How does WPS Medicare Price Non-ASP New Drugs and NOC Drugs?

We have received many questions regarding how WPS-Medicare determines pricing for drugs and biologicals for which an Average Sales Price (ASP) has not yet been developed. Carriers, DME MACs, and A/B MACs develop payment allowances for covered drugs when CMS does not supply the payment allowance on the ASP drug pricing file. This generally occurs for new drugs that are recently approved by the FDA and drugs that are billed using a Not Otherwise Classified (NOC) code.

WPS-Medicare calculates NOC and new drug pricing only after a valid claim is received and Medical staff has decided that the claim can be paid. We do not calculate pricing when a drug is initially FDA approved. Thousands of drugs and biologicals are approved every year, most of which will never be submitted on a claim to Medicare.

There are a number of factors that determine how drug pricing is developed. The basic guidelines come from the Centers for Medicare & Medicaid Services' (CMS) Internet Only Manual (IOM) Publication 100-04, Chapter 17-20.1.3.

There are specific CMS pricing methodologies and exceptions in place for several drug categories, including flu and pneumococcal vaccines, infusion medicines furnished through a covered DME item, radiopharmaceuticals and blood products. Our first step is to determine what type of drug or biologic product has been submitted on the claim so we can determine if one of these special pricing calculations applies.

If the drug does not require one of the special payment calculations or meet another IOM exception, the payment allowances for drugs and biologicals that are NOT included in the ASP Medicare Part B Drug Pricing File or NOC Pricing File provided by CMS, are based on the published Wholesale Acquisition Cost (WAC).

In determining the payment limit based on WAC, contractors follow the methodology specified in IOM Pub. 100-04, Chapter 17, for calculating the Average Wholesale Price (AWP), but substitutes the WAC for AWP. The payment limit is 100 percent of the lesser of the lowest-priced brand or median generic WAC.

The payment allowance limits for NEW drugs and biologicals that are produced or distributed under a new drug application (or other new application) approved by the Food and Drug Administration (FDA), and that are not included in the ASP Medicare Part B Drug Pricing File or NOC Pricing File, are based on 106 percent of the WAC, or invoice pricing if the WAC is not published. A NEW drug is defined as one that was first sold on or after January 1, 2005. In most cases, we reference the FDA approval date as the 'first sold' date.

If there is no WAC pricing available in a CMS approved published compendia, we request that an invoice be submitted. When pricing by invoice, we allow the invoice cost for the amount of the drug that is billed on the claim, a prorated amount for shipping and handling and any applicable sales tax. CMS does not grant an additional 6% when pricing by invoice, and dispensing and compounding fees are similarly not allowed.

Contractors may contact CMS to obtain payment limits for drugs not included in the quarterly ASP or NOC files or otherwise made available by CMS on the CMS Web site. If the payment limit is available from CMS, contractors will substitute CMS-provided payment limits for pricing based on WAC or invoice pricing. CMS will provide the payment limits either directly to the requesting contractor or via posting an MS Excel file on the CMS Web site.

Please note that it is up to the discretion of each Contactor to determine which published drug compendia to use as a source for drug pricing. There are several sources available that are CMS approved and each contractor determines which source (or sources) they will use as a reference. WPS Medicare currently uses Micromedex - Red Book Online®. There is no CMS requirement that multiple sources be consulted in searching for WAC pricing. In general, we do not solicit, evaluate, or use pricing information that is submitted by outside sources, such as drug representatives or providers. These are not considered 'published' drug compendia.

When a WAC allowance has been developed and added to our pricing spreadsheet, it is reviewed every three months in conjunction with the ASP quarterly update to determine if any changes have been made to the WAC or if any new pricing sources have been added for a given drug. If there are changes or additions, the pricing will be recalculated and added to the injection pricing database with the effective date for the corresponding quarter.

Once pricing has been established by CMS and provided to contractors on the quarterly ASP NOC list, the allowance and an effective date are added to an injection database (excel spreadsheet) that is accessed by claims processing and review staff. Unless otherwise instructed, the effective date for the pricing is the quarter that corresponds to the ASP NOC file(s) that CMS has published. For example, pricing that CMS adds to the April ASP NOC file will be effective for dates of service 04/01/CCYY and after. Dates of service before 04/01/CCYY will continue to be paid based on the allowances developed by the contractor prior to the CMS decision or by invoice.

Page Last Updated: Tuesday, 13-Dec-2011 17:22:36 CST