Overcharges in Drug Rebate Claims Submissions

Ron Rogers, Director of Pharmacy Programs for the Minnesota Department of Human Services and Craig Rodenhizer, President of The Rodenhizer Group, LLC.

Background:
Those who have been involved with the Federal Drug Rebate Program since its inception in 1991 may remember that its original purpose was an attempt to give taxpayers a “break” through equating purchasing of drugs for federally funded Medicaid with the prices extended by manufacturers to other Federal purchasers, such as the military.  The “quid pro quo”, sometimes overlooked today, was that manufacturers would have open access to State Drug Formularies for all their drug products, with certain exceptions.  We may forget that this process in itself saved a lot of work (and money) for both manufacturers and payers in gaining access to formularies for new products, etc.  Many of us will remember the “hassle” of State Drug Formulary Committee meetings, with the sometimes uneven accessibility to the formularies, and the counter-productive delays in the coverage of new drugs.

While the Federal Drug Rebate Program did a lot to eliminate these issues, it created others in their place.  Over the years, many knowledgeable persons from the manufacturing, Federal and State agencies, health care professionals, legislators, auditors, and public advocacy groups have had to deal with what became a very complex system dealt with by many and fully understood by few. 

As with many things, communication is at the heart of the program.  Pharmacy claims, Medicaid Remittance Advices, Drug Rebate Invoices, rebate payments and their Remittance Advices, the ROSI, the PQAS, URA’s, Interest, NDC’s, Disputes, all these things and many more depend on accurate communication of information.  Systems devised by man can do stupendous things. These systems, unable to think for themselves, can also communicate and replicate errors. These errors can be both small and stupendous.  In worst case scenarios, now hopefully in the past, we have seen drug rebate invoices asking for over a Million Dollars when the total reimbursed for the drug was less than $100.  While these egregious and obvious errors have been eliminated, some others, more hidden, harder to spot, which are, for the most part unintentional, can remain.  With millions of claims being the norm, errors of a few pennies, errors tending to escape statistical scrutiny can multiply into many thousands of dollars.

A basic assumption of this “treatise” is that no payee wants to be paid rebates that are incorrect, and no manufacturer wants to pay a rebate when its product was not provided. Further, an overwhelming majority of pharmacy providers are scrupulously accurate and honest in their claims for reimbursement, and would not knowingly communicate inaccurate data.

The data used to calculate drug rebates has reimbursement as its primary purpose and not accuracy of rebate information.

Back in ancient history, many years ago when Medicaid was termed “Welfare”, reimbursement for services in most States, was accomplished at the County level. There was a hand-written carbonless form that pharmacies kept on file for each customer that was “on Welfare”. Each month, the hand written forms, which consisted of little more than name, prescription number, date and pharmacy charge, were sent in to the county for payment.  Needless to say, there was very little oversight with this system. Before long most States went to a central state reimbursement system.  All these claims coming to one place soon prompted an automated system, known as “MMIS” or Medicaid Management Information System.  The ability to use this centralized information for a number of purposes such as Post Payment Review or “pay and chase”, as it was known, and Drug Utilization Review Programs soon came into being.  Central Reimbursement led to other issues. For the first time, State Medicaid was able to perform statistical reviews of payments for drugs, eventually leading to cost control measures, one offshoot of which became the Federal Drug Rebate Program.

Another facet of the Medicaid pharmacy picture was the potential for inaccuracy of claims. The most memorable issue, occurring when the marketing of generic drugs really became popular, was so-called generic substitution.  While pharmacy is regarded as the “second most honest profession, surpassed only by the clergy”, some got into trouble. The issue was often described as providing “cheap generic drugs” while billing for the more expensive name brand.  In those days, the word generic hardly ever appeared in print by itself. The term used was frequently “cheap generic”.  Medicaid agencies and other payers conducting medication reviews and interviews with recipients on occasion identified instances where indeed generic products had been billed as name brand products, resulting in substantial overpayments.  Today, the advent of Maximum Allowable Cost” lists, Point-Of-Sale technology, aggressive Medicaid Fraud Control units, and provider education have greatly reduced this problem.

However…inaccuracies in claims submission can and do continue…

Manufacturers need to be aware that NDCs used to submit pharmacy claims determine which labeler pays the drug rebates for those claims.

