Billing Rx Drugs

Full update March 2020

These days, many Rxs are paid for by third parties, such as a government health plan or a plan offered through an insurance company. Submitting claims for Rxs to these third parties is one of the primary functions of pharmacy technicians in the community setting. (In the hospital setting, third-party billing is done outside of the pharmacy, so technicians are typically not involved.) It is very important that claims are submitted correctly. Incorrect submissions can result in rejections, audits, or even allegations of fraud. The trouble is that once a claim is submitted incorrectly, it may be difficult and time-consuming to fix. It’s easy to imagine how third-party coverage issues can be frustrating for everyone involved. Pharmacy technicians can help the process run more smoothly by being able to successfully submit claims, troubleshoot problems, and communicate with patients, prescribers, and other healthcare providers about issues that may arise.

Trintellix 10 mg, 1 PO QD, #30, 2 refills


Mrs. Parks, a 67-year-old female, presents an Rx for the antidepressant medication Trintellix 10 mg, 1 tablet by mouth once daily, dispense 30, 2 refills. She also hands you her insurance card, which states “Medicare Rx” on it. You know this means that she has a Medicare Part D prescription drug plan.

How do prescription drug plans work?

Prescription drug plans have certain features designed to keep costs low and quality high. This is called managed care. (See the Glossary at the end of this tutorial for help with billing-related terms.) In addition to the monthly premium the patient pays to participate in the prescription drug plan, many plans have a deductible. With these plans, patients must pay full price for their Rxs until the annual deductible is met. Plans also typically require patients to pay a co-pay for each prescription. The co-pays can vary from plan to plan, and from drug to drug. Co-pays can be a flat amount, such as $10, or a percentage of the drug cost, such as 25%, known as coinsurance.

Plans often categorize drugs into three or four tiers based on cost. Tier 1 and tier 2 drugs are both preferred or “on formulary.” Tier 1 typically includes generic drugs and have the lowest co-pay. Tier 2 usually consists of brand medications preferred by the plan, or preferred brands, and have a higher co-pay than tier 1 drugs. Tier 3 usually includes non-preferred brand medications or non-formulary medications (i.e., medications not on the plan’s approved drug list). Patients may have to pay much more for these. Specialty medications (high-cost meds with complex handling, administration, monitoring, etc) will often be included in higher tiers, such as tier 4 or tier 5.

How do pharmacies get paid by insurance plans?

Most of the time, billing occurs at the time an Rx claim is processed online. When a claim is filed electronically, you know almost immediately whether it’s approved or rejected. Claims can be rejected for a variety of reasons. Incorrect information may’ve been entered in the computer, it may be too soon for the patient to refill the med, or the medication may require prior authorization or step therapy. Make sure all information is correct, such as the patient name, plan information, NDC number, quantity, days’ supply, directions for use, origin code, International Classification of Diseases (ICD) diagnosis code (may be required for some Medicare Part B durable medical equipment), and Dispense As Written (DAW) code, to avoid an incorrect payment or claim rejection.

The amount that the third-party payer reimburses the pharmacy for the Rx is usually based on the cost of the medication plus a dispensing fee. However, the cost of the medication is not typically the actual amount the pharmacy paid for the medication. It is usually the average wholesale price (AWP) minus a certain percentage. The pharmacy gets paid electronically through funds transfers to its bank account.

Third-party payers often use pharmacy benefit managers (PBMs), such as OptumRx or Express Scripts, to handle Rx claims. These companies act as intermediaries between the payers and pharmacies. When this is the case, a patient may have a separate insurance card for pharmacy benefits, in addition to their card for medical benefits. Remind patients to keep both of their cards with them in these situations. If a patient only has one card, the information for the PBM may actually be on the back of that card.

Keep in mind that the U.S. healthcare system is focusing more and more on improving the quality of healthcare while reducing overall costs. This means that providers, including pharmacies, are no longer simply being paid based on the products or services they deliver. Third-party payers are starting to include performance on quality measures (a tool used to measure the quality of healthcare provided) into pharmacy contracts. For example, you may have heard of “DIR” (Direct and Indirect Remuneration) fees. This is a fee charged by a PBM that in some cases may be based on the pharmacy’s performance on quality measures. The better a pharmacy performs, the lower the DIR fee will be. Ultimately, the DIR fee amount lowers the pharmacy’s reimbursement for dispensed prescriptions.

