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

* 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

References:

• Pub 100-04 Medicare Claims Processing Manual - Chapter 17