It was not always so, but, the National Drug Code, or NDC, is now pretty much universally used today for billing pharmacy claims.  Let’s take a moment to review the NDC.  While there can be others, we refer here to the “5-4-2” format, wherein the first five digits or so-called labeler code defines the manufacturer of the product. Labeler codes are standardized and assigned to the manufacturer or labeler by Federal authority. The “middle four” digits comprise the product code, with the first two naming the product, and the second two defining strength and dosage form.  The last two digits define package size and type, such as unit dose.  We have seen package size as a factor in Medicaid reimbursement, with some pharmacy computers being programmed with the smallest container size code when the product was actually purchased in a larger size, such as 1,000 tablets or 1 or 5 pound topical product.  Deemed an overpayment, we have seen a few pharmacy providers return thousands of dollars in overpayments obtained either inadvertently or on purpose. That is another issue.  It should be mentioned that manufacturers may use any combination of numbers they wish for the product and container size codes, with little standardization between them. However, the first five digits of the NDC identify the name of the firm providing the product.

Today, sophisticated computer systems are used to bill payers of claims.  While the accuracy of dispensing is of the highest order, accuracy of claims billing may be less so.

The prescription, med order, or computer generated unit dose cart fill sheet starts the dispensing process.  For this discussion, we will look at the name of the drug, which can be provided either by brand name or generic name.  The order can arrive in the hands of a patient, over the telephone or by fax or other communication. Drug product selection is the responsibility of the pharmacist.  One fact today is that more and more prescriptions are being filled by fewer and fewer pharmacies, which can result in less time available to review reimbursement.

We have seen form extensive pharmacy audits and visits that most computerized pharmacy billing systems require the pharmacist or technician to enter the name of the drug into the system. The system then applies additional information as needed to submit the claim for reimbursement.  The advent of “Point-Of-Sale” technology has not changed this, but rather compounded it, as we will see.

Let’s consider entry of the National Drug Code (NDC). Today, pharmacy computers come with software that is pre-programmed by the provider. Choices are available as to whether the pharmacy wants a specific NDC for the product being currently provided, or a number of choices. The systems offering choices must still be told the brand being dispensed.  From that point on, the computer will faithfully bill for “drug A” using the NDC it is programmed with, until it is re-programmed.

When the claim “hits” the payer, such as Medicaid, the State’s “MMIS” system adjudicates the claim in real time, and on line.  Remember we said before that the purpose of these machinations is for the pharmacy to get reimbursed. If product from company “A” is billed, but the product actually dispensed was equivalent, the same approximate price, and reimbursed accordingly, no one need look any further.

Now some will say that the prescription label must bear accurate information including the manufacturer name, and that is certainly the case, but we have seen that this cannot be depended on for assurance of accuracy of NDC. Also, it is the NDC, and not the drug name that MMIS looks at in determining the product dispensed. Further, many institutional dispensing systems require the brand name on the label, such as “Generic A: Dispensed for Brand A” to facilitate identification of the drug by nursing staff.

When a pharmacy changes suppliers, there must be a pro-active step of re-programming the computer to bill using the NDC of the new product.  We will discuss circumstances where this step tends to be ignored.

Potential for Billing Errors

We have queried pharmacists in the field, and have been told that the errors in use of labeler codes used to bill multi-source drugs can run as high as 50%.  Now, some will argue that Point-Of-Sale technology has eliminated or greatly reduced this type of error.  We propose that it has increased it. .Why?  Because the pharmacy is advised at the time of billing that the claim will not go through!

If the NDC is incorrect, a different one must be used.  Remember that the products may be therapeutically equivalent, the reimbursement will be the same or similar, and the pharmacy does not get overpaid.  Let’s look at a few instances that can cause this problem to happen:

