Payment Rules for Drugs and Biologicals (Rev. 2437, 01-01-13)

by  Jared Staheli
July 7th, 2015

Drugs for inpatient hospital and inpatient skilled nursing facility (SNF) beneficiaries are included in the respective prospective payment system (PPS) rates, except for hemophilia clotting factors for hospital inpatients under Part A.

All hospital outpatient drugs are excluded from SDP because the payment allowance for such drugs is determined by a different methodology. Non pass-through drugs with estimated per day costs less than or equal to the applicable drug packaging threshold that are furnished to hospital outpatients are packaged under the outpatient prospective payment system (OPPS). Their costs are recognized and included but paid as part of the ambulatory payment classification (APC) group payment for the service with which they are billed. Non pass-through drugs with estimated per day costs greater than the applicable drug packaging threshold are paid separately.

Drugs that are granted “pass through” payment status are required by law to be paid at either the amount paid under the physician fee schedule, or, if the drug is included in the Part B drug competitive acquisition program (CAP), at the Part B drug CAP rate. Drugs that have pass-through status may have coinsurance amounts that are less than 20 percent of the OPPS payment amount. This is because pass-through payment amounts, by law, are not subject to coinsurance. CMS considers the amount of the pass-through drug payment rate that exceeds the otherwise applicable OPPS payment rate to be the passthrough payment amount. Thus, in situations where the pass-through payment rate exceeds the otherwise applicable OPPS payment rate, the coinsurance is based on a portion of the total drug payment rate, not the full payment rate.

Hospitals must report all appropriate HCPCS codes and charges for separately payable drugs, in addition to reporting the applicable drug administration codes. Hospitals should also report the HCPCS codes and charges for drugs that are packaged into payments for the corresponding drug administration or other separately payable services. Historical hospital cost data may assist with future payment packaging decisions for such drugs. Drugs are billed in multiples of the dosage specified in the HCPCS code long descriptor. If the drug dose used in the care of a patient is not a multiple of the HCPCS code dosage descriptor, the provider rounds to the next highest unit based on the HCPCS long descriptor for the code in order to report the dose provided.

If the full dosage provided is less than the dosage for the HCPCS code descriptor specifying the minimum dosage for the drug, the provider reports one unit of the HCPCS code for the minimum dosage amount.

OPPSPricer includes a table of drugs and prices and provides the contractor with the appropriate prices.

Section 90 relates specifically to billing for hospital outpatients. The remainder of this chapter relates to procedures for pricing and paying DME recipients, and to beneficiaries who receive drugs under special benefits such as pneumococcal, flu and hepatitis vaccines; clotting factors, immunosuppressive therapy, self administered cancer and anti emetic drugs, and drugs incident to physicians‟ services.

The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 defines a Specified Covered Outpatient Drug (SCOD) as a covered outpatient drug for which a separate APC has been established and that is either a radiopharmaceutical agent, or a drug or biological for which payment was made on a pass-through basis on or before December 31, 2002. Payment for SCODs is set, by law, at the average acquisition cost. Under the OPPS, a single payment is made for SCODs that represents payment for both the acquisition cost of the drug and any associated pharmacy overhead or nuclear medicine handling costs.

Drugs or biologicals must meet the coverage requirements in Chapter 15 of the Medicare Benefit Policy Manual. Additionally, for end stage renal disease (ESRD) patients, see the Medicare Benefit Policy Manual, Chapter 11. For ESRD patient billing for drugs and claims processing, see Chapter 8 of this manual.

The following chart describes the general payment provisions for drugs.

Table - Drug Payment Methodology

Key to the following Table:


DME MACs do not process claims for blood clotting factors.

Unless noted otherwise, claims for these drugs are submitted to the local MAC

† - Drugs & biologicals outside the composite rate and/or ESRD PPS are paid as described in 2 below. Those inside the composite rate and/or ESRD PPS are paid as described in

1. (ESRD PPS effective January 1, 2011) 1 - Included in PPS rate, or other provider-type all inclusive encounter rate

2 - Price taken from CMS drug/biological pricing file effective on the specific date of service

3 - Based on reasonable cost (101% reasonable cost in CAH)

4 - Lower of cost or 95% AWP paid for drug in addition to PPS rate, or in addition to reasonable cost if excluded from PPS

5 - OPPS-APC, whether pass-thru drug or not

6 - Cannot furnish as that “provider” type

7 - May not bill DME-MAC or MAC for drugs furnished incident-to a physicians’ service

8 - Payment made at the time of cost settlement

A - Bills are submitted to the DME MAC

++ Except in the State of Washington, where CMS permits the ESRD Facility to bill for immunosuppressive drugs due to the unique State assistance to the beneficiary provided only via the ESRD Facility.

Provider/Drug Hepatitis B Vaccine Pneumococcal & Influenza Vaccines Hemophilia Clotting Factors Immuno - Suppressive Erythropoiesis Stimulating Agents (ESA’s) Self Admin Anti-Cancer Anti-Emetic for cancer treatment Other Drugs
Hospital Inpatient (IP) A -Prospective Payment System (IPPS) 3 3 2 1 1 1
Hospital IP A - not IPPS 3 3 3 3 3 3 3
Hospital Outpatient Prospective Payment System (OPPS) 3 3 3 5 (30 day supply) 5 5
Skilled Nursing Facility (SNF) IP 3 3 1 1 1 1 1
SNF OP or IP B 3 3 3 3 6 6 6
End Stage Renal Disease (ESRD) Facility 2 2 6 6++ 1 or 2† 6 1 or 2†
Comprehensive Outpatient Rehabilitation Facility (CORF)/ Outpatient Rehabilitation Facility (ORF) 2 2 6 6 6 6 6
Community Mental Health Center (CMHC) 6 6 6 6 6 6 6
Rural Health Clinical (RHC)/Federally Qualified Health Clinic (FQHC) -hospital based 1 8 5 5 5 5 5
RHC/FQHC-independent 1 8 6 6 6 6 6
Home Health Agencies (HHA) 3 3 6 6 6 6 6 (except for osteoporosis)
Hospice 6 6 6 6 1 1 1
Physicians 2 2 2 2 2 2 2
Pharmacy 2 2 2, 7 2, A 2 2, A 2, 7
Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Supplier 2 2 2 2 2 2 2
Critical Access Hospital (CAH) IP or OP Method I or II 3 3 3 3 3 3 3


Independent and provider-based RHCs and FQHCs generally do not bill for pneumococcal/influenza vaccines, except when the only service involved is the administration of the vaccine. Instead, RHCs/FQHCs are generally paid for pneumococcal/influenza vaccines at cost settlement via the Medicare cost report. Hepatitis B vaccine payment is bundled into the encounter rate for both Independent and provider-based RHCs and FQHCs.

Influenza, pneumococcal, and Hepatitis B vaccines are paid on a reasonable cost basis in a hospital outpatient department. Neither deductible nor coinsurance apply.

HHAs cannot bill for vaccines, except on TOB 34X, since vaccines are not part of the HH benefit and cannot be paid under HH PPS.

Influenza, PPV, and Hepatitis B vaccines are paid once for the vaccine and once for the administration of the vaccine. The provider or supplier (including physician) must enter each of the HCPCS on separate lines of the claim.

A Part B blood clotting factor claim from a Part B supplier is processed by the Local Part B Carrier.

A Part A blood clotting factor claim from a Part A provider, including a hospital-based hemophilia center, is processed by the hospital’s Medicare contractor.


Payment Rules for Drugs and Biologicals (Rev. 2437, 01-01-13). (2015, July 7). Find-A-Code Articles. Retrieved from

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