The U.S. Department of Health and Human Services (HHS) Office of the Inspector General (OIG) recently published a report titled “Compounded Drugs Under Medicare Part B: Payment and Oversight” (Report) in which it recommended that the Centers for Medicare & Medicaid Services (CMS) implement changes to the way Medicare Part B claims for compounded drugs are identified, tracked and paid. The Report is yet another example of the increased federal scrutiny of compounding pharmacies following the deadly fungal meningitis outbreak linked to contaminated vials produced by New England Compounding Center in late 2012. In the Report, the OIG recommends that CMS:
  • Establish a method to identify Part B claims for compounded drugs;
  • Explore the possibility of requiring providers to identify on the Part B claim the pharmacy that produced the compounded drug; and
  • Explore the possibility of conducting descriptive analyses of Part B claims for compounded drugs.
CMS concurred with the first recommendation and conditionally agreed with the third, while rejecting the second.
Background and OIG Findings
Medicare Part B covers some outpatient prescription drugs and biologicals, including drugs incident to a doctor’s treatment, those covered by statute and drugs used in conjunction with durable medical equipment. In order to receive Part B reimbursement, providers submit claims to the proper Medicare Administrative Contractors (MACs) in their respective Medicare Part A and/or Part B jurisdictions using Healthcare Common Procedure Coding System (HCPCS) codes.
The Report highlights several problems associated with compounded drug reimbursement under Medicare Part B. For starters, unlike Part D claims, there is no “compound code” for Part B claims. Thus, because compounded drugs are unique combinations, they are billed under “not otherwise classified” (NOC) codes. MACs for 10 of the 13 Part B jurisdictions have indicated they manually review claims containing NOC codes, but the reason for this review is generally to determine payment amount, as compounded drugs typically do not have nationally established payment amounts. Although MACs for 8 of the 13 jurisdictions indicated that documentation maintained by providers to substantiate Part B claims, such as invoices or medical records, generally includes the name of the compounding pharmacy, currently there is no requirement for providers to identify the compounding pharmacy on Part B claims. Additionally, although all MACs have similar coding requirements, their treatment of compounded drugs varies—while all MACs permit the use of NOC code J3490 for compounded drugs, MACs for 7 of the 13 jurisdictions have indicated they also permit the use of other NOC codes for compounded drugs, including J3590, J7799, and J9999.
According to the Report, and as a result of the issues highlighted above, neither CMS nor the MACs tracked Part B claims for compounded drugs paid under NOC codes in 2012. The MACs were therefore unable to determine the total number of claims for compounded drugs or the total amount paid for compounded drugs in 2012. Further, as there is no requirement that a Part B claim include the pharmacy name or a code that identifies the pharmacy, neither CMS nor the MACs would be able to determine from the claim alone where the provider purchased a compounded drug.
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