  • The pre-programmed computer.  Already mentioned, the computer software arrives pre-programmed with NDC’s. If the pharmacy has changed suppliers, or, if the supplier has shipped a different product, which we know happens a lot with buying groups, a pro-active step is required to make a change, which will not affect reimbursement anyway.
  • Use of “billing codes” we have seen in many pharmacies, especially hospital, where the billing office is entirely separate from the pharmacy.  Pharmacy staff has nothing to do with billing at all. Claims are communicated to the billing office via internal codes, when the Remittance Advice arrives, it may be scanned, by the billing office, which would only see what they billed in the first place.  As long as the claim is paid, and in some cases even of not paid, discrepancies are overlooked or not noticed.
  • Pharmacy drug buying groups.  Very popular today, buying groups are utilized by many pharmacy providers, especially those serving hospital and long term care facilities.  These groups offer needed savings, that are frequently aided by a product selection process or “pick list” order system that ships whichever product is available for the best price.  That month.  Next month, it may be a different labeler’s product.  Monthly or even order by order changes in labeler make it almost impossible to keep the pharmacy’s computer re-programmed.  For a separate billing office, impossible.
  • The awareness factor.  Thankfully for pharmacy, the Federal Drug Rebate Program has minimal impact on reimbursement, other than a Provider Manual list of labelers whose products are covered by virtue of a rebate agreement. Point-Of-Sale takes care of that for them anyway.  Unfortunately, this minimal impact can result on some pharmacies being unaware of the importance to manufacturers of using correct NDC’s in billing Medicaid.
  • The Home Office factor.  Some multiple outlet chain pharmacies want their warrants (Medicaid reimbursement checks) to come to the home office. This results in the Remittance Advices also going to the home office, and not reviewed by the pharmacy that dispensed the drugs.  Here again, as long as reimbursement is OK, no errors are perceived. Some organizations, like hospitals, even do their billing from a central office.  We have discussed how this can perpetuate billing errors.
  • Enhanced reimbursement.  To this point, we have listed billing errors that are inadvertent or of which the pharmacy is unaware. However, if isolated providers wished to enhance their revenue, opportunities for that also exist.  There are many multi-source drugs which do not have an upper limit for reimbursement other than the State allowed amount for that drug. Price differential does exist on multi-source drugs, allowing for revenue enhancement by using the NDCF of a more expensive multi-source drug.  Pharmacostatistical analysis of claims can be used to identify potential outliers in these areas as well.

Any system can spot huge errors.  It is the small repetitive errors that can, over time; result in an even greater loss through lack of detection.

How a Manufacturer Can be Billed for the Wrong Product

When a pharmacy changes suppliers, the computer must be re-programmed for the new supplier.
If the pharmacy changes supplier or is provided with product from a different labeler, there must be a pro-active step taken to change the billing system.  Payers such as Medicaid look only to the NDC used to bill the prescription.  A labeler code used to bill the Rx that differs from what was dispensed, still results in payment. What does happen is that the wrong manufacturer is billed for a drug rebate!

Does this happen often?

As previously stated, these errors have a magnitude of up to 50%. Many pharmacies, especially those serving long term care facilities and hospital pharmacies belong to buying groups that are constantly changing products in order to obtain the best prices. This is a good thing for everyone except for the manufacturers who gets billed rebates when the products of others are dispensed.

What else can cause this to happen?

Some pharmacies have little to no contact with the billing of payers.  For example, most hospital pharmacies do not perform billing functions. This is handled by billing offices that frequently use billing codes and not NDC’s to communicate provision of services from the pharmacy to the billing office. Payment details or “Remittance Advices” are not seen by the pharmacy, compounding the potential for error.  Also, some chain pharmacies do their Medicaid billing through a central office, which may not be aware that the local pharmacy is obtaining a multi-source drug from a different labeler.

Doesn’t ‘Point-Of-Sale” technology correct this problem?

We have found that Point-Of-Sale can make it worse.  This is because whenever there is lack of coverage for a drug, the pharmacy is told to use a different NDC.  Also, point-of-sale puts a time pressure on pharmacy staff, making the billing process more of a hurry up issue.

Why aren’t pharmacists more careful about what labeler code they use?

Pharmacists are very careful and conscientious in their practice.  They are also frequently overworked, with an ever-larger volume of prescriptions being filled by fewer and fewer pharmacies.  Primary considerations are getting the right drug to the right patient in the right strength with the right directions and ancillary labeling.  Reviewing the client’s drug profile for allergies, potential drug interactions, over and under utilization and other factors are part and parcel of the practice of pharmacy as well as being legal requirements.  Actually, the Drug Rebate Program has minimal impact on pharmacy billing procedures other than drug coverage.  While prescription labeling requirements dictate that the manufacturer of the drug appear on the label, we have seen that this does not guarantee the same manufacturer’s label code is used in billing.

Can this be costing my company significant amounts of money?

Any system, including the human eye, can spot huge errors by reviewing claims.  It is the small errors repeated over time; undetected or unrecognized that can add up to large amounts.  Consider the number of NDCs in your product line, and the number of units appearing on State rebate invoices for each NDC.  How many dollars would result from a 10 % error in units?