What must you do if a prescription claim is rejected?

If you get a drug utilization review (DUR)-related rejection message (e.g., drug-drug interaction, drug-disease interaction, dose too high or low, etc), you should inform the pharmacist.

Some prescription claims may be rejected by the insurance because the drug requires a prior authorization (PA) by the plan, or step therapy. PAs often require additional documentation, usually from the prescriber, in order to ensure the drug is prescribed in a safe and/or cost-effective manner. More information on PAs is provided in the next section.

Step therapy means the plan requires trying a less expensive medication to treat a patient’s medical condition before the more expensive medication will be covered. Most low-cost generic medications work just as well as expensive brand names. If the rejection message indicates step therapy is required, look to see if the message on the adjudication screen provides alternative meds that are covered. Having this information can save you a call to the insurance company. When explaining step therapy rejections to patients, avoid saying, “Your insurance will only cover a cheaper drug,” since this may imply the lower-cost med they’re being switched to may not work as well. Instead say, “Your insurance company wants you to try another medication first, before paying for this medication.” Also, find out if the patient has already tried the lower-cost version of the medication. Sometimes patients pay cash for their meds and the insurance may not have record of the patient taking the preferred, lower-cost med.

There’s a trend with insurance companies to reduce the number of meds on their formularies, so you might notice more “drug not covered” rejections. The denied claim message may include alternatives that are covered. If not, you’ll need to call the plan to find out what is covered.

“Refill too soon” rejections are often encountered in the pharmacy. These occur when the patient should have enough medication from a previous Rx fill to last them longer than the date the refill is processed. It’s best to communicate with the patient when this happens. Their prescriber may’ve told them to take more of the med or they may be going out of town. Or, they may not need the medication for a few days anyway, and will appreciate being told when the Rx can be filled so they don’t waste a trip to the pharmacy.

“Quantity limit” rejections occur when a plan limits the days’ supply of medication they’ll pay for at once. For example, with some plans the maximum days’ supply may be less when filling the Rx at a community pharmacy versus mail order (e.g., 30 vs 90 days). These can be corrected by resubmitting the claim for the new quantity and days’ supply allowed by the insurance. Be sure to inform the patient when this happens.

When contacting a PBM to handle rejection messages, you may have to stay on hold for an extended length of time. You might want to suggest that the patient return later and offer to call the patient to provide an update when you have more information. Make sure you have the most current contact information in your computer system before the patient leaves. Waiting to talk to someone from the insurance company can be frustrating, but always be courteous and provide a clear and concise explanation for a quick resolution. Have key info ready, including your pharmacy’s NPI or NABP number and the patient’s name, date of birth, ID number, group number, etc. Document any communication, such as the name of the person you spoke to, the date/time of the call, and concise notes about the situation including any authorizations, reference numbers, changes, etc. For more tips on how to effectively communicate with insurance companies, prescribers, and patients over the phone, get our CE, Strategies for Effective Telephone Communication.

You enter Mrs. Parks’ prescription into the computer and get a rejection message informing you that her drug plan requires prior authorization for Trintellix.

How should you handle prior authorization requirements?

PA requirements can be frustrating to pharmacists, technicians, patients, and prescribers. Technicians can help by clearly conveying what a PA is to patients and prescribers. For example, you could tell Mrs. Parks, “Your drug plan is not covering this particular medication at this time and is requiring something called prior authorization. A prior authorization is when the drug plan wants more information from your prescriber about why they have prescribed this medicine for you. There may be less expensive alternatives available that work just as well, and the plan wants to make sure this is the only medicine the prescriber feels comfortable with you taking. Unfortunately, it can take several days for the process to be completed. We will start the process for you and contact your prescriber.”

Check with the pharmacist to see if it is necessary that the patient start the medication right away. In the case of a critical medication, you or the pharmacist can contact the payer to try to get a small supply of the medication, such as enough for three days, approved to tide the patient over pending PA.

In addition, you might have forms handy that pharmacists can fax to prescribers to suggest switches to medications that are covered by patients’ drug plans.

After you discuss the prior authorization with Mrs. Parks, the pharmacist reaches out to the prescriber’s office to get the process started. However, upon speaking with the prescriber, it’s decided to have Mrs. Parks try duloxetine first, instead of Trintellix.

