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8Chapter

Pharmacy Billing and Reimbursement

MANAGED CARE

• Providesboththefinancinganddeliveryofhealthcaretoitsmembers

3.3 Calculations3.3.7 Business calculations (pricing, markup,

inventory control)

ExCPT Knowledge Domains

8.1 Reimbursement policies and plans (e.g., HMOs, PPO, CMS, private plans)

8.2 Third party resolution (e.g., prior authorization, rejected claims, plan limitations)

8.3 Third-party reimbursement systems (e.g., PBM, medication assistance programs, coupons, and self-pay)

PTCB Knowledge Domains

ChapterObjectives

MANAGED CARE ORGANIZATION• A health care organization that both insures and

provideshealthcareservices• Servicesareprovidedforapredeterminedamount

of money that has been negotiated and paid inadvance.

Upon completion of Chapter 8, the pharmacy technician student will be able to 1. Do the following regarding managed care:

• Define managed care, managed care organization, and pharmacy benefit management company.• Identify the various types of reimbursement systems found in the various health care systems.• Differentiate between the various types of managed care providers.

2. Explain the payment of prescriptions using health saving accounts, private plans, medication assistance pro-grams, coupons, and self-pay.

3. Contrast Medicare and Medicaid. 4. Recognize the various pharmacy networks used today. 5. Discuss the various methods used in calculating the pricing and reimbursement of medications. 6. Discuss the various types of formulary systems used in managed care. 7. Explain online adjudication and the purpose of a National Provider Identifier number. 8. Do the following regarding prescription processing:

• List the information contained on a prescription card.• Differentiate between the various dispense as written codes used in submitting third-party claims.• Explain the role of prior authorization in online adjudication.• Cite the various reasons why a prescription claim could be rejected.

9. Identify the various types of limitations used by manage care. 10. Identify various types of health care reimbursement services. 11. Contrast deductible and copay, and recall the various types of copayments. 12. Cite examples of cost containment practices. 13. Demonstrate comprehension in the calculation of overhead, gross profit, percent gross profit, percent net profit,

markup, inventory, and turnover rate.

202 Mosby’s Review for the Pharmacy Technician Certification Examination

PHARMACY BENEFIT MANAGEMENT COMPANY• Focusesonthepharmacyservicesprovidedunder

ahealthcareplan• Contractswithaninsurertoprovideprescription

drugs to members usually through communitypharmacies

MANAGED CARE REIMBURSEMENT• Capitation:Payingafixed,prepaidfeeperperson

toprovidearangeofhealthservices;paidbeforetheservicesareprovided

• Fee for service: Asetfee ispaidforeachtypeofservicethatisperformedandispaidatthetimeofservice

MANAGED CARE PROVIDERS

Health Maintenance Organizations• Goalofhealthmaintenanceorganizations(HMOs)

istokeeppatientshealthy• Proactivehealthcareinsteadofreactivehealthcare• Basedoncapitationreimbursementsystem• Provides a predictable cost of payment for

services• HealthcareprovidersworkdirectlyfortheHMO• Littleflexibilityinselectionofproviders• Primary care physician (PCP) directs all medical

careforthemember• Providescoverageforroutineinpatientandoutpa-

tientcare• Smallcopays• Usuallynodeductibles• Lowpremiums

Preferred Provider Organizations

• Preferred provider organizations (PPOs) providehealth care services to members at a discountedfeeforservice.

• Nonexclusivecontractwithnetworkofproviders• Memberspayacopayattimeofservice• Oftenmembershaveayearlydeductible tomeet

beforeinsurancecoveragebegins• Insurancepaysapercentageofthemedicalbills• Members may select a non-PPO provider, but

membermustpaythedifferencebetweenthedis-countedfeeandregularfee

• The percentage paid by the insurance is lowerif services are provided by an out-of-networkprovider.

• Noreferralisrequiredforspecialistservices.

Point of Service Plans

• In a point of service plan (POS), members maychooseanHMOorPPOforservices.

