A Detailed Reimbursement Process for Medicare Pharmacy Claim

The Medicare Prescription Drug Improvement Modernization Act (MMA) of 2003 created the Medicare Part D, prescription of drug benefit program and implemented it on January 1, 2006. Pharmacy reimbursement under Part D is based on negotiated prices, which is usually based on the Average Wholesale Price (AWP) minus a percentage discount plus a dispensing fee.

There are two Components of Pharmacy Reimbursement:

  • Dispensing Fee

A dispensing fee compensates the pharmacy for transferring the drug/medication from the pharmacy to the patient, stocking and storing medications and patient counseling. Under the Medicare drug reimbursement system, the pharmacist is paid $2.27 per prescription.

  • Prescription Drug Cost

The prescription drug cost component of reimbursement is still in process of being reformulated. Currently, most third-party payers pay for prescription drug costs based on a fixed discount from the AWP, for example: AWP minus 10 percent.

How are the reimbursements processed for Medicare Pharmacy Claim?

The pharmacy reimbursement process can be broken into the following steps:

Receiving the prescription: Whenever a pharmacy receives a prescription, it is important to track its source (i.e. from where the prescription is coming). This is tracked using a prescription origin code (POC). The prescription origin codes are:

  • 0= Unknown (when the manner in which the original prescription was received is not known)
  • 1= Written prescription via paper (it includes traditional prescription forms and computer printed prescriptions)
  • 2= Telephone prescription (one obtained via oral instruction or interactive voice call)
  • 3= E-prescriptions (prescriptions that are securely transferred from a computer to the pharmacy)
  • 4= Facsimile prescriptions (ones obtained via fax transmission, including an e-Fax where a scanned image is sent to the pharmacy, and either printed or displayed on a monitor/screen)

Patient data entry : It’s important for a pharmacy to gather the patient data such as- name, address, date of birth, contact information, and any other pertinent data related to allergy, insurance name, group number, member number, bank identification number (BIN) etc. Apart from that, in order to process a prescription, following information is required to be entered in pharmacy billing software:

  • Prescriber’s name and contact information, medical license number
  • Prescription date
  • DAW (dispense as written) code
  • Third party payer information (if a patient has multiple insurance plans, enter them as primary, secondary, etc.)
  • Drug information such as the manufacturer, expiration dates, price, stock availability etc.

Pharmacy claim transmittal: At this point, the pharmacy is ready to transmit the prescription. First it goes through the switch vendor and is either accepted or sent on to the PBM (pharmacy benefit manager). If declined, the pharmacy, the prescriber and/or the patient will need to contact the PBM to obtain approval. If a patient has multiple insurance plans, most pharmacy software systems are capable of performing split-billing.

A prescription can be declined due to:

  • a non-covered medication/ a medication requiring prior authorization,
  • invalid quantity of medication dispensed
  • patient’s insurance is not currently active/ or the details are incorrectly entered
  • prescriber’s information is either incomplete/ incorrect
  • Third-party payer negotiation: Once the prescription is accepted, the claim is adjusted by the payer. The payer compares the terms of the patient’s benefit plan and the charges and determines what the insurance plan is financially responsible for and what the patient owes. This information is

returned to the pharmacy electronically.

  • Point-of-sale: After the medication has been filed and checked, a patient can pick it up after paying the charges (copays, deductibles, or if a particular medication is not covered, then the usual and customary price).
  • Payment processing: The insurance companies then send out payments (electronically or by cheque) to the pharmacies every thirty to sixty days for all prescriptions processed within a particular time frame for their pharmacy services. These payments are accompanied by a remittance advice (RA) providing the details about the paid claims.