Chapter 20: Billing and Reimbursement

Learning OutcomesExplain principles of billing & reimbursementDefine common pricing benchmarksList various payers of pharmaceuticals &

pharmacy services Describe differences in reimbursement

processes Describe information needed for 3rd party

claimUse knowledge to identify reason for rejected

claim

Key TermsAdjudication averageManufacturer price (AMP)Average sales price (ASP)Average wholesale price (AWP)Coinsurance Copayment Cost sharing Coverage gap

Key TermsDeductible Diagnosis related group (DRG)Dispensing feeFederal upper limit (FUL)Fee for service Formulary Healthcare common procedure coding

system (HCPCS)

Key TermsIndemnity Institutional patient assistance programs

(IPAPs)Maximum allowable cost (MAC)Network Patient assistance programs (PAPs)Pharmacy benefit manager (PBM)Premium Prior authorization

Key TermsProspective paymentQuantity limitsRetrospective paymentRevenueStep therapyThird-party payerWholesale acquisition cost (WAC)

Pharmacy Accounting BasicsMargin = Amount paid by patient–acquisition

cost of drugsNet Profit = Total revenue – total expenses Total revenue must exceed total expensesSignificant changes in reimbursement for drugs

affects pharmacy profitsPharmacy technicians

knowledge of reimbursement is significant role

Reimbursement BasicsBased on many factors including:

practice setting type of drug who is paying for drugs

Prospective paymentall costs associated with treating conditiondeliver drugs at or below predetermined rate

Retrospective, or fee for servicedrugs are dispensed & later reimbursedpredetermined formula in contract between

pharmacy & 3rd party payer (insurance company or PBM)

3rd Party Contract FormulaIngredient cost

benchmark (several options in later slide)Dispensing fee

covers costs of dispensing prescriptionCopayment aka “copay”

cost-sharing amount paid by patient or customerPharmacy profitReimbursement > costs to dispense

prescriptionreimbursement= (ingredient cost + dispensing fee) –

copayment

Cost TermsAverage wholesale price (AWP)

commonly used benchmark created in 1960savailable from MediSpan & First Databank

Known as “sticker price” AWP usually set at 20–25% above wholesale

acquisition cost (WAC)

Cost TermsWholesale acquisition cost (WAC)

set by each manufacturer“list price” manufacturer sells to wholesaler

Does not include discounts or price concessionsIf AWP is basis for reimbursement, formula is

usually AWP less some percentageIf WAC is basis, formula is usually WAC plus

small percentageNeither AWP nor WAC represent actual cost of

drugs

Cost TermsNew benchmarks Average sales price (ASP)

based on manufacturer-reported selling price data

includes volume discounts & price concessionsAverage manufacturer price (AMP)

average price paid to manufacturers by wholesalers

includes discounts & other price concessions

DRABudget 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 ASPReimbursement formula for generic product

different than for brand productBrands reimbursed based on AWP or WAC

MACMaximum allowable cost

based on cost of lowest available generic equivalent

Used by insurance companies & MedicaidPresents challenge to pharmacies

not publishedwidely variable among insurance companies

Payment2008 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 lowercontract formula priceusual & customary price

PAPsPatient assistance programs (PAPs)

low-income patients who lack prescription drug coverage and meet certain criteria

Criteria for PAPs are widely variabledetermined by individual drug companiesmostly proprietary drugs in PAPs patient is required to complete application

Drug company sends drug to licensed pharmacist or physician on patient’s behalf

IPAPsInstitutional patient assistance programsMedications are provided to institutionInstitution verifies patient meets established

criteriaPharmacies receive “replacement” product Pharmacy technicians play important role

340B340B 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 Affairswithin Health Resources and Services

Administration

Private InsuranceMost common purchasers of private

insuranceemployerslabor unionstrust fundsprofessional associationsindividuals

Private InsuranceManaged care (based on network of

providers)lower cost than indemnitymust use network providers

Indemnity (non network- based coverage)more expensivemore choices of physicians & hospitals

PBMsPharmacy Benefit Managers

administer pharmacy benefits for private or public 3rd party payers

aka plan sponsorsMajor PBMs

CVS CaremarkMedcoExpress ScriptsWalgreens Health InitiativesWellpoint Pharmacy Management

PBMsSponsor pays PBM fee

Fee covers total cost of pharmacy benefitPBM administers pharmacy benefit under

direction of sponsorPBM manages benefit so cost of prescriptions

does not exceed amount of money paid to PBM by sponsor

Formulary cornerstone of PBM activitiesPreferred & nonpreferred

may charge different copays or copay tiers

PBMsPrior authorization

requires prescriber to receive preapproval from PBM

used for newer drugsStep therapy

must try & fail on recognized first-line drug before expensive second-line drug is covered

PBMsQuantity limits

amount of drug or total days of therapyphysician or pharmacist may request an override

of any restrictions PBM places on therapyAdministering benefit is balancing act

managing costs providing quality service & value

Mail order90-day supplyreduced copayment

Specialty ServicesHigh-cost drugs

newer biotechnology drugsIncludes

special delivery of medication to beneficiary’s home

free nursing visits to help train patient24-hour hotline for beneficiary to call

pharmacist PBMs provide complex & valuable service

Processing 3rd Party ScriptsPrescription drug benefit identification (ID) cardNecessary information to file claim on ID card:

