMS Website:
http://www.cms.hhs.gov/AcuteInpatientPPS
Inpatient Hospital Setting
 Per diem & prospective payment
 Drug costs are included in DRGs
 Prospective payment system (PPS)
 classifies hospital cases based primarily on






type of patient
diagnoses
procedures
complications
comorbidities
resources used
Outpatient Hospitals & Clinics
 Drugs may be part of procedure or paid separately
 Most drugs given in these settings are fee-for-service
 fee-for-service formula is based on AWP
 Medicare Part B hospital outpatient services paid per
 Outpatient Prospective Payment System (OPPS)
 Some drugs are bundled into ambulatory payment
classification (APC)
APC
 Ambulatory Payment Classification
 Predetermined outpatient payment categories
 similar to inpatient DRGs
 Drugs with costs > $60 per administration have
separate APCs
 payment=average sale price + 5%
(ASP + 5%)
 < $60 are bundled into APC payment
HCPCS Codes
 Health Care Common Procedure Coding System code
 Service units are pre-determined billing increments
that may be unrelated to package size
 infliximab (Remicade) injection


HCPCS code of J1745
billed & reimbursed in increments of 10 mg
HCPCS Codes
 HCPCS federal coding system consists of 3 levels:
 Level I-Current Procedural Terminology codes (CPT)
 Level II-National Alpha-Numeric codes (CMS)


standardized coding system
used to identify products, supplies, services not included in
CPT codes
 Level III-Local Alpha-Numeric codes

local Medicare carriers
J-codes
 HCPCS codes for drugs = J-codes
 J-codes subset of Level II code set
 Identify specific drugs
 “J-code” refers to code that often begins with J


HCPCS drug codes may begin with other letters such as C or Q
Codes beginning with C or Q are often temporary codes
OPPS
 Outpatient Prospective Payment System (OPPS)
 based on pre-determined payment rates
 HCPCS code is assigned an OPPS status indicator
 identifies whether product or service is packaged or
separately payable
 Medicare OPPS Addendum B
 lists products’ HCPCS codes
 status indicators
 fees
Claim Submission-Key Elements
 Beneficiary name & Health Insurance Claim Number
 Date of service
 HCPCS codes
 Common Procedural Terminology (CPT) codes
 International Classification of Diseases codes
 ICD-9 codes also known as Diagnosis codes
 Clinical Modifiers
 National Drug Code (NDC)
 Units of Service (Quantity expressed in service units or billing
increments)
 Place of service
Community Pharmacy Setting
 Drug claims adjudication process involves these steps:
 submitting appropriate information
 determining eligibility, coverage, payment
 communicating reimbursement
 settling claim
 National Council of Prescription Drug Programs
(NCPDP)
 develops standards for information processing for
pharmacy services sector of health care industry
NCPDP System
 Allows communication of claims between
 pharmacy providers
 pharmacy benefit managers
 third-party payers
 insurance carriers at point-of-service
 Enables pharmacies to obtain immediate response
 verify eligibility
 determine formulary coverage status
 confirm quantity limits & copay amounts
 submit claims
 receive payment information
Prescription Processing
 Key billing elements include:
 Prescription Processor
 BIN (bank identification number)
 PCN (processor control number)
 Pharmacy Provider Information
 NPI (National Provider Identification)
 NCPDP or NABP
 Eligibility (specific to each patient)
 Member Name & Identification Number
 Group Number
Key Billing Elements
 Relationship (Plan Member, Spouse, Dependent)
 Prescription Information
 Date of prescription (date was written and each fill)
 NDC
 Directions for use
 Quantity dispensed
 Days Supply
 Dispense as Written (DAW) or Product Substitution
 Physician Signature
 NPI number
 DEA number when required
Online Ajudication Information
 Eligibility information
 Specific coverage (formulary vs. non-formulary items)
 Prompts for prior approval
 Copayment amounts
 “Refill too soon”
 “Exceeds quantity limits or days supply”
 Denials when item not covered
Audits by
rd
3
Partys & Payback
 Following 3rd party audit, pharmacies may have to pay back
 Pay backs caused by:
 incorrect information


dates, drugs, strengths, or directions
incorrect days supply (# ordered & directions should match)
 overbilled quantity (an amount > the quantity written)
 incomplete information
 no quantity indicated
 “Use as directed” sig not ok: must be able to calculate days supply


patient name & unique identifier
date of prescription
DAW Codes
0 No product selection
1 Physician DAW: substitution not allowed by provider
2 Patient DAW: substitution allowed; patient request
2 Pharmacist DAW Brand: substitution per RPh
3 Generic not in stock: substitution allowed
4 Brand sold at Generic Price: substitution allowed
5 Override
6 Brand Mandated by Law: substitution not allowed
7 Generic Not Available: substitution allowed
8 Other