If you sell nebulizer drugs alongside your nebulizer and aerosol therapy products, the challenges involved in billing for these drugs may become a little harder this month. Effective October 16, pharmacies that electronically bill the DME Regional Carriers (DMERCs) for nebulizer drugs must do so using the National Council for Prescription Drug Programs (NCPDP) standards.

Over the past few months, the Centers for Medicare and Medicaid Services (CMS) has issued additional instructions concerning submission of drug claims to the DMERCs under the new Health Insurance Portability and Accountability Act (HIPAA) transaction standards. While the guidance clarifies certain issues, there are other issues that remain unresolved.

If your company electronically bills the DMERCs for nebulizer drugs—and all but a few exempt nebulizer drug providers will be required to do so by October 16—you must clearly understand the NCPDP requirements, as well as potential problems, and take action now in order to be prepared for the October 16 deadline.

Hello NDC
One of the most noticeable changes in the new standards is that they require each drug to be identified by its National Drug Code (NDC) number, not by its Healthcare Common Procedure Coding System (HCPCS) code.

CMS has issued guidance concerning the submission of claims under the NCPDP standards in a number of Program Memoranda. Two of the Program Memoranda that address submission of claims for compounded drugs are Program Memorandum B-03-024 issued April 11, 2003, and Program Memorandum B-03-041 issued May 23, 2003. The latter contains the NCPDP Companion Document, which details information necessary to submit Medicare claims using the NCPDP standard. This document can also be accessed on the Internet at http://cms.hhs.gov/manuals/pm_trans/B03041.pdf.

According to these Program Memoranda and the NCPDP Companion Document, compounded drugs should be billed using the Compound Segment in the NCPDP standard, and each compound drug must be sent in a separate transmission. The “Compound Route of Administration” field (452-EH) will be used to identify the type of drug compound, and the value in this field must be a “3” for nebulizer drug compounds.

Compounded drug claims will continue to use the KP and KQ modifier designations. The drug to receive the KP modifier will be identified by use of a “09” in the “Compound Ingredient Basis of Cost Determination” field (490-UE) in the Compound Segment in the NCPDP standard. The DMERC will assign all other drugs in the Compound Segment a KQ modifier during processing.

Push for NDC Could Change Payments
Currently, reimbursement for nebulizer drugs is mandated by statute to be the lower of the actual charge or 95% of the average wholesale price. The term “average wholesale price” (AWP) has not been defined by statute or regulation, but it is commonly understood to mean the published price for a particular drug in sources such as Red Book or Medispan. Each NDC code has its own AWP, as AWP is specific to the drug, manufacturer, brand, and package size.

Because Medicare currently pays nebulizer drug claims based on HCPCS code, and not NDC code, the reimbursement rates are calculated using the AWPs for all drugs that meet the HCPCS code definition. With the conversion to the NCPDP standard, will reimbursement for nebulizer drugs now be based on NDC codes instead of HCPCS codes? This is an important question because if the DMERCs were to base reimbursement on NDC codes, rather than HCPCS codes, the supplier’s reimbursement for a particular drug would be dependent on the actual drug dispensed since each NDC code has its own AWP.

On August 20, 2003, CMS published a proposed rule (68 Fed Reg 50428) about revising the payment methodology for certain Part B-covered drugs and biologicals. The proposed rule sets forth four different approaches being considered by CMS and requests comments be submitted no later than October 14 concerning which of the proposed approaches CMS should implement. Each of the four approaches is designed to ensure that the reimbursement rate paid by Medicare is more closely aligned with either the reimbursement rates that other, similarly situated payors are paying the providers/suppliers for the same drugs, or the prices actually charged to providers/suppliers to acquire the drugs. The proposed rule addresses explicitly defining AWP, but does not discuss basing future reimbursement rates on NDC codes instead of HCPCS codes.

The NDC/HCPCS Crosswalk
So long as reimbursement is based on HCPCS code instead of NDC code, the NDC code must be translated into the correct HCPCS code in order for the DMERC to adjudicate the claim. For this reason, CMS requested that the Statistical Analysis DME Regional Carrier (SADMERC) develop a “crosswalk” between NDC codes and HCPCS codes. The 117-page NDC crosswalk can be found on the SADMERC’s Web site at www.palmettogba.com/palmetto /Other.nsf/Attachments/85256D430058D01D85256D71006334E5/$FILE/NDC+Crosswalk.pdf.

This document raises several questions. For example, prior to implementation of the NCPDP standard, claims for one popular commercial albuterol and ipratropium bromide compound medication were submitted and paid under the HCPCS codes for ipratropium bromide (J7644) and albuterol (J7619). Under the initial version of the NDC crosswalk, the NDC codes for this compound drug are crosswalked to the HCPCS miscellaneous drug code J7699. This raises significant concerns about how the DMERCs will adjudicate claims for this drug. First, is the crosswalk capable of crossing one NDC code into multiple HCPCS codes? If not, and if this drug remains crosswalked to J7699, will each of these claim have to receive individual DMERC review as normally required for J7699 claims?

A second issue relates to submission of claims for drugs that have no HCPCS codes. Currently, a pharmacy submitting such a claim puts the drug under the J7699 code and provides additional information to enable the DMERC to review the claim. But, as stated above, in the initial version of the crosswalk, only one popular commercial albuterol and ipratropium bromide compound medication is crosswalked to J7699. How will claims for miscellaneous drugs not having a HCPCS code be handled?

In Program Memorandum B-03-024, CMS states that in processing claims for compounded drugs, “if an ingredient in the compound is not found in the CMS NDC file, the claim will not reject for an invalid NDC code. In this case, the DMERCs will crosswalk this NDC compound ingredient to HCPCS code A9270 (noncovered item or service).”

What it All AdDs Up To
This appears to mean that a home health care pharmacy may no longer have the ability to submit claims for non-common drugs under a miscellaneous code for individual review, unless the drug appears on the NDC crosswalk and is crossed to a J7699 HCPCS code. If the NDC code is not contained in the NDC crosswalk, it appears that the drug will be denied as noncovered.

It is therefore critical that the NDC crosswalk contain all drugs reasonably anticipated to be included in the submission of claims. A review of the initial NDC crosswalk indicates that the only NDC codes crosswalked to J7626 (budesonide) are those related to one popular commercial formula. The initial crosswalk does not contain any NDC for budesonide powder(s) used in compounding nebulizer drugs. Unless this deficiency is corrected prior to October 16, a pharmacy submitting a claim with an NDC for budesonide powder will not receive any reimbursement for the budesonide.

Therefore, pharmacies should closely review the NDC crosswalk to verify that the drugs they dispense, or use, in compounding, are contained in the crosswalk and are associated with the proper HCPCS code. Any noted deficiencies should be reported immediately to the SADMERC. A pharmacy should never submit a claim with an NDC number different from that of the product actually dispensed, unless it receives written direction from the payor to do so.

The mandated electronic submission of drug claims to the DMERCs under the NCPDP standard is here. Unfortunately, as of press time there were still unresolved issues that can significantly impact pharmacies billing the DMERCs for nebulizer drugs. Pharmacies must familiarize themselves with the potential problems and take action now to resolve them.

Lisa K. Smith, JD, is an attorney with the Health Care Group of Brown & Fortunato PC, Amarillo, Tex. She represents DME companies, pharmacies, and other health care providers throughout the United States and Puerto Rico. Contact her at (830) 896-0018 or lsmith@bf-law.com.