Specialty Drug Reimbursement 101: Pricing Levels, Contracts, and Requirements

RJ Health’s Chris Webb and Jason young walk through the different categories of specialty drug prices, and what is required for reimbursement with each. These webinar clips from “Shedding Light on Medically Covered Specialty Drug Pricing Methods” touch upon AWP (Average Wholesale Price), WAC (Wholesale Acquisition Cost), ASP (Average Sales Price), and how they are utilized under contracts and reimbursement.

To watch this full webinar: “Shedding Light on Medically Covered Drug Pricing Methods,” click here.

All past RJ webinars are viewable on-demand here: rjhealth.com/webinars.

HCPCS and CPT Drug Code Reimbursement (AWP, WAC)

Chris Webb: Okay, so we calculate our own AWP and Wholesale Acquisition Price based off of the code given, so those… the description of the code again is J9000 it was 10 milligrams. So, this is going off of a methodology that CMS actually used back in the 90s and they’re still on AWP model, well before the ASP change that they made back in 2005. So, looking at the NDCs that crosswalk back to the code, again they are linked by the gene based off of the generic product name, strength, and then route of administration. If there’s only branded NDCs in the code, we will calculate a code price based off of the lowest cost brand. There could be multiple strengths of the product as I’ve mentioned for that doxorubicin example, 10 milligrams, 20 milligrams, 50 milligrams. We’ll use all the NDCs that either match or are closest to the code descriptor strength. We will then come up with the lowest cost AWP, price or Wholesale Acquisition for that branded NDC, and that will drive our code level price. So, if you are looking at a code level, we’ll take a look at all those NDCs, this will give you the lowest branded price. The second level as if there were brand and generics or generics only within a code, we’ll go that same process. We’ll take a look at all the products that either are at the code strength of the descriptor or closest to, and we will look either at the lowest brand or the median generic. The median generic will be calculated at the straight up average. You will have, in theory, half the products that are matching the code description above the price that we calculate, as well as half below. The lower of the two then will win out, either the lowest brand or the median generics. The nice thing about this particular methodology is it prevents a plan from paying for highest cost brands; however, it does also allow a greater reimbursement rate for cheaper generic use. There’s a safeguard for the plan, again making sure that they’re not paying for higher cost items. There is also an incentive for providers to source cheaper generic stuff, hopefully to maximize their reimbursement rate for these particular products.

ASP-Based Code Reimbursement

Chris Webb: We kind of touched on this before, but ASP-based code pricing, this is the net sales data from the manufacturers on a quarterly basis. It has a weighted average, so whoever has a major market share will have a greater say in the current price that’s published by CMS. There is a two-quarter sales data gap or delay where they are acquiring all the information. And CMS will also go back and retroactively revise these rates as new sales information comes in. So, on Reimbursement Codes, I know that we provide different notes on there as well those new rates are reflected on our data files. If CMS does go back and retroactively revise a rate they do not go ahead and re-bill those clients, they don’t offer refunds or incentives, or will pay at a greater rate. It’s basically paid off of that historical rate. They will go back and then change it – I think they can go back two years to submit a claim to CMS. So, again that historical rate can vary, but there is that six-month delay. Again, it is based off of market share. And then if there is not an ASP calculated, especially for NOC Codes, they will typically use WAC plus 6 percent or there are also those caveats of vaccine rates, DME or blood limit.

Drug Pricing Models Applied to Contracts

Jason Young: So, Chris has introduced several different price types and some history behind these price types, how they’re derived and also how they translate into code level reimbursements. So, what we’re going to do now is we’re going to spend some time looking through a few different methodologies that somebody could apply to actually process and reimburse for medically covered prescription drugs. We’re going to primarily focus in here on physician-administered claims, a lot of, we talked about the hospital outpatient and a lot of that follows the APC scheme. So, we will carry through some of that pricing, but we’re generally focusing here on the physician office claims and we’re going to walk through a series of methodologies. The first methodology is, probably considered the most basic; we’re looking at a code level reimbursement. So, the code level we’re referring to is the HCPCS or CPT code level and really this is going to be driven by the HCPCS unit submitted. So, there are a few different ways to look at this. As we explained there is an AWP based code level reimbursement and, as Chris mentioned, typically when you’re dealing with AWP pricing you’re going to be applying a discount to the AWP rate, as we know that those AWPs are generally inflated above the actual price that somebody would pay for that drug. Typical discounts that we see applied range anywhere from five to fifteen percent off of the AWP rate. The WAC based code level is, again, generated off that wholesale acquisition cost price. So, now we’re talking a little better representation of the actual cost of a drug at first sale. So, in this case if a plan was going to use WAC based code level reimbursement they’re generally going to apply a mark-up to that when they actually reimburse the claim. This allows for some profit on the actual providers side that they’re purchasing that drug and administering it. So, sort of inverse to the AWP here. We usually see a mark-up of anywhere between 5-50% off of those WAC based prices. The last one being the Average Sales Price or Medicare allowable; as we know Medicare sets that as an ASP plus six. But generally, we will see plans use that same base ASP rate and apply different mark ups to that, sometimes in the neighborhood of eight to ten percent. One important part about the Medicare allowable ASP pricing, a consideration is that it’s not available for all HCPCS codes, so if you’re going down the path of using an ASP based reimbursement model, you have to keep in mind that you’re going to need an alternate strategy for those codes for which there is no CMS published ASP.

Code Level Reimbursement Requirements

Jason Young: So, the requirements needed to implement code level reimbursement. At minimum we’re looking at you’re going to need to see the HCPCS code and the HCPCS code units, estimated on a claim. So, these are what, the two elements that you absolutely must capture. You’re going to, the reimbursement formula’s pretty straight forward. You have simply the number of HCPCS units multiplied by your code level price. So again, that’s either an AWP code price, a WAC code price or the Medicare Allowable or an ASP rate. So, we publish all three of these code level reimbursements rates on our website. The ASP obtained, essentially, from deducting six percent from the published Medicare payment limit to get to a base ASP that allows the plan then to apply a mark up or discount. So, the number of units multiplied by the rate and then any mark-up or discount would be applied at the end of that calculation to determine the actual final allowed reimbursement amount. One note here is we, even though in this scenario, the minimum requirement is the HCPCS code and the code unit submitted on the claim, we suggest the NDC should also be captured and validated if available to ensure proper coding of the claim. So, I know there’s different levels of sophistication out there as far as how well the NDCs are being captured and also when or where the NDCs are being submitted, but if the data’s available it is suggested to validate that it is the appropriate NDC or that it is a valid NDC under the HCPCS or CPT code that is submitted.


To watch this full webinar: “Shedding Light on Medically Covered Drug Pricing Methods,” click here.

Learn why different pricing methods exist, how they are different, when each is used, and how they impact reimbursement. We also cover how NDCs are linked and crosswalked to HCPCS codes.

Hosted by:

Christopher Webb, CPhT
Director, Product Development

Jason Young, PharmD
SVP, Clinical Data Operations

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