1. Business Applications
Chapter 20: Billing and Reimbursement

2. 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

3. Key Terms Adjudication average Manufacturer price (AMP)
Average sales price (ASP)
Average wholesale price (AWP)
Coinsurance
Copayment
Cost sharing
Coverage gap

4. Key Terms Deductible Diagnosis related group (DRG) Dispensing fee
Federal upper limit (FUL)
Fee for service
Formulary
Healthcare common procedure coding system (HCPCS)

5. Key Terms Indemnity Institutional patient assistance programs (IPAPs)
Maximum allowable cost (MAC)
Network
Patient assistance programs (PAPs)
Pharmacy benefit manager (PBM)
Premium
Prior authorization

6. Key Terms Prospective payment Quantity limits Retrospective payment
Revenue
Step therapy
Third-party payer
Wholesale acquisition cost (WAC)

7. 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

8. 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)

9. 3rd 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

10. Cost Terms Average wholesale price (AWP) Known as “sticker price”
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)

11. 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

12. 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

13. 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

14. MAC Maximum allowable cost Used by insurance companies & Medicaid
based on cost of lowest available generic equivalent
Used by insurance companies & Medicaid
Presents challenge to pharmacies
not published
widely variable among insurance companies

15. Payment 2008 Stats: Cash price is “usual & customary price”
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

16. 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

17. 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

18. 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

19. Private Insurance Most common purchasers of private insurance
employers
labor unions
trust funds
professional associations
individuals

20. 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

21. PBMs Pharmacy Benefit Managers Major PBMs
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

22. PBMs Sponsor pays PBM fee Formulary cornerstone of PBM activities
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

23. PBMs Prior authorization Step therapy
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

24. PBMs Quantity limits Administering benefit is balancing act Mail order
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

25. Specialty Services High-cost drugs Includes
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

26. Processing 3rd 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

27. Processing 3rd 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”

28. Public Payers Medicare is largest public payer Medicaid
Department of Veterans Affairs
Department of Defense
Indian Health Service

29. 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

30. 4 Parts to Medicare: Part A (hospital insurance)
Part B (medical insurance)
Part C (Medicare Advantage plans)
Part D (prescription drug coverage)

31. 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

32. Medicare Part B Optional medical insurance Covers:
outpatient physician & hospital services
clinical laboratory services
DMEPOS- acronym for:
durable medical equipment
prosthetics
orthotics
supplies

33. Medicare Part B
May cover medical services that Part A does not cover
Requires active enrollment
Costs
monthly premium
annual deductible
coinsurance

34. 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

35. 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)

36. 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

37. 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

38. 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

39. 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)

40. 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

41. 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

42. Medicare Part D Late enrollment penalty Creditable coverage
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

43. Medicare Part D
Customers –contact employee benefits manager or CMS (1-800-MEDICARE or for questions about joining Medicare Part D
Costs
monthly premium
annual deductible
either coinsurance or copayments for each prescription

44. 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”

45. 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)

46. 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

47. Medicare Part D Formularies
6 protected categories must include almost all drugs
Antipsychotics
Antidepressants
Antiepileptics
Immunosuppressants
Cancer drugs
HIV/AIDS drugs

48. 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

49. 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

50. 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

51. 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”

52. 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

53. 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

54. 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

55. 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

56. 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

57. 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

58. 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

59. Other Public Payers The Indian Health Service (IHS)
provides comprehensive federal health care delivery system
American Indian tribes
Alaska Native tribes

60. Billing for Drugs & Services
Billing procedures for
inpatient hospital
outpatient hospitals, clinics, & physician offices
outpatient community settings
Each setting-different billing requirements & reimbursement methods

61. 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:

62. 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

63. 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)

64. 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

65. 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

66. 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

67. 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

68. 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

69. 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

70. 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

71. 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

72. 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

73. 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

74. 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

75. Audits by 3rd 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

76. DAW Codes 0 No product selection
Physician DAW: substitution not allowed by provider
Patient DAW: substitution allowed; patient request
Pharmacist DAW Brand: substitution per RPh
Generic not in stock: substitution allowed
Brand sold at Generic Price: substitution allowed
Override
Brand Mandated by Law: substitution not allowed
Generic Not Available: substitution allowed
Other