Previously Discounted Drugs Go Unfiltered – The Double-Dip

Perhaps the most overlooked rebate overcharges come from the application of the 340B discount and the Medicaid rebate to the same drug purchases (a duplicate discount).  PHS covered entities that bill Medicaid for drugs purchased at 340B prices must provide the Office of Pharmacy Affairs (OPA) with their pharmacy Medicaid provider number, which is placed in an “exclusion” file. OPA makes this exclusion file available to the state Medicaid agencies so that the state does not request a Medicaid rebate from a manufacturer for the already discounted 340B drugs

Does the filter process work?
Ineligible drug transactions have caused tens of millions of dollars in Medicaid rebate overcharges.  In some cases the filter was simply not applied, and in others the Medicaid provider number was missing or in error.  OPA is making great strides to improve the process, and has asked The Rodenhizer Group for help to resolve the issues.

Unit Rounding Should Not Be Ignored
In this high tech age you may be surprised to hear that many drug Providers are using computer systems that can not handle fractional units.  That is, the field in the data entry program that stores the dispensed units restricts the entry to whole numbers.  This inability to handle fractional units is so wide spread that in some States, Medicaid policy instructs all Providers to round fractional units to the nearest whole number whether there system can handle fractions or not.

Should the Manufacturer be concerned?
It depends on how your products are packaged.  Take one of our clients for example.  They have several products packaged in glass vials, where each vial contains 2.5 ML of product.  There are 25 vials to a box, and it is customary to dispense the products by the box.  If the Provider dispenses 1 box, (25 vials x 2.5 ML), the 62.5 ML total is entered as 63 units.  The manufacturer is over billed a half a unit on the rebate invoice for each box dispensed.  In its heyday, it was not uncommon for the dispensing of these products to exceed 100,000 boxes a quarter.

Not alarmed?  Let’s take a closer look…
It turns out that it wasn’t uncommon to round the 2.5 ML vial to 3, and then do the multiplying.  Now 1 box is billed as 75 units, (3 ML x 25), or 20% more than it should be.

Still not alarmed?
We also discovered many claims for 625 units for these products.  Since this exceeded the maximum expected dosage, all kinds of alarms went off.

So, was this a unit typo?  We didn’t think so.  There were just too many occurrences.

Was it fraud?  No again.  In most cases, the Provider’s submitted amount was averaging about the same as those claims for one box.

An audit revealed that in each case one box was dispensed and the Providers entered 62.5 without the decimal point.  We found this happening with many other products packaged in fractional units, 14.7 entered as 147, 37.5 as 375, and so on.

Does the State protect the Manufacturer from these overstated units?

Some States would argue that they look for this kind of thing, detecting and correcting errors using upfront claim edits.  The truth is, most States only attempt to protect themselves from over paying the Providers and let these inflated units through to the rebate invoice.  Here is how it works…

The State Medicaid Programs calculates an allowed amount, or the maximum they are willing to reimburse for the submitted claim.  This allowed amount calculation will vary from State to State, but for or example let us assume the State is willing to reimburse 80% of the AWP, plus a $5.00 dispensing fee.

Tracking the claim for 625 units, we find the Provider submits their usual and customary cost for a box ($45), plus a $5 dispensing fee, so the submitted amount is $50.  Using an AWP of $.75 per ML, the State calculated an allowed amount of $380. ($.75 x 80% x 625 + $5).  The State then compares the allowed with the submitted and pays the smaller of the 2.  The Provider is reimbursed the full $50 and the Manufacturer is billed 625 units on the rebate invoice.

What about the States that do test for unit errors?

Yes, some States do attempt to catch these errors.  Typically there are 2 tests performed.  The units are compared to some predefined maximum, and the average dollars per unit is compared to some minimum.

So how does our sample claim fair in these States? Not so well…
There have been over 100,000 different NDCs active in Medicaid since the inception of the rebate program.  It is very difficult for States to set some maximum for each and every one.

If a State sets the maximum too low it might cause production problems.  Medicaid is processing over 100 million claims a quarter, so they are under a lot of pressure to keep things moving.  Since 625 units, or 10 boxes of our clients product is not out of the question, especially in those States that allow more than a one month supply, if there is a maximum test, chances are it is set higher than 625.

