Articles on Compliance Strategies

Featured Health Business Daily Story May 15, 2009

Billing Medicare for Wasted Pharmaceuticals Now Hits Compliance Radar Screen

Reprinted from REPORT ON MEDICARE COMPLIANCE, the nation's leading source of news and strategic information on false claims, overpayments, compliance programs, billing errors and other Medicare compliance issues.

By Nina Youngstrom, Managing Editor, (nyoungstrom@aispub.com)

Billing for drug waste is emerging as a compliance and reimbursement issue for hospitals, especially in regions where the Medicare contractor requires documentation of discarded doses. Some hospitals are being audited for drug billing errors that include failure to chart wasted doses, while others sacrifice money unnecessarily by not reporting discarded drugs even though it's OK with CMS, hospital officials and consultants say. And there are still more twists with drug waste, which affects only outpatient departments (including observation) because they charge separately for drugs.

Hospitals are clearly allowed to bill for leftovers from single-use vials or single-use packages when the patient is administered a lower amount. According to the Medicare Claims Processing Manual (Chapter 17 - "Drugs and Biologicals"), "if a physician, hospital or other provider must discard the remainder of a single use vial or other single use package after administering a dose/quantity of the drug or biological to a Medicare patient, the program provides payment for the amount of drug or biological discarded along with the amount administered, up to the amount of the drug or biological as indicated on the vial or package label." It's ideal if another patient needs the rest of the dose, CMS says. But if not, hospitals should report the wasted amount on a separate line item on the claim.

Last year, CMS introduced "a new twist to the billing of drug waste by hospitals," says Rick Plasmati, consulting manager at Medical Bureau/ROI in Worcester, Mass.

In Change Request 5923, released March 14, 2008, CMS said that Medicare contractors may require hospitals to attach modifier JW to identify discarded drugs or biologicals from single-use vials or single-use packages on claims. But therein lies the rub: By using the word "may," CMS did not establish a universal mandate. It lets each Medicare fiscal intermediary (FI) and Medicare administrative contractor (MAC) decide whether to require the JW modifier on claims.

As it turns out, few if any FIs or MACs have taken CMS up on its offer. Instead of requiring hospitals to use the JW modifier, FIs and MACs seem to mimic CMS's policy of allowing hospitals to use the JW modifier on claims. It's unclear, however, why hospitals would jump through an extra billing hoop voluntarily, says Lori Purcell, associate vice president of coding and reimbursement for the consulting firm QHR. For example, Highmark Medicare Services stated in a November 2008 teleconference that "Local contractors may require use of the 'JW' modifier. Highmark Medicare Services does not. However, if you use the 'JW' modifier to identify unused drugs, that is fine. The claim will process without incident." But why would hospitals bother? Wendy Trout, compliance officer at WellSpan Health, in York, Pa., where Highmark is the MAC, says the health system didn't embrace the JW modifier.

Documenting the remainder of a single-use vial after administering the dose ordered by the physician is another story. "CMS regulations do not address medical-record documentation," Purcell says (though hospitals must always document waste of narcotics, experts say).

Again, it's been left to FIs and MACs to set their own policy on documenting drug waste. Some, including Highmark (the MAC for five states), Noridian Administrative Services (the FI for 11 states) and TrailblazerHealth Enterprises (the FI for three states), require documentation of discarded drugs, according to Purcell and Plasmati. Others require hospitals to document waste of only specific drugs, Purcell adds. One example: Riverbend Government Benefits Administrator (a subsidiary of Blue Cross Blue Shield of Tennessee) has a local coverage decision that includes a documentation requirement for wasting Neulasta and Neupogen, Purcell says.

Flaws in documenting drug waste have come back to haunt WellSpan. Highmark put one WellSpan department on 50% prepay review for certain drug billing errors, including drug waste, Trout tells RMC. It's a struggle, she says, to get pharmacy and nursing to document drug waste when patients don't need the full amount (usually IV meds). Highmark emphasized the issue in an April 22 teleconference. According to one of its slides, "the amount discarded must be documented in the medical record."

For example, the drug Remicaid is prepared and billed in 100 mg increments. But it's not uncommon for it to be ordered as a 350 mg dose, Trout notes. "We can bill for 400 mg, but we have to have the documentation of 350 mg administered and 50 mg wasted," she says.

On the flip side, Plasmati says in some cases, hospitals lose reimbursement for drug waste. "They tend to be afraid to bill for waste, even though the authorization to do so is right there in black and white." Also, hospitals might misinterpret CMS policy and buy a multidose package for the lower price and then want to bill the balance not used. "I have seen hospitals [that accept] the concept of billing drug waste, but they forget to include the lowest dosage available component of the equation," he says. "The rules are pretty straightforward on this, but it is often misunderstood nevertheless." Plasmati iterates that according to Medicare rules:

• The billing of drug waste is appropriate only to a single-use vial or single-use package.
• The rules apply to drugs and biologicals under the competitive acquisition program (but that's been suspended indefinitely since the beginning of the year).
• The provider must make a good-faith effort to schedule patients so that the use of drugs is efficient and medically appropriate (unused portion of a drug package administered to another patient).
• Any waste reimbursed by Medicare must not be billed for use on any other patient.
• Coverage does not apply if the provider chooses to purchase larger packages (for a lower per-unit cost) when smaller, more appropriate packaging is available.

In terms of documentation, Plasmati says that nurses, pharmacists or others who document discarded drugs in the medical record must note the date and time, amount of product used, amount of product wasted and the reason for the waste.

Plasmati suggests that hospitals periodically audit the top 25 drugs dispensed on an outpatient basis. "Review a random sample of accounts to verify that the drug dispensed corresponds to the HCPCS code, and that the units billed correspond to the HCPCS units. As part of this, they should verify that any wastage is documented in the patient's chart," Plasmati says. "If they bill for waste and the chart identifies only what was administered, they are potentially up the creek for a false claim."

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