• PCPdirectsthemedicalcare• Membermayseeout-of-networkproviders.• Highercostforout-of-networkproviders• Higherpremiums

Exclusive Point of Service

• Theexclusivepointofservice(EPOS)isahybridofPPOinwhichthePPOdoesnotmakepaymenttoprovidersoutsideofnetwork.

HEALTH SAVINGS ACCOUNTS

• Health savings accounts (HSA) are financialaccountsestablishedbyanindividualorfamilytopayforqualifiedmedicalexpenses.

• U.S.federalregulationsrequirecitizenstohaveaminimum deductible on their health insurancefromallsourcestomaketax-deductiblecontribu-tionstotheirHSAs.

• HSAs combine the benefits of both traditionalandRoth401(k)sandIRAsformedicalexpenses.Taxpayers receive a 100% income tax deductionon annual contributions, they may withdrawHSA funds tax free to reimburse themselves forqualified medical expenses, and they may defertakingsuchreimbursementsindefinitelywithoutpenalties.

• HSAlimits:$3250forindividuals(self-onlycover-age)and$6450forfamilycoverage

PRIVATE PLANS

• Aprivateplanisoneinwhichthepatientobtainsaprescriptiondrugcardfromapharmacybenefitsmanager.

• Private plans are extremely expensive for indi-vidualstopurchase.

MEDICATION ASSISTANCE PROGRAMS

• Programsestablishedbydrugmanufacturersandvarious other organizations to provide medica-tionstoqualifiedpatientswhoareunabletoaffordtheirmedications

COUPONS

• Some drug manufacturers provide coupons forspecific drug products to physicians. This is anincentiveforphysicians.Thephysiciandistributesthesecouponstopatientswhentheyreceivenewprescriptions.

• The coupon is for the original filling of a newprescription.

Chapter 8 Pharmacy Billing and Reimbursement 203

• The pharmacy bills the drug manufacturer elec-tronicallyforthevalueofthecoupon.

• The value of the coupon is deducted from whatthepatientisresponsibleforpaying.

• Insituationswhenapatienthasathird-partypre-scriptionplan,thevalueofthecouponisdeductedfromthecostoftheprescriptionbeingbilledtotheinsuranceprovider.

SELF-PAY

Some patients are responsible for the full priceof their prescriptions. In these situations, thepatients may pay with cash, check, credit, ordebitcard.

FEDERAL FUNDED HEALTH CARE PROGRAMS

MEDICARE

• Federalprogramtoprovidehealthcareforelderlyadults,personswithdisabilities,andpatientswithend-stagerenaldisease

• Medicare Part A covers inpatient hospital care,skillednursingfacilities,hospice,andhomehealthcare. There is no cost if the patient worked for10yearsinaMedicare-coveredemployer.

• Medicare Part Bprovides forphysician services,outpatient care, and some physical and occupa-tional therapy;MedicarePartBrequiresanextramonthlypayment.

• Medicare Advantage (Part C)allowsparticipantsin Medicare Part A and B to obtain coveragethroughanHMOorPPOthatprovidesadditionalservicesatahighercost.

• Medigap (Medicare Supplement Policy)isanad-ditionalpolicythatcoversthegapsintheoriginalMedicareprogram.

• Medicare Part Dprovides forprescriptionmedi-cations, biologicals, insulin, vaccines, and selectmedicalsupplies.AllmedicationsarenotcoveredunderMedicarePartD.

MEDICAID• A federal program that is based on income and

othercircumstances• Eachstatedeterminesitsowneligibilityrules,ser-

vicesprovided,andcopays.• Eligibility is determined on a month-by-month

basis.• Inmostsituations,Medicaidcoversphysicianvisits,

emergency care, hospital care, vaccinations, pre-scriptiondrugs,vision,hearing,long-termcare,andpreventivecareforchildren.

