Medications loom large in reimbursement picture

Key Points

First, you must determine whether a drug administered in your office is eligible for payment. Under Medicare, many physician-administered drugs are covered.

Exceptions to this eligibility are certain off-label or experimental drugs (to be discussed later). Another exception is drugs that already have been factored into the fee schedule amount for a certain procedure. That exception is in accordance with Medicare's global surgery policy that includes "certain supplies that are a normal part of the surgical procedure." Procedures in oculoplastics, for example, may include the cost of lidocaine hydrochloride (Xylocaine, Astra Zeneca) in the fee schedule amount.

The reporting rules for commercial payers will be unique to the payer. Many payers accept J codes. Others prefer use of National Drug Codes (NDC). NDC are specific to the manufacturer and, like HCPCS codes, specific to dosage. The correct NDC is listed on the label or the invoice.

CPT 99070, supplies and materials (except spectacles) provided by the physician over and above those usually included with the office visit or other services rendered, is recognized by some payers but is not eligible for payment by Medicare. Your payers will indicate whether they want medications reported that way.

Drug fee schedule

The Medicare drug fee schedule is listed quarterly and appears on the Medicare Web site ( http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice/01a_2007aspfiles.asp). For example, the Medicare fee schedule amount for J1020, methylprednisolone acetate 20 mg, is $2.43.

The level at which covered drugs are reimbursed by Medicare is determined by the "average sales price" formula. That formula replaced the previous approach, known as the "average wholesale price" formula.

With the current approach, drugs are reimbursed at 106% of the average sales price. That price usually represents a lower amount than was the case when drugs were reimbursed at a percentage of the average wholesale price.

The new methodology has saved the Medicare program money at the expense of reduced revenue streams to providers who use and bill the program for covered drugs.

The average sales price is determined by a weighted average of sales figures for any given drug. Manufacturers report their sales of the drugs to various entities, including physicians. Medicare then calculates the average price at which drugs are sold.

A principle factor that has an impact on the overall payment rate for physician services is the amount spent by the Medicare program on physician-administered drugs. The cost of these drugs comes out of the pool of money available for total physician services under Medicare Part B.

The formula used to determine the conversion factor under Medicare Part B is intimidating. Suffice it to say that money spent on physician-administered drugs has a negative impact on the money that is otherwise directed to physician services such as office visits and surgery.

Organized medicine has put forth a significant effort with the goal of taking the cost of physician-administered drugs out of Medicare Part B, so far to no avail.

Commercial payers determine payment rates for covered drugs according to their own methods.

They are not obligated to follow Medicare payment rules. In some cases, commercial payer coverage and reimbursement policies will differ greatly from those of federal payers. In general, your contract will spell out that fact, but the language in other cases may be vague or missing.