Testing for low dollars/unit doesn’t always catch our example claim either.  Of the many different flavors of Provider computer systems out there, about half calculate the submitted amount based on the units entered.  In this case, if the Provider enters 625 units, the program may calculate a submitted amount of $450 plus the $5 dispensing fee.  The States reimburses the allowed $380 dollars, the Provider is happy with the huge overpayment, and the dollar per unit test doesn’t suspect a thing.

Rounding it out with one last source of confusion

With some Providers rounding and others that are not, another problem exists.  What if the Provider submits a claim for 375 units?  Was that 6 boxes (6 x 62.5 = 375), or was it 5 boxes (5 x 75 = 375)?

If you produce one of the nearly 2,000 NDCs with a fractional package size, perhaps it is worth taking a closer look.

Many State Programs – Many Variations

Do you know how each State Medicaid Program calculates reimbursement, or how they limit dispensing?

There are dozens of ways that pharmacy benefits can vary between State Medicaid Programs.  There is an old saying: “If you’ve seen one State Medicaid Program, you’ve seen one State Medicaid Program.  Today, the legislative process and increased budget constraints make this truer than ever before.  Listed below are a number of dispensing and reimbursement issues that can confuse the unaware when attempting to understand the universe of Medicaid pharmacy claims:

  • Reimbursement is reduced due to payment from other sources both reported and unreported.
  • Varying limits on the number of dispensing fees allowed per month and per type of drug.
  • Waiving of client co-pays when exceeding a varying monthly maximum.
  • Dispensing Fees scaled according to pharmacy dollar or prescription volume
  • Ratio of Medicaid volume to non-Medicaid volume affects amount of Dispensing Fee
  • Drug acquisition costs that differ for single or multi-source drugs.
  • Client co-pays charged on varying sliding scale prescription prices
  • Rural and urban pharmacies are paid different Dispensing Fees.
  • Incentive fees can be added for various add-on services such as patient consulting
  • Dispensing fees paid can vary with Acquisition Cost of drugs.
  • There can be maximums imposed on number of allowed Dosage Units per month
  • There can be varying maximums imposed on number of prescriptions per client/month
  • Added dispensing fees for “impact area” location of pharmacies
  • Maximum dollar expenditure per client per month.
  • Over-ride of Maximum Allowed Amount for “Brand Medically Necessary” or “DAW”
  • Use of different methodologies for calculation of Acquisition Cost or Allowed Amounts
  • Different dispensing fees for brand or generic
  • Incentive dispensing fees for dispensing larger quantities or generic products.
  • State “MAC” programs can differ from Federal Upper Limits
  • States may apply different acquisition cost parameters for specified manufacturers
  • Allowed reimbursement can vary by product.
  • Allowed number of doses per month may vary.
  • A separate dispensing fee for Unit Dose Packaging
  • Compounded prescriptions create a special set of problems and claim error potential
  • Client co-pays can differ between brand and generic product.
  • Allowed reimbursement is calculated based on varying methodology, such as AWP minus a percentage, WAC plus a percent, and others.
  • Exemptions from client co-pay are many and are variable, including exemption of ages that vary from 18, 19, or 21.  Other varying conditions may or may not include emergency, family planning,
  • Pregnancy, long term care and others.
  • Some States impose blanket reductions in provider reimbursement, which vary over time.
  • Some States have a maximum days supply for certain drugs, others have a minimum. Definitions of the applicable drugs (i.e. maintenance) also varies from State to State.
  • Allowed reimbursement may vary according to chain or independent operations, and the number of pharmacies within the chain.
  • Federal Upper Limit for Reimbursement, which determines payment for many drugs, can be administered in an aggregate manner.
  • States having a maximum number of prescriptions per month may have a complex list of exceptions to this limitation.
  • States require providers to submit their “Usual & Customary Price”, the definition of which may vary, and which frequently can result in apparent low reimbursement.
  • States may have varying compensation rules for pharmacies that do their own Unit Dose Packaging in the pharmacy. While affecting reimbursement, these claims tend to be billed using the NDC’s from standard packaging, making them difficult to identify.

Devotion of more than a cursory glance at the above list will make the reader aware that in-depth analysis of drug rebate and pharmacy claims can be very complex.  To assist its data experts in this field, TRG utilizes its library of 46 individual State Medicaid Pharmacy Provider Manuals along with the expertise of a former Medicaid Pharmacy Program Director and Pharmacy Investigator as an employed consultant.

 

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