Business Applications 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)

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

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)

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 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

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

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 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

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

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

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

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

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

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”

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 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

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 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 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

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