Payment Allowance Limit for Drugs and Biologicals Not Paid on a Cost or Prospective Payment Basis (Rev. 131, 03-26-04)

by  Jared Staheli
July 7th, 2015

Prior to January 1, 2004, drugs and biologicals not paid on cost or prospective payment are paid based on the lower of the billed charge or 95 percent of the average wholesale price (AWP) as reflected in published sources (e.g., Red Book, Price Alert, etc.). Examples of drugs that are paid on this basis include, but are not limited to, drugs furnished incident to a physician’s service, immunosuppressive drugs furnished by pharmacies, drugs furnished by pharmacies under the durable medical equipment benefit, covered oral anticancer drugs, and blood clotting factors.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, changed the basis for payment of drugs and biologicals not paid on a cost or prospective payment basis. For January 1, 2004, through December 31, 2004, such drugs or biologicals are paid as described below:

• The payment limits for blood clotting factors will be 95 percent of the AWP.

• The payment limits for new drugs or biologicals will be 95 percent of the AWP. A new drug is defined as an unlisted drug (not currently covered by a HCPCS code) that was FDA approved subsequent to April 1,2003. A drug would not be considered new if: the brand or manufacturer of the drug changed; a new formulation of the vial size is developed; or the drug received a new indication.

• The payment limits for pneumococcal and hepatitis B drugs and biologicals will be 95 percent of the AWP.

• The payment limits for certain drugs studied by the OIG and GAO are based on the percentages of the April 1, 2003 AWPs specified on Table 1 below.

• The payment limits for infusion drugs furnished through an item of implanted durable medical equipment on or after January 1, 2004, will be 95 percent of the October 1, 2003 AWP.

• Drugs and biologicals not described above are paid at 85 percent of the April 1, 2003 AWP.

Payment limits determined under this instruction shall not be updated during 2004.

Table 1: Percentages of April 1, 2003 AWP for Selected Drugs

HCPCS Applicable Percentage
J0640 80
J1100 86
J1260 80
J1440 81
J1441 81
J1561 / J1563 80
J1626 80
J1642 80
J2405 87
J2430 85
J2820 80
J7320 82
J7517 86
J7608 80
J7619 80
J7631 80
J7644 80
J8520 / J8521* 90
J9000 80
J9045 81
J9170 80
J9201 80
J9202 80
J9206 80
J9217 81
J9265 81
J9310 81
J9350 84
J9390 81
Q0136 87

* Use the following NDC numbers when processing claims:

00004-1100-20 150 mg

00004-1100-51 150 mg

00004-1101-16 500mg

00004-1101-50 500mg


Payment Allowance Limit for Drugs and Biologicals Not Paid on a Cost or Prospective Payment Basis (Rev. 131, 03-26-04). (2015, July 7). Find-A-Code Articles. Retrieved from

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