BM (Any PBM) or drug benefit providertelephone number for PBM customer service employer member name member ID number participant’s name BIN # (000012) bank identification number

Processing 3rd Party RxPrescription & 3rd party info entered into

computerPBM 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 PayersMedicare is largest public payerMedicaid Department of Veterans AffairsDepartment of DefenseIndian Health Service

Medicare Serves Cover:Elderly

qualify for Medicare at 65 years of ageDisabledPeople 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 APart A (hospital insurance)

inpatient care (hospitals, skilled nursing facilities )

hospice carehome health carepre-paid through payroll taxes processed by fiscal intermediarydiagnosis-related group (DRG) is basis for

reimbursementDRG=set rate paid for procedure based on cost

& intensity

Medicare Part BOptional medical insuranceCovers:

outpatient physician & hospital servicesclinical laboratory servicesDMEPOS- acronym for:

durable medical equipment prosthetics orthotics supplies

Medicare Part BMay cover medical services that Part A does not

coverRequires active enrollmentCostsmonthly premiumannual deductiblecoinsurance

Medicare Part BCovers some preventative services &

specialty medspneumococcal vaccines cancer screenings (cervical, breast, colorectal,

prostate)immunosuppressive drugs erythropoietin stimulating agents for home

dialysis patientsoral anticancer drugsoral antiemetic drugs

Medicare Part BMedicare 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 coveragePart 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 orMedicare reduces allowed amount by 10% for

payable claims

Medicare Part CMedicare Advantage Plan combines Part A &

BBenefits provided by Medicare-approved

private insurance companiesOften 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 PlansHealth maintenance organizations (HMOs)Preferred provider organizations (PPOs)Medical savings account plansPrivate fee-for-service plansMedicare special needs plans

Costs of Medicare Part CBeneficiaries pay

premiumsdeductiblescopaymentscoinsurance

Medicare Advantage Plans charge 1 combined premium for Part A & B

benefits & prescription drug coverage (if included in plan)

Medicare Part DFederal prescription drug program paid for

byCenters for Medicare and Medicaid Services

(CMS) individual premiums

Part of Medicare Prescription Drug, Improvement, & Modernization Act of 2003

Voluntary insurance benefitoutpatient prescription drugs

Must enroll in Medicare Part D

Medicare Part DPrescription drug plans administered by PBMsEach plan varies in terms of cost & drugs

covered4 enrollment & plan change opportunities:

beneficiary turns 65 & is eligible for Medicarebeneficiary receives Medicare as result of

disabilityfrom November 15-December 31 of any year

open enrollment periodwhen beneficiary qualifies for Extra Help

Medicare Part DLate 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 coveragecoverage that is at least as good as Standard

Medicare Drug Benefitcan be from current or former employer, union,

Veterans Administration, Department of Defense, or Federal Employees Health Benefits Program

Medicare Part DCustomers –contact employee benefits

manager or CMS (1-800-MEDICARE or www.medicare.gov) for questions about joining Medicare Part D

Costsmonthly premiumannual deductibleeither coinsurance or copayments for each

prescription

Medicare Part D GapCoverage gap- “donut hole” No coverage period

occurs after initial coverage limitmust pay all costs for prescriptions

Catastrophic coverage threshold ends gapGap considered “deductible in the middle”

Medicare Part DBeneficiaries 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 Helpaka Low-income Subsidyautomatic enrollment if

already receive full Medicaid benefits referred to as “dual eligibles”

Medical Savings Programs (MSP) Supplemental Security Income (SSI)

Medicare Part DExtra Help not used to capacity>2 million people eligible but have not

appliedDrug formularies for Medicare Part D

vary from plan to planplans must cover at least 2 drugs in each

therapeutic category

Medicare Part D Formularies6 protected categories must include almost

all drugs1.Antipsychotics2.Antidepressants 3.Antiepileptics 4.Immunosuppressants5.Cancer drugs6.HIV/AIDS drugs

Medicare Part D FormulariesSome classes not required to be covered by

Medicare Part Dover-the-counter drugsbenzodiazepinesbarbituratesdrugs for weight loss or weight gaindrugs for erectile dysfunction

Medicaid plan may cover some drugs that are not covered by Medicare Part D

Medicare Part D FormulariesIf Prior Authorization Required

Medicare Part D covers 1-time 30-day supply allows time for physician to complete

paperwork necessary for prior authorizationIf 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

MedicaidJointly funded by federal & state governments

wide variation in Medicaid coverage from state to state

Covers 3 main groups of low-income Americansparents & childrenelderlydisabled

Federal poverty limits (FPL) May qualify for Medicaid if medical expenses

exceed certain threshold = “spend down”

Dual EligiblesMedicaid recipients who qualify for Medicare

are known as “dual eligible” Medicare is usually considered primary payerMedicaid 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