If the prescriber decides to try a different med that is covered by the insurance, you must reverse the claim submitted for the original Rx. Failure to do so could cause a couple of problems. First, to bill the insurance company for the med without dispensing it is fraud. (Some pharmacies have a system in place to identify filled Rxs not picked up by the patient, so they can reverse the insurance claim and avoid fraud allegations.) Second, the payer might reject the new Rx as duplicate therapy, since the original med requiring a PA can have similar effects as the new med.

Even when PA requests are approved, the patient’s co-pay may still be high. It is a good idea to inform patients of high co-pays, ideally before preparing the Rx, so that early action can be taken.

To learn more about how PAs work and how to explain them to patients, take our CE, Prior Authorization.

Two months later, Mrs. Parks returns with the Trintellix prescription. Duloxetine was not effective, so her prescriber wants to switch to Trintellix. The prescriber was able to submit the prior authorization request ahead of time, and it appears that it was approved because you are no longer getting a prior authorization rejection. However, you are now getting a duplicate therapy rejection when you try to submit the claim. Since this is a DUR-related rejection message, you inform the pharmacist that it requires her review. The pharmacist resolves the rejection, and you continue processing the prescription. However, your system stops you again to inform you that there are only 27 Trintellix tablets remaining, which is not enough to fill the prescription for 30 tablets. You check the shelf and confirm that there is only one already open bottle in stock.

How should claims for partial fills be handled?

In general, when submitting claims, it’s a good idea to avoid doing anything that requires patients to pay extra co-pays, causes the third-party payer to pay extra dispensing fees, or results in submission of claims for medication that is not actually dispensed. Familiarize yourself with the policies regarding partial fills in your pharmacy, to avoid any actions that might be considered fraud.

Partial fills may be required due to lack of sufficient stock to dispense the full prescription quantity. Plans usually allow you to bill the prescription as you normally would, and have the patient return for the balance. But if the patient does not return you must reverse the claim and bill for the correct amount. Alternatively, some pharmacy policies may require giving the patient a few tablets without charge and waiting until the patient returns for the balance before submitting the claim.

If a patient runs out of certain medications but has no refills, emergency fills with a small quantity are often allowed pending refill authorization. (Refer to your state’s laws for more details on when this is allowed.) As with the situation above where stock was inadequate to fill the prescription, most plans want to be billed only once in this situation as well. In most cases, you can deduct the emergency supply from the prescription, depending on your pharmacy’s policy and what your state allows.

If a patient only wants part of their Rx filled (e.g., Rx is for a 90-day supply but the patient only wants a 30-day supply), document the patient’s request in case there’s any question in the future. This documentation can explain why you billed the Rx multiple times and collected multiple dispensing fees, instead of just one.

How do I bill NDC numbers correctly?

National Drug Code (NDC) numbers are required by the Food and Drug Administration (FDA) to identify meds and need to be provided when billing Rxs. Make sure you are submitting these numbers correctly.

NDC numbers are divided into three segments, in any of these formats: xxxx-xxxx-xx, xxxxx-xxx-xx, or xxxxx-xxxx-x. The first segment is the labeler code because it identifies the labeler, or manufacturer, such as Mylan Pharmaceuticals. The second segment is the product code because it identifies the product and strength, such as lansoprazole 15 mg capsules. The last segment is the package code since it identifies the package size, such as a 30-count bottle. This is a total of ten digits. Some computer systems require 11-digit NDC numbers. In this case, you’ll need to add a “leading zero” to the section that has too few digits to make an 11-digit number. For example, if your computer requires five digits in the first segment, the NDC you type in might look like 0xxxx-xxxx-xx if the product’s NDC only has four digits in its first segment.

Different container sizes of a specific strength of a specific med will have the same NDC numbers except for the last segment. For example, Sandoz’s generic simvastatin 40 mg tablets come in bottles of 30 and 90. The NDC numbers for these are the same, except the last two digits for the 30-count bottle are “31” and the last two digits for the 90-count bottle are “92.”

Some meds can have more than one NDC. This is true when multiple individual packages come in one box. There may be an NDC for the individual packages and a different NDC for the box. For example, you may see this with some generic azithromycin 250 mg five-day blister packs. Some computer systems take the NDC number from the whole box, and some systems support the NDC number for the individual packs. Check with your pharmacist to make sure you are using the right NDC.