PHARMACY PROVIDER NETWORKS

NETWORK

• A group of health care providers linked througha contract to provide health care services to itsmembers

COMMUNITY PHARMACY NETWORK• Consists of both chains and independent

pharmacies• Maybeeitheranopen(anycommunitypharmacy

mayparticipate)orclosed(onlyselectcommunitypharmacies)network

IN-HOUSE NETWORK• PharmacyownedbyanHMO• NormallylocatedintheHMOfacility• Providespharmacyservicesonlyformembersof

thenetwork

MAIL-ORDER PHARMACY NETWORK• Amail-orderpharmacyownedandoperatedbya

managedcareorganization• Membersobtaintheirfilledprescriptionsthrough

the mail; in some situations, members may beeligibletoobtainprescriptionsfromacommunitypharmacy.

PHYSICIAN DISPENSING NETWORK• Physicians dispense medications from their

offices.

PHARMACY REIMBURSEMENT FROM MANAGED CARE

• Reimbursementformula5Ingredientcost1Dis-pensing fee, where the dispensing fee may beeitherapredetermineddollaramountoraprede-terminedpercent

• Average wholesale price (AWP): Refers tothe average price that wholesalers sell amedication. The AWP is not regulated by thegovernment and does not take into accountdiscountsbasedonvolume.Managedcarereim-bursement may be calculated by using thefollowingequation:[AWP2%Discount]1Dis-pensingfee

• Actual acquisition cost (AAC): Actual cost thepharmacypaidforthemedication.AAC1Dispens-ingfee

• Maximum allowable cost (MAC):Usedincalcu-lating the reimbursement formula for genericmedications.MAC1Dispensingfee.TheMACisdeterminedbyamanagedcareorganization.

204 Mosby’s Review for the Pharmacy Technician Certification Examination

FORMULARY USAGE IN MANAGED CARE

• A list of medications approved for use or reim-bursementunderaprescriptionplan

• Each managed care organization determines itsownformularytobeused.

• Usedtocontrolprescriptioncosts• Open formulary: Includes a variety of several

medications in each therapeutic classification.In addition, multiple tiers of pricing may beused. In a multiple tier system, there will be adistinctprice forbrandeddrugs,genericdrugs,lifestyle drugs, and drugs not covered by theformulary.

• Closed formulary: Averylimitednumberofdrugsareavailablewithalimitednumberofmedicationsavailable in each therapeutic classification. Insomesituations,anentiredrugclassificationmaynot be available; however, an exception processisinplace.

• Restricted formulary: Aselective,limited,partiallyclosed formulary in which some nonformularymedications are available; an exception processdoesoccur.

• Formulary exception process: Processthatallowsthe right to use select nonformulary and formu-larymedicationtobedispensed• Formulary override: Process that requires the

physician to request approval to prescribe anonformularymedicationandtodocumentthereasonthemedication

• Prior authorization: Process toobtainauthori-zation to use select nonformulary drugs thatrequiresthephysiciantorequestanddocumentthereasonwhythemedicationisneeded

ONLINE ADJUDICATION

• The process by which a pharmacy submits pre-scription claims electronically to a third-partyproviderwhenfillingaprescriptiontoensureac-curate copayments and timely payment. Onlineadjudication provides an immediate responsefrom Medicare (Part D), Medicaid, and otherinsurance providers. It provides coverage infor-mation,reimbursementrates,andcopays.Inaddi-tion, it allows the pharmacy to verify a patient’seligibilityandtodeterminetheplanname,patientidentification,andgroupnumber.

• AllpharmaciesmustpossessaNationalProviderIdentifier (NPI), which is a unique number as-signedtohealthcareproviders,totransmithealthinformation according to the Health InsurancePortabilityandAccountabilityAct.

PRESCRIPTION PROCESSING

INFORMATION CONTAINED ON A PRESCRIPTION DRUG CARD

• BIN (bank identification number): Asix-digitnum-ber used to identify the company that will reim-bursethepharmacyfortheprescriptionbeingfilled

