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HCFA Launches PPS for Hospital Outpatient Services; Billing May Pose Challenge to Pharmacists

Tzipora R. Lieder

The hospital outpatient prospective-pricing system (PPS) for Medicare Part B begins today, and pharmacists long steeped in diagnosis-related groups for inpatient care must learn the language of ambulatory payment classifications (APCs) and the intricacies of billing for drugs under the new system.

Outpatient PPS categorizes all covered services into 451 APCs. Originally, the Health Care Financing Administration (HCFA) proposed to package the cost of all drugs within APC groups, assuming that drugs are usually provided in connection with some other treatment. But in determining how much to pay for each APC, HCFA used claims data from 1996. Critics were concerned that the 1996 data would not adequately represent the costs of many new, expensive drugs. In response to these fears, HCFA decided to establish a list of "transitional pass-through" drugs for which reimbursement will be independent of APC groups.

The transitional pass-through list consists of

  • Current orphan drugs;   
  • Current cancer therapy drugs, biologicals, and brachytherapy devices, including antineoplastic drugs, antiemetics, hematopoietic growth factors, colony-stimulating factors, biological response modifiers, and bisphosphonates;   
  • Current radiopharmaceutical drugs and products used for diagnosis, monitoring, or therapy of disease; and   
  • New drugs, biologicals, or medical devices whose cost is considered significant when compared to the payment amount for the associated APC.

A HCFA memo dated July 26 modifies the criteria for pass-through coverage for some drugs. Oral antiemetics, for example, are covered only when used "as a complete therapeutic substitute for an i.v. antiemetic at time of chemotherapy treatment, not to exceed a 48-hour dosage regimen."

Additionally, HCFA said it has established separate APC groups for pharmaceuticals such as immunosuppressive drugs used after organ transplantation and other high-cost drugs that are not included on the pass-through list. Separate payments will also be made for thrombolytic drugs administered during an emergency department visit after an acute myocardial infarction or stroke and for drugs used during dialysis that are not included in the APC payment.

Medicare will pay for pass-through drugs at a rate of 95 percent of the average wholesale price (AWP), with the AWP being updated yearly. Drugs will remain on the pass-through list for at least two but no longer than three years; after this transitional period, payments for the associated APCs will be updated to include the costs of these drugs. For drugs already on the list, the transitional period begins today; for future additions, it will begin the day the item is added. HCFA said that the transitional pass-through list will be updated quarterly and that the first opportunity for adding to the list will be Oct. 1.

One potential problem may arise when new drugs are approved by FDA but have not yet been assigned a common procedures coding system (HCPCS) code by HCFA. Until this code is established, the drug cannot be added to the pass-through list. The process of obtaining a code takes a minimum of six to nine months, according to HCFA. Temporary codes may be assigned for drugs whose applications miss the annual HCPCS deadline, but the time frame for this process is uncertain. This lag time could make hospitals reluctant to use new drugs because they fear inadequate reimbursement, some critics have said. The only way Medicare will pay for drugs not on the pass-through list is as a part of the associated APC group.

How pharmacists are affected by outpatient PPS depends largely upon the billing mechanisms in place at a hospital, said Patricia C. Kienle, System Director of Pharmacy Services, Owen Healthcare, at Mercy Health Partners in Wilkes-Barre, Penn. When a medication order is filled, the line item is transmitted electronically to the billing department. Each drug is assigned several codes used in submitting Medicare claims. Pharmacists often refer to HCPCS codes as "J codes" because, until recently, codes assigned to drugs always began with the letter J. (Some drug codes now begin with C, Q, or S.) Revenue codes assigned to drugs are not drug-specific; they denote broad categories under which drugs are grouped on the basis of various factors, including a drug's pass-through status.

It is vital that a hospital have on file in its computer system the correct codes for each drug used, Kienle said, so that billing will be correct each time a drug is dispensed. Some hospitals already have the HCPCS codes on their systems, but others have not used the codes in the past because their use in Medicare claims was not mandatory. Now, the pressure is on to update systems, because reimbursement hinges on proper coding. All drugs, even those that are grouped within an APC, should be billed with the correct codes, because HCFA will use these data to update APC payments in the future.

Kienle is concerned about the potential for both billing errors and medication errors with the HCPCS coding system. There is considerable variation in the assignment of codes; some products that are available in several package sizes have only one code, while others have a different code for each package size. Often, said Kienle, "the package size available commercially does not match the HCPCS code."

For example, the HCPCS code assigned to paclitaxel injection corresponds to the 30-mg vial, but Kienle's institutions also stock the 100-mg package of the drug. To ensure billing accuracy for Medicare purposes, the 30-mg vial is the only package size for paclitaxel that appears on the pharmacy computer system. Pharmacists must enter the dose on the basis of the number of 30-mg vials used, even if they actually used a larger vial or a partial vial. "We have to manipulate our system so everything comes out right," Kienle said.

It is important, Kienle stressed, for "each pharmacy director to have someone in the department who is well versed in outpatient PPS, so they can make sure that the coding is correct and the hospital's reimbursement is correct."


Where to Look for Help

To keep abreast of developments in outpatient PPS, pharmacists can check out the following HCFA resources:

  • An electronic mail service that provides information on changes (subscribe at  
  • The list of transitional pass-through drugs as of March 12, 2000, available in PDF format or as a Microsoft Excel spreadsheet  
  • A July 26 memo providing more details on some of the drugs on the pass-through list, available in both PDF and Microsoft Word format; see section I (For a cumulative list of information on pass-through drugs, cut the longer descriptors from the Word version and paste them into the spreadsheet version of the original pass-through list.)  
  • Section IV (mislabeled in the document as section III) of the July 26 memo, providing a list of drugs not eligible for pass-through payment but classified in separate APCs 

Kienle suggests these additional resources:

  • The hospital's director of billing, who will likely have a copy of a manual with extensive information on Medicare billing  
  • The hospital's Medicare fiscal intermediary's Web site (if available), which should be monitored regularly for new announcements