How to bill for Compound Drugs in Pharmacy Billing?

Basics of Pharmacy Compounding

Pharmacy compounding is the practice in which a licensed pharmacist combines, mixes, or alters ingredients in response to a prescription to create a medication tailored to the medical needs of an individual patient. Pharmacy compounding, if done properly, can serve an important public health need if a patient cannot be treated with an FDA-approved medication. The end product of the compounding practice is referred to as a compounded medication or compounded formulation.

Compounded drugs are sometimes used when other drugs are not available due to drug shortages. They can also be used if a person needs a drug in a dose or form that a drug company doesn’t make. For example, if a person is unable to swallow a pill, a liquid form of the drug may be compounded. Another example would be when a person is allergic to a dye in medication, a compounded medication can be made without that dye. It’s important to note that compounded drugs are not evaluated for safety or effectiveness and are not approved by the Food and Drug Administration.

Compounding pharmacies are not subject to statutes governing good manufacturing practices. They are may be required to comply with United States Pharmacopeia Chapters 795 and 797 which specifies conditions for safe compounding practices for non-sterile and sterile compounded medications. The FDA generally defers to state boards of pharmacy to enforce these guidelines.

Medical Necessity

Compounded medications may be considered medically necessary when ALL of the following criteria are met:

  • The primary active ingredient in the compounded medication must be a legend medication
  • The active ingredients must be in therapeutic amounts, based on FDA indication or adequate medical and scientific evidence
  • The safety and effectiveness of the compounded medication and its route of administration (including delivery system) is supported by FDA indication or adequate medical and scientific evidence (Such documentation is the responsibility of the prescriber to provide.)
  • If a compounded medication is similar to a commercially available product but differs from the commercially available products in dosage, dosage form, and/or omission of a sweetener, dye, flavouring or preservative, clinical documentation is required from the prescriber supporting the need for the compound
  • If any active ingredient in the compound otherwise requires prior authorization, the member must meet criteria established for medical necessity for that ingredient

Billing for Compound Drugs

Through compounding, a prescriber and pharmacist can adjust medications to the exact dosage needed by the patient.  Due to differences in patients’ body size, drug tolerance, or various organ failures, commercially available medications often do not provide the exact strength a patient requires.  Compounding is mainly used to avoid non-compliance.

Specialty Compounding has been useful in making medications easier to take and more effective.  It can be personalized for patients that may need specific strengths, dosage forms, flavors or ingredients excluded from medications due to allergies or other sensitivities.

Compounded medications do not have a National Drug Code (NDC) number, an average sales price (ASP), or an average wholesale price (AWP). Accordingly, the specific HCPCS J codes for the drugs in the compounded formulation may not be submitted. Instead, providers must use HCPCS code J7799 (unclassified drug) (use HCPCS code Q9977 (compound drug, NOC) effective with dates of service July 1, 2015, and after for reimbursement of the compound.

  • All outpatient drug claims billed must include the NDC, NDC quantity, and NDC Unit of Measure (UOM). National Drug Code (NDC) with the correct format (5-4-2); Valid unit of measures are F2 (international unit), GR (gram), ML (milliliter), UN (unit); and Dispensing quantity.
  • An invoice is required for each claim. Electronic submitters should indicate that they have an invoice available upon request by putting “Documentation Available Upon Request” in the electronic equivalent of Item 19 of the CMS 1500 claim form.
  • Medicare will send an ADS (development) letter requesting the invoice, which is needed to make the payment determination. If you do not indicate the availability of the invoice, or if you do not return it in a timely fashion, the claim may be denied as unprocessable.
  • The UOM codes are F2 = international unit, GR = gram, ML = millilitre, UN = unit (each).
  • Modifier KP should be used on the first service line (primary drug), Modifier KQ should be used on the second service line (subsequent drug) and can be repeated as many times as it takes to report compound drug.
  • If the drug administered is composed of more than one ingredient (i.e., compound drugs) and the claim is billed on a UB‐04 or CMS-1500 form, each NDC must be represented in the service line. The HCPCS code should be repeated as necessary to cover each unique NDC.

Billing for Compounded Drugs is really complicated and very difficult to be done without an expert’s assistance. Medical Billers and Coders (MBC) are doing pharmacy billing for a long time and our team is well versed with different aspects of pharmacy billing. Whether it’s legal compliance or knowing allowed amount for compound drugs. To know more about pharmacy billing services you contact us at 888-357-3226/