Also, when it comes to meds that come in different package or container sizes, such as topical creams, ointments, or antibiotic suspensions, make sure you match the NDC on the product to the NDC in the computer. This helps prevent the wrong package size from being dispensed. Dispensing the wrong container size can throw your inventory off, short the patient, or give the patient too much of a med.

Next month, Mrs. Parks returns to pick up refills of all her meds, including atorvastatin. You have an open bottle of atorvastatin from one manufacturer, and need to open a second bottle from a different manufacturer to fill the remainder of the prescription.

You may run into a scenario similar to the example above where it’s possible to use two different NDC numbers to fill the same Rx. Most pharmacists and technicians will try to avoid this practice when possible. Dispensing two products with different appearances may confuse the patient. Also, if you dispense two products but bill under just one NDC number, you will not have a record of the actual product dispensed in case of a recall. Furthermore, an accurate quantity dispensed is necessary for rebates, and for inventory purposes. Also, the prescription bottle will be misbranded if it bears the name of only one manufacturer. It is considered fraudulent to bill for an NDC other than the one dispensed. Refer to your company’s policies in the event that you cannot avoid using two NDCs to fill one prescription.

What information do I need to pay close attention to when submitting claims to the insurance?

Pay attention to important billing codes, such as DAW codes, origin codes, and ICD diagnosis codes. DAW codes tell payers why a specific product is being used and are single digit numbers 0 through 9. For example, DAW 0 is used when there’s no preference and a generic is okay to dispense, DAW 1 means the prescriber requires a brand, and DAW 2 indicates a brand is requested by the patient. In most cases, you are not required to enter DAW codes with every prescription. Pharmacy computer systems generally default to a DAW code of “0” when a prescription order is entered and the claim is transmitted. Never use DAW “1” if the prescriber has not in fact documented that the brand is requested. This could be a big financial hit for pharmacies during insurance audits if there isn’t proper documentation. Make a habit to document additional explanations whenever possible for using DAW codes “2” through “9.”

Origin codes describe where the Rx came from. They’re single digits 1 to 5 that tell payers if the Rx is written, faxed, e-prescribed, etc. For example, an origin code of “1” should be assigned to paper Rxs, “2” should be assigned to an Rx that was received over the phone, “3” is assigned to e-Rxs, “4” to faxed prescriptions, and “5” for cases where a new prescription number needs to be created from an existing valid prescription, such as a transferred prescription.

ICD diagnosis codes are used to classify diseases, injuries, signs/symptoms, etc, and may be included on prescriptions to point out why a product is needed. There are about 70,000 codes, one for each medical condition or issue. For example, ICD code E11.9 indicates the patient has type 2 diabetes and E10.9 means the patient has type 1 diabetes. Follow your pharmacy’s policy for ensuring ICD codes are documented. Medicare Part B and other payers may require ICD codes for some Rxs, such as diabetes testing supplies. You can learn more by reviewing our CE, Medicare’s Durable Medical Equipment (DME) Requirements.

Always work with the pharmacist to clarify any Rxs with directions that say “Take (or use) as directed.” This practice may not be allowed by some insurers and is generally frowned upon. Plus, Rxs with these vague directions are often the focus of pharmacy audits. You need to know the exact directions so that you can calculate an accurate days’ supply.

Entering an inaccurate days’ supply is a common cause of misbilling. Misbilling can necessitate that a claim be reversed, which can be time-consuming or even result in a fine from an insurance audit. Pay particular attention when entering days’ supplies for medications, such as insulin and other injectables, eye drops, ear drops, creams, and ointments. You might need to gather additional information, such as the size of the area a patient is treating with a topical medication.

Also be sure to enter an accurate quantity to be dispensed. Quantities for liquids are usually entered as the number of mL instead of the number of vials or packages dispensed for reimbursement purposes. For example, one vial of insulin contains 10 mL of insulin, so you should enter the quantity dispensed as 10 mL. Entering the quantity dispensed as “1” for the number of insulin vials dispensed may cause inadequate reimbursement. This may be communicated as “1 mL” being dispensed, instead of the full 10 mL contained in one vial. For topicals, enter grams, not one tube or one jar. For oral liquid medications, enter mL instead of ounces in most cases (30 mL = 1 ounce, so a 4 oz bottle contains 120 mL of liquid).