• Plan code: Prescriptionprovider• Group code: Employerthatcontractedthe insur-

ancecompanyforthepolicy• Issuer: Thehealthinsurancecompanywhoissued

thecard• ID: Maybeeithernumericoralphanumeric• Subscriber (cardholder) name: Individual who

purchasedthepolicy• Primary Care Provider (PCP):Optionaldepending

ontheplan• Copays: May be identified on the card but not

required• Help desk telephone number• Dispense as written (DAW) codes:Usedtoensure

the pharmacy is properly reimbursed by a thirdpartyproviderforaprescriptionbeingdispensed.Thesecodesareasfollows:05Noproductselectionindicated15Substitutionnotallowedbyprovider25Substitutionallowed—patientrequested

productdispensed35Substitutionallowed—pharmacistselected

productdispensed45Substitutionallowed—genericdrugnotinstock55Substitutionallowed—branddrugdispensed

asgeneric65Override75Substitutionnotallowed—branddrugman-

datedbylaw85Substitutionallowed—genericdrugnot

availableinmarketplace95Other

NATIONAL COUNCIL FOR PRESCRIPTION DRUG PROGRAMS REJECTION CODESPrescriptionclaimsthatarerejectedwillhaveatleastonerejectioncode.Thepharmacistorpharmacytech-nician must correct the prescription claim before re-submittingittothemanagedcareprovider.Listedonthenextpagearesomeofthemorecommonexplana-tionsprovidedfortherejectionofaprescriptionclaim.

PRIOR AUTHORIZATIONPriorauthorizationrequiresaphysiciantoobtainap-provalfromamanagedcareorganizationforaspecificmedication before it is dispensed by the pharmacy.

Chapter 8 Pharmacy Billing and Reimbursement 205

Priorauthorizationisanextrastepintheprescriptionbillingprocessbeforetheinsurancecompanydecidesto pay for the prescription. Without prior authoriza-tion,thepatientmayberesponsiblefortheentirecostof the medication. Situations that may require priorauthorizationincludethefollowing:• Brand name medications that have a generic

available• Expensivemedications• MedicineswithagelimitssuchasRetin-A• DrugsusedforcosmeticpurposessuchasPropecia• MedicationssuchasCialisandViagraprescribed

fornon–life-threateningmedicalconditions• Drugsnotusuallycoveredbytheinsurancecom-

pany but said to be medically necessary by thephysician

• Medicines that are usually covered by the insur-ancecompanybutarebeingusedatahigherdosethan“normal”

PLAN LIMITITATIONS

• Intendedtocontroldruguseandreducedrugcosts• Methodofdeterminingplansavings

PRESCRIPTION LIMITATIONS• Maximumamountofmedicationthatmaybedis-

pensedatonetime• Normally expressed as day’s supply, which is

30 days for community pharmacies and 90 daysformail-ordersupplies

DRUG BENEFIT LIMITATIONS• Dollar limit: A maximum amount that can be

spentatonetimeonaprescription

• Spending or prescription cap: The maximumamountthatcanbespentperperiodoftime,nor-mallyyearly

• Maximum number of prescriptions that can bedispensedtoamemberoveraperiodoftime,nor-mallymonthly

• Time limits for a prescription to include refills,which is normally 1 year for noncontrolledprescriptions

HEALTH CARE REIMBURSEMENT SERVICES

• Ambulatory care parenteral therapy: The Cen-ters for Medicare and Medicaid Services hascreated a list of health insurance continuationprogram codes for drugs in this setting. Reim-bursable costs are also included. Other feesincludeaprofessionalfeecomponentandafacil-ityfee.

• Cognitive services: These services include pre-scriptiveauthoritybythepharmacist,administra-tion of medications by the pharmacist, patientassessment and treatment, pharmacist interven-tionwithprescribersandotherhealthcareprovid-ers, patient education, and patient reassessmentandmonitoring.Reimbursementisbasedonprioryears’data.

