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Winter 2022 - Critical Care

Interpreting Payment Rule and Revenue Cycle Terminology

Understanding terms used in rule sets pertaining to payment for inpatients, which go into effect during the fiscal year effective Oct. 1, as well as outpatient and physician fee services, which go into effect during the calendar year effective Jan. 1.

MANY FIND information concerning payments for drugs, biologicals and radiologicals, vaccines or other products and supplies difficult to understand. Therefore, the goal of this column is to put into perspective some of the terms used in rule sets pertaining to payment for inpatients, which go into effect during the fiscal year effective Oct. 1, as well as outpatient and physician fee services, which go into effect during the calendar year effective Jan. 1.

Coding for Payment

Telling the patient’s story accurately and completely in a manner that can be translated into codes is essential. Since all payment transactions are transmitted electronically, the codes chosen must match what actually has occurred during the patient visit/encounter/admission. This series of codes sent to the payer are not only used for payment but also become the clinical record that drives future decisions about treatment and payments.

The basis for transactions includes the disease state(s), problem list and symptoms the patient presents with that are assigned very specific ICD-10 codes representing procedure classifications. In 2022, there are updates to files that need to be incorporated into provider systems to ensure the problem list is accurately represented (www.cms. gov/medicare/icd-10/2022-icd-10-cm). Failure to update will result in a denied payment due to lack of medical necessity.

Drugs, biologicals, vaccines, radiologicals and other products and services are reported to payers as healthcare common procedure coding system (HCPCS) and/or current procedural terminology (CPT) codes, along with national drug codes (NDCs). The list of HCPCS Level II codes and descriptors are approved and maintained jointly by the alphanumeric editorial panel/workgroup whose members represent the Centers for Medicare and Medicaid Services (CMS), America’s Health Insurance Plans and Blue Cross and Blue Shield Association. CPT codes and descriptions are copyrighted by the American Medical Association.

Category I CPT codes describe surgical procedures, diagnostic and therapeutic services, and vaccine codes, while Category III CPT codes describe new and emerging technologies, services and procedures. Level II HCPCS codes (also known as alphanumeric codes) identify drugs, devices, ambulance services, durable medical equipment, orthotics, prosthetics, supplies, temporary surgical procedures and medical services not described by CPT codes. Drugs and biologicals are found in sections A, C, J, P and Q. Often, the term “J codes” is used when referring to payment codes. However, looking in only the J section of the table misses listings in all the rest of the coding tables. For example, the most lucrative new pass-through drugs almost exclusively have C codes.

From a CMS outpatient perspective, drugs, biologicals, vaccines and other products are assigned status indicators (SI). These can be found in Addendum B, which is updated quarterly and contains thousands of line items. Pharmacy products are assigned G, K, N and R SIs; pass-through products are assigned SI G; separately payable outpatient drugs based on a daily dollar value threshold ($130 per day based on average sales price [ASP]) are assigned SI K; drugs that will be paid for as part of a bundle/package are assigned SI N; and all blood products are assigned SI R. (See HospitalOutpatientPPS/Addendum-A-and-Addendum-B-Updates.)

More specifically, pass-through products are assigned a three-year transitional pass-through payment period with additions and expirations updated quarterly. The Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 (Pub. L. 106-113) provided pass-through payment provisions that require the Department of Health and Human Services make additional payments to hospitals for current orphan drugs as designated under section 526 of the Federal Food, Drug and

Cosmetic Act; current drugs and biologicals and brachytherapy sources used in cancer therapy; and current radiopharmaceutical drugs and biologicals. “Current” refers to those drugs or biologicals that are hospital outpatient services under Medicare Part B for which transitional pass-through payment was made on the first date the hospital outpatient prospective payment system (OPPS) was implemented. Transitional pass-through payments also are provided for certain new drugs and biologicals not being paid for as a hospital outpatient department service as of Dec. 31, 1996, and whose cost is “not insignificant” in relation to OPPS payments for procedures or services associated with the drug or biological. For pass-through payment purposes, radiopharmaceuticals are included as drugs.

