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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 patientacquisition 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
3 Party Contract
Formula
Ingredient cost
rd
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 2025% above wholesale
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
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
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
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
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
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 beneficiarys
home
free nursing visits to help train patient
24-hour hotline for beneficiary to call
pharmacist
Processing 3 Party
Scripts
Prescription drug benefit identification (ID)
rd
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
participants name
BIN # (000012) bank identification number
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
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:
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
payable claims
Medicare Part C
Medicare Advantage Plan combines Part A & B
Benefits provided by Medicare-approved
(MAPDs)
Medicare Part D
Federal prescription drug program paid for by
Centers for Medicare and Medicaid Services
(CMS)
individual premiums
Part of Medicare Prescription Drug,
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
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 Part D
Customers contact employee benefits
prescription
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
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.Antipsychotics
2.Antidepressants
3.Antiepileptics
4.Immunosuppressants
5.Cancer drugs
6.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
Medicare Part D
Formularies
If Prior Authorization Required
Medicare Part D covers 1-time 30-day supply
allows time for physician to complete
Medicare Part D
Prescriptions
Similar to other 3 Party
rd
online
E1 transaction returns 4Rx data
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
Dual Eligibles
Medicaid recipients who qualify for Medicare
Medicaid
States must cover minimum set of Medicaid
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
active combat
beneficiaries usually pay copays
creditable
it is at least as good as Medicare Part D
can opt out of Medicare Part D & do not incur
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
reimbursement methods
Website:
http://www.cms.hhs.gov/AcuteInpatientPPS
Outpatient Hospitals
&
Clinics
Drugs
may be part of procedure or paid
separately
Most drugs given in these settings are fee-forservice
fee-for-service formula is based on AWP
paid per
Outpatient Prospective Payment System (OPPS)
APC
Ambulatory Payment Classification
Predetermined outpatient payment categories
similar to inpatient DRGs
5%)
(ASP +
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 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
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
(NCPDP)
develops standards for information processing for
NCPDP System
Allows communication of claims between
pharmacy providers
pharmacy benefit managers
third-party payers
insurance carriers at point-of-service
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
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
rd
back
Pay backs caused by:
incorrect information
quantity written)
incomplete information
no quantity indicated
Use as directed sig not ok: must be able to calculate days supply
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