• Community care: Cost of medication plus a dis-pensing fee for dispensing, monitoring, and re-cordkeeping

• Long-term care:Perdiemreimbursement(prede-termineddailyrate)thatisbasedonpriormedica-tion costs of the facility. Formulary control isimportant. Regulatory agencies have developed

REJECTION CODE REJECTION DESCRIPTION

1 MissingorinvalidBIN2 Missingorinvalidversionnumber3 Missingorinvalidtransactioncode4 Missingorinvalidprocessorcontrolnumber5 Missingorinvalidpharmacynumber6 Missingorinvalidgroupnumber7 MissingorinvalidcardholderIDnumber8 Missingorinvalidpersoncode9 Missingorinvalidbirthdate

10 Missingorinvalidgendercode11 Missingorinvalidpatientrelationshipcode15 Missingorinvaliddateofservice16 Missingorinvalidprescription/servicereferencenumber19 Missingorinvaliddayssupply20 Missingorinvalidcompoundcode22 Missingorinvaliddispenseaswritten(DAW)/productselectioncode25 MissingorinvalidprescriberID26 Missingorinvalidunitofmeasure28 Missingorinvaliddateprescriptionwritten29 Missingorinvalidnumberofrefillsauthorized

206 Mosby’s Review for the Pharmacy Technician Certification Examination

lists of medications they have deemed unneces-sary based on excessive adverse effects or pooroutcomesobtained.

DEDUCTIBLE

• Apredeterminedamountofmoneythatmustbespentonprescriptionsbeforecopaymentbegins

• Notallprescriptiondrugplanshavedeductibles.

TYPES OF COPAYMENTS

Thepatientisresponsibleforallprescriptiondeduct-iblesandcopays.

FIXED COPAYMENT• A predetermined fixed or predetermined dollar

amountperprescriptionfilled

PERCENTAGE COPAYMENT• A predetermined fixed percentage of the cost of

theprescriptionfilled

VARIABLE COPAYMENT• Avariableordifferentpaymentbasedonthetype

ofdrugbeingdispensed• Examples of classifications used include generic

drug, preferred brand name drug, nonpreferredbrandnamedrug,andlifestyledrug.

• Variablecopaymentsencourageuseofgenericandformularydrugs.

• Providesagreateraccesstodrugsforthememberbutmakesthemresponsibleforhighercopays

• Lowersthecostofprescriptiondrugbenefittotheemployerandshiftsmoreof thedrugcost to themembers

COST CONTAINMENT

Methodsusedinclude:• Restrictivepharmacynetworks• Mail-orderandInternetpharmacy• Electronicclaimsubmission• Highermembercopayments• Tieredcopayments• Formularymanagement• Priorauthorization• Competitivedrugbuying• Benefitlimitations• Mandatorygenericsubstitution

COMMERCIAL MATH FORMULAS

• Cost:Purchaseprice1Costtodispense• Discount:Purchaseprice3Discountrate

• Discounted price:Purchaseprice2Discount• Gross profit:Sellingprice2Purchaseprice• Inventory turnover rate:Annualdollarpurchase

4Averageinventoryvalue• Markup:Sellingprice2Purchaseprice• Net profit:Overallcost3Desiredpercentprofit• Overhead:Sumofallexpenses• Profit:Sellingprice2Overallcost

CHAPTER 8 REVIEW QUESTIONS

1. Whatisthetotaloverheadforapharmacythathasthefollowingexpenses?

Pharmacistsalary(2) $90,000Pharmacytechnicians(3) $30,000Rent $240,000Pharmaceuticaldrugs $2,850,000Licenses $545Insurance $2025Electricity $3625Gas $8525Water $895Supplies $1255Software $995

2. WhatisthegrossprofitforadrugthathasanAWPof$59.99,hasadispensingcostof$3.75,andretailsfor$67.99?

3. Whatisthemarkupforadrugthatcosts$9.99,hasadispensingcostof$2.75,andretailsfor$13.99?

4. What is the markup rate for a drug that costs$19.99andretailsfor$25.99?

5. WhatisthenetprofitforadrugthathasanAACof$99.99,hasadispensingcostof$4.25,andretailsfor$112.99?

6. Thecostforabottleof100teststripsforaglucom-eteris$67.50.Theoverheadforthestoreis$3.50,andthestorewantstomakeanetprofitof$23.68.Whatshouldthesellingpricebe?

7. Howmuchwillapharmacypayawholesaleriftheconditionsare2%net30iftheinvoiceshows$1950.00?

8. What will the inventory turnover rate be for apharmacy if the inventory value is $255,000 andthepharmacyhassalesof$3million?

