Bonnie Kirschenbaum, MS, FASHP
“Reimbursement Matters” is a tool for maintaining your health system’s fiscal health. Please email the author at with suggestions on reimbursement issues that you would like to see covered.

I’m a clinician; why should I care about reimbursement?

There are lots of reasons to pay closer attention to how payers are reimbursing your hospital for the products and services it delivers, but none is more important than this: If you submit faulty claims data, those flawed numbers are used by Medicare, Medicaid and even private insurers to set future rates of reimbursement. Put in biblical terms, you reap what you sow, so it’s imperative that any flaws in the billing system and procedures be corrected.

Once you also factor in the speed at which health care reform is advancing, with myriad new payment models proposed and implemented, it becomes clear that getting the reimbursement part of the equation wrong is just not an option for cash-strapped hospitals.

A Strong Gateway

Pharmacy billing remains the portal for pharmacy costs to feed into the overall system. If this is a weak link, shore it up. If every single item used is not accounted for through the charging mechanism, this needs to be fixed quickly. Defensible pricing, charge capturing and ongoing charge master management tools should leap to the forefront on your “to do” list. With the pharmacy budget having such high visibility, anything that can be done to lead to an improvement in data integrity, streamlining of business processes and enhancing internal controls in financial reporting is essential. Ask yourself this: “Is our department a contributor to old, incomplete data being used for new calculations that will fund my future budget requests?” If so, then it’s time to do something about it—quickly!

Granted, how the system works and what all the terms mean can be puzzling and frustrating when you’re new to this game. I hope these FAQs help.

Q: What is an fi or MAC?

A: The United States is divided into several geographical regions, each assigned to a fiscal intermediary (fi) or Medicare administrative contractor (MAC). The MAC receives billings from hospital and outpatient clinics and submits them to the Centers for Medicare & Medicaid Services (CMS) for payment. Knowing who your MAC is and what peculiarities may affect your region is important. MACs determine if all program requirements for coverage are met (e.g., that it is reasonable and necessary to treat the beneficiary’s condition and whether it’s excluded from payment).

Q: What are billing codes and why are they important?

A: Coding is the language with which to describe what procedure was done and what product was used. It’s the operational link between coverage and payment. However, any payer at any time can look at what was done and on the merits of that information decide that they are not going to pay for it. Here are a few additional codes and definitions to keep in mind:

  • International Classification of Diseases Ninth Revision (ICD-9) codes are used by hospitals to designate disease types; ICD-10 codes will replace these by October 2014.


  • Current Procedural Terminology (CPT) codes are descriptive and identifying terms for reporting medical services, procedures and lab tests that provide a uniform language to describe medical, surgical and diagnostic services. They are created by the American Medical Association and its specialty organizations and may include payment for all the products used during the procedure.


  • Healthcare Common Procedural Coding System (HCPCS) codes describe products and may or may not be reimbursed. The fact that a drug, device, procedure, or service has a HCPCS code and a payment rate under the Outpatient Prospective Payment System (OPPS) does not imply coverage by Medicare but indicates only how the product, procedure or service may be paid if covered by the program. Most HCPCS codes are listed generically, but beware, there are several brand-specific ones as well (​medhcpcsgeninfo). Also note that Diagnosis-Related Groups (DRGs) apply to inpatients and Ambulatory Payment Classifications (APCs) apply to outpatients; both only apply to Medicare billing. And remember that DRG and APC methodology often is used as a template for other insurance reimbursement.


    Q: Do I really have to bill for all products even if they’re not going to be reimbursed?

    A: Yes, this is a Medicare requirement. Most facilities with outpatient services were shocked when the Health Care financing Administration, the predecessor of CMS, implemented APCs several years ago, especially when the reality set in concerning which products were being reimbursed and their corresponding rates of payment. The response from health care providers to the low rates of payment was: How could this have happened? As I think we’ve made clear by now, their own negligence in failing to pay strict attention to the pharmacy billing system and to the use of appropriate codes and descriptions (as well as the charge itself) was partly responsible. Facilities neglecting to bill for pharmaceutical products at all because it was “too complicated for too little return” further contributed to the problem. Their patients and their product use were averaged into the calculations—but at a zero dollar price. This is a huge issue at this very moment as rates for bundled and global payments are being determined.

    Q: Should I bother to collect copays?

    A: Yes! But first, a definition: The copay, for the uninitiated, is the amount that the patient is expected to pay out of pocket or through a secondary insurance carrier. CMS reimburses 80% and the beneficiary is expected to contribute 20%. Billing for and collecting copays is critical to a hospital’s financial solvency. For example, a $10 million CMS “drug spend” means $8 million coming from CMS and $2 million coming from copays. Can you afford not to bother collecting $2 million in copays? How much therapeutic intervention would you have to do to guarantee $2 million in savings? Copays from insurance companies usually are tiered and may range up to 40% for specialty pharmaceuticals.

    Q: What are billing units and why are they important to reimbursement?

    A: Several years ago, CMS implemented the concept of billing units rather than vial sizes when structuring reimbursement. Medicaid also uses billing units, although they are not necessarily the same ones used by Medicare. Although there has been ample discussion of these changes in the pharmacy literature, implementation of the concept continues to plague pharmacy directors and those involved with managing all the pieces of the pharmacy computer and automated dispensing systems. The billing unit tables are not static and require vigilance to ensure that the correct billing units are matched to the correct billing codes (HCPCS codes) in the pharmacy charge description master (CDM). National Drug Code (NDC) changes provide an additional complication. Failure to do so will result in significant over- or undercharging and resulting complications on audit.

    How does one ensure proper handling of billing units? It’s simple arithmetic. The goal is to be able to convert dispensable quantities either from automated dispensing cabinets or the pharmacy IV room into a HCPCS billable quantity. Some facilities have built and maintain conversion tables either by going through the pharmacy system if it supports this function, by using a lookup table with conversion logic in the translator outbound to the financial system or by building a multiplier/divisor table on the back end of the financial system. This multiplier table takes the number of units sent from the transaction and multiplies it by the appropriate factor without affecting the price.

    Your action step? Accept that there is ongoing maintenance with the CDM, HCPCS codes and NDC changes. Develop a strategy for handling these in concert with your charge capture team.

    Q: What are ASP drug pricing files?

    A: CMS reimburses based on the average sales price (ASP). CMS publishes a quarterly updated ASP drug-pricing file in three formats. It is available at and provides links to the actual listing of reimbursable Part B drugs and the amounts that will be reimbursed as well as a reminder of the billing units for each drug code. Also included are NDCs and the total billing units in each vial per NDC. Not surprisingly, reimbursement for some drugs increases yet decreases for others. There are a number of competitive market factors at work—multiple manufacturers, alternative therapies, new products, recent generic entrants or market shifts to lower-priced products, as well as the weighting given to the package sizes sold. Also, remember that ASP is calculated based on sales data from the manufacturer, not from the distributor.

    Q: Where do I get information?

    A: CMS; its website may be your new best friend. You can browse topics and also sign up for emailed alerts and announcements at the landing page for MedLearn Matters.

    Good luck!