Business Applications

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) • 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 • 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: • 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 • 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 • 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 • 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 • 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 • 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 • 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 www.medicare.gov) 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