9. Howmanyinventoryturnswillapharmacyexpe-rience if it has an initial inventory of $225,000,a final inventory of $250,000, and sales totaling$2.6millionduringtheyear?

Chapter 8 Pharmacy Billing and Reimbursement 207

10. Which of the following is not an advantage ofstandardizedprescriptioncardformat?a. Decreasedproblemswithclaimssubmissionb. Increasedcallstohelpdesksc. Increasedtimeforpatientcared.Speedyprescriptionclaimprocessing

11. Which DAW code should be assigned to a pre-scriptionwhere thephysicianhasapproved thedispensingofagenericdrugbutthepatienthasrequestedthebrandnamemedication?a. DAW0b. DAW1c. DAW2d.DAW3

12. Whattermreferstotheprocessingofaprescrip-tionclaimtoathird-partyprovider?a. Bankingidentificationnumberb. Groupnumberc. Onlineadjudicationd.Rejectioncode

13. WhichMedicareprogramwillreimburseanout-patientpharmacyforapatient’sprescription?a. MedicarePartAb. MedicarePartBc. MedicarePartCd.MedicarePartD

14. Whichofthefollowingmanagedcareprogramsare provided to individuals or families that arebelowanincomelevelduringacalendaryear?a. Healthmaintenanceorganizationb. Medicaidc. Medicared.Preferredproviderorganization

15. Whichofthefollowingcircumstanceswouldnotrequirepriorauthorizationbeforethemedicationisdispensedtothepatient?a. Drugs not usually covered by an insurance

companybutsaidtobemedicallynecessaryb. Expensivemedicationsc. Genericmedicationsd.Prescription medications usually covered by

insurancecompaniesbutarebeingprescribedatahigher-than-normaldosage

16. Which of the following is the basic formula fordetermining the price of a prescription beingfilled?a. AAC1 Dispensingfeeb. AWP1Dispensingfeec. Drugcost1Dispensingfeed.MAC1Dispensingfee

17. Which of the following groups does Medicaidnotcover?a. Individualswithdisabilitiesb. Personswithlowincomesc. Pregnantwomend.Singleworkingindividualswithabove-average

incomes

18. What term refers to a type of health care reim-bursement plan in which the participant maymake pre-tax contributions through payroll de-ductionstopayforprescriptioncopays,prescrip-tions,andprescriptiondeductibles?a. Copayb. Deductiblec. Healthcaresavingplansd.Premium

19. Whichofthefollowingtermsreferstothepriceapharmacypaysafteralldiscountsandshippingcostshavebeenapplied?a. Actualacquisitioncostb. Averagewholesalepricec. Deductibled.Maximumallowablecost

20. Whichofthefollowingshouldnotbeafactorinselectingmedicationsforaformulary?a. Drugcostb. Drugsourcec. Medicationeffectivenessd.Medicationsafety

21. Whichof thestatementsregardingtheprescrip-tiondrugbenefitsistrue?a. Alldrugbenefitplansareidentical.b. Drugbenefitsareamandatorypartofhealth

carecoverage.c. Drug benefits can include tiered copays and

excludecertaindrugs.d.Membersmustusemail-orderpharmaciesfor

prescriptions.

208 Mosby’s Review for the Pharmacy Technician Certification Examination

22. WhichofthefollowinggroupsdoesMedicarenotcover?a. Childrenb. Individualswithdisabilitiesc. Patientsundergoingdialysisd.Seniorcitizens

23. Which of the following pieces of information isnottransmittedbyonlineadjudication?a. Datetheprescriptionisfilledb. Nameofthepharmacyfillingtheprescriptionc. Name, strength, and dosage form of the

medicationd.Pharmacytechnician’sname

24. Which of the following is an additional policythat covers the gaps in the original Medicareprogram?a. MedicarePartAb. MedicarePartBc. MedicarePartCd.Medigap

25. Which organization developed billing rejectioncodesforthird-partyprescriptions?a. BINb. GMPc. NCPDPd.SCRIPT