All drugs with a SI G designation are paid at ASP+6% regardless of whether a facility is purchasing under the 340B drug program or not. The key is to be aware of the expiration of this G status and plan accordingly because the HCPCS code assigned to the product may change and the new SI may be either K or N. SI K products remain at ASP+6% for non-340B facilities but fall to ASP-22.5% for those purchasing under the 340B program. SI N products are bundled and are no longer eligible for waste billing. An incorrect HCPCS code results in an automatic payment denial.

Average Sales Price (ASP)

ASP is a market-based price that is updated quarterly to reflect the weighted average of all manufacturer sales prices and includes all rebates and discounts privately negotiated between manufacturers and wholesaler/distributor purchasers (with the exception of Medicaid and certain federal discounts and rebates). It should be noted that ASP does not reflect the price a facility pays for the drug, which may be higher. CMS publishes quarterly updated fee schedules that include the 6 percent markup, which will be the amount paid by facilities and practices not using 340B purchasing. Purchasing under 340B requires some simple arithmetic to calculate reimbursement. Remember this applies only to SI K drugs. To determine ASP for SI K drugs, divide the published ASP+6% by 106 and then multiply by 100. Or simply multiple the published ASP+6% by .943. Since 340B-purchased products are paid at ASP-22.5%, deduct 22.5 percent from the ASP just calculated to determine payment (see ASP Payment Example for 340B Reimbursement).

Keep in mind that for all payments regardless of 340B status, CMS pays 80 percent of the amount due, and the patient is responsible for the remaining 20 percent (either personally or through a secondary payer).

These updates are automatically electronically provided to all facilities and practices eligible for CMS payments. Providers can sign up for complimentary online publications of changes and updates ( id=USCMS_7819).

ASP Payment Example for 340B Reimbursement

  • Quarterly table ASP+6% of product A is $200/billing unit
  • ASP+6% of product A is calculated by dividing $200 by 106 and multiplying that result by 100, which equals $188.68/billing unit
  • Or, ASP+6% of product A is calculated by multiplying $200 by .943, which equals 188.60/billing unit
  • ASP-22.5% of product A is calculated by multiplying the ASP+6% rate by .775 (which is 22.5% less than 100 percent of the product’s price): $188.68 x .775 = $146.23/billing unit


Sequestration is an important concept to understand since it reduced Medicare reimbursement and all other government payment by 2 percent. Currently, sequestration applies to budget limits Congress created in the 2011 Budget Control Act. At that time, there was consensus to use sequester threats to force deficit limit agreements. Sadly, threats didn’t work, implementing the sequester to cut spending from 2013 through 2021. Subsequently, expiration dates continue to be extended into the future as each budget deficit looms larger (now into the 2030s).

How do past and present political squabbles affect facilities? The sequestration payment cut implemented in 2013 cut reimbursement by 2 percent for all government payments, including those for healthcare. This 2 percent reduction applies only to the 80 percent Medicare reimburses and not to the 20 percent patient co-pays.

The COVID-19 pandemic paused the sequestration minus 2 percent, which has been extended several times. However, the proposed infrastructure bill discussions maintain a Dec. 31, 2021, expiration with no further extensions of the pause.

Claims Denials Can Be Overcome

The most common reasons for denied claims include incomplete claims and coding errors coupled with failing to justify medical necessity in electronic record documentation or not being medically necessary. Understanding the terms discussed here and ensuring IT departments/providers are compliant will help to prevent these denials. Other payment denial issues include site-of-care shift rulings not recognized by a facility, multiple payers/stakeholders that are not recognized, payer-mandated step therapies and other commercial and Medicare Advantage payer requirements.

Bonnie Kirschenbaum, MS, FASHP, FCSHP
Bonnie Kirschenbaum, MS, FASHP, FCSHP, is a freelance healthcare consultant with senior management experience in both the pharmaceutical industry and the pharmacy section of large corporate healthcare organizations and teaching hospitals. She has an interest in reimbursement issues and in using technology to solve them. Kirschenbaum is a recognized industry leader in forging effective alliances among hospitals, physicians, pharmaceutical companies and distributors and has written and spoken extensively in these areas.