MedicaidStates must cover minimum set of Medicaid

benefits for eligible patientsProvide coverage for prescription drugs

prescribed by licensed physiciandispensed by licensed pharmacistmedication must be recorded on written

prescriptionall prescriptions must be electronically prescribed

or written/printed on “tamper resistant” paperneed for med must be supported in medical record

MedicaidPharmacies sign contract with state Medicaid

agencyObligates provider to accept payment Medicaid

provides as payment in fullMost prescriptions have low or zero copaymentsCertain categories of eligible patients are

exempt from cost sharingchildrenpregnant womennursing home residents

MedicaidBy 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 PayersDepartment of Veterans AffairsDepartment of DefenseIndian Health ServiceAll 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 combatbeneficiaries usually pay copays

Other Public PayersVA prescription benefit is considered

creditableit is at least as good as Medicare Part Dcan 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 formularyprescriptions & refills are available at VA

pharmacies or mail order facilities

Other Public PayersTRICARE

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 formularyprescription coverage is considered creditable

with Medicare Part D

Other Public PayersThe Indian Health Service (IHS)

provides comprehensive federal health care delivery system American Indian tribes Alaska Native tribes

Billing for Drugs & ServicesBilling procedures for

inpatient hospitaloutpatient hospitals, clinics, & physician officesoutpatient community settings

Each setting-different billing requirements & reimbursement methods

Inpatient Hospital SettingPrimary Methods of payment

per diemprospective payment

Drug costs included in DRGDRG assigned when patient admittedSteps to determine PPS payment on CMS

Website: http://www.cms.hhs.gov/AcuteInpatientPPS

Inpatient Hospital SettingPer diem & prospective paymentDrug costs are included in DRGsProspective payment system (PPS)

classifies hospital cases based primarily on type of patient diagnoses procedures complications comorbidities resources used

Outpatient Hospitals & ClinicsDrugs may be part of procedure or paid

separatelyMost drugs given in these settings are fee-for-

servicefee-for-service formula is based on AWP

Medicare Part B hospital outpatient services paid perOutpatient Prospective Payment System (OPPS)

Some drugs are bundled into ambulatory payment classification (APC)

APCAmbulatory Payment ClassificationPredetermined outpatient payment

categoriessimilar to inpatient DRGs

Drugs with costs > $60 per administration have separate APCspayment=average sale price + 5% (ASP +

5%)< $60 are bundled into APC payment

HCPCS CodesHealth Care Common Procedure Coding

System codeService units are pre-determined billing

increments that may be unrelated to package sizeinfliximab (Remicade) injection

HCPCS code of J1745 billed & reimbursed in increments of 10 mg

HCPCS CodesHCPCS 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 codesLevel III-Local Alpha-Numeric codes

local Medicare carriers

J-codesHCPCS 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

OPPSOutpatient Prospective Payment System

(OPPS)based on pre-determined payment rates HCPCS code is assigned an OPPS status

indicatoridentifies whether product or service is packaged

or separately payableMedicare OPPS Addendum B

lists products’ HCPCS codesstatus indicatorsfees

Claim Submission-Key ElementsBeneficiary name & Health Insurance Claim NumberDate of serviceHCPCS codesCommon Procedural Terminology (CPT) codesInternational Classification of Diseases codes

ICD-9 codes also known as Diagnosis codesClinical ModifiersNational Drug Code (NDC)Units of Service (Quantity expressed in service units

or billing increments)Place of service

Community Pharmacy SettingDrug claims adjudication process involves

these steps:submitting appropriate informationdetermining eligibility, coverage, paymentcommunicating reimbursementsettling claim

National Council of Prescription Drug Programs (NCPDP)develops standards for information processing

for pharmacy services sector of health care industry

NCPDP SystemAllows communication of claims between

pharmacy providerspharmacy benefit managersthird-party payersinsurance carriers at point-of-service

Enables pharmacies to obtain immediate response verify eligibilitydetermine formulary coverage statusconfirm quantity limits & copay amountssubmit claimsreceive payment information

Prescription ProcessingKey billing elements include:

Prescription Processor BIN (bank identification number)PCN (processor control number)Pharmacy Provider Information NPI (National Provider Identification)NCPDP or NABPEligibility (specific to each patient)Member Name & Identification NumberGroup Number

Key Billing Elements Relationship (Plan Member, Spouse, Dependent)Prescription InformationDate of prescription (date was written and each fill)NDC Directions for useQuantity dispensedDays SupplyDispense as Written (DAW) or Product SubstitutionPhysician Signature NPI number DEA number when required

Online Ajudication InformationEligibility informationSpecific 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 3rd Partys & PaybackFollowing 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 Codes0 No product selection1 Physician DAW: substitution not allowed by provider2 Patient DAW: substitution allowed; patient request2 Pharmacist DAW Brand: substitution per RPh3 Generic not in stock: substitution allowed 4 Brand sold at Generic Price: substitution allowed 5 Override 6 Brand Mandated by Law: substitution not allowed7 Generic Not Available: substitution allowed 8 Other