Make sure you’re entering correct quantities for insulin pens. Consider the following example:

Lantus pen

Dispensing insulin pens can be tricky. For example, each Lantus SoloStar pen contains 3 mL (300 units) of Lantus. Each box contains five pens, for a total of 15 mL (1,500 units) of insulin per box. Check with your pharmacist about the best way to enter the quantity for an insulin pen.

In the example above, about two pens will last one month (15 units/day x 30 days = 450 units; 450 units x 1 pen/300 units = 1.5 pens à round up to 2 pens). However, a box of insulin pens contains five pens which will last this patient three months (300 units/pen x 1 day/15 units = 20 days/pen; 5 pens x 20 days/pen = 100 days). In order to dispense a whole box for the above prescription, the prescriber would need to be called to confirm it’s okay to dispense a three-month supply. The quantity that should be entered for the whole box is 15 mL (5 pens x 3 mL).

Glossary of Billing Terms

AAC: actual acquisition cost net cost at which the pharmacy acquires a drug; includes the pharmacy’s discounts, rebates, and other price adjustments, but does not include dispensing fees.

AWP: average wholesale price a reference price published in commercial publications. AWP is sometimes referred to as the “sticker price” since it is not the real price that pharmacies pay for a drug, but rather a published average of what wholesalers charge pharmacies.

BIN: bank identification number used by many pharmacies to help sort and identify payers and clarify claim submission destination for patients with prescription drug cards. You may also hear this referred to as the Issuer Identification Number (IIN).

Co-pay: a flat amount or percentage of the drug cost (coinsurance) that the patient is charged for a prescription medication; usually kicks in after the deductible is met.

Deductible: the amount of money a patient has to pay out of pocket over the course of a year before benefits, such as coinsurance, will begin.

Formulary: a list of drugs covered by a payer.

HMO: health maintenance organization covers care provided by healthcare professionals who have signed up with the HMO and have agreed to treat patients according to the HMO’s policies.

Managed care: a healthcare delivery system organized to manage cost, utilization, and quality (e.g., HMO, PPO, PBM, etc).

Medicaid: a joint federal and state program that helps with medical costs for some people with low incomes and limited resources. Medicaid programs vary from state to state. Some patients are covered by both Medicaid and Medicare.

Medicare: federal health insurance program for patients 65 years and older, some younger patients with disabilities, and some people with permanent kidney failure (end-stage renal disease).

Medicare Part A: the part of Medicare that pays for hospital care.

Medicare Part B: the part of Medicare that pays for doctor visits, certain injections, durable medical equipment, chemotherapy, nebulized meds, and diabetes supplies.

Medicare Part D: the part of Medicare that pays for prescription drug coverage; patients may receive their prescription drug coverage through Medicare Part D even when their prescription card has a different name or logo on it (e.g., AARP).

PBM: pharmacy benefit manager company that acts as an intermediary between the pharmacy and payer.

PPO: preferred provider organization an insurance plan in which participating healthcare professionals and hospitals treat patients for an agreed upon rate.

Premium: the periodic (usually monthly) payment a patient makes to Medicare or other insurance company to participate in their healthcare or prescription drug coverage plan.

Third-party payer: entity (e.g., insurance company, Medicare, Medicaid) other than the patient that pays for medications or healthcare.

U & C: usual and customary price; cash price (may be used for patients who do not have any form of prescription drug coverage).

WAC: wholesale acquisition cost manufacturer’s list price to wholesalers or direct purchasers.

Project Leader in preparation of this technician tutorial (360380): Flora Harp, PharmD/Assistant Editor

Cite this document as follows: Technician Tutorial, Billing Rx Drugs. Pharmacist’s Letter/Pharmacy Technician’s Letter. March 2020.

“Cheat Sheet” for Billing Rx Drugs

How do pharmacies get paid for prescription drugs?

Pharmacies have contracts with various insurance companies for the payment of drugs and services. The amount that an insurance company will reimburse a pharmacy for prescriptions is outlined in the contract and is usually based on the cost of the medication plus a dispensing fee. When a patient has a prescription to fill, the claim is submitted electronically. Since the insurance company is billed at the time a prescription claim is processed, you know almost immediately whether it’s approved or rejected. The pharmacy eventually gets paid electronically through funds transfers to its bank account at an interval of time that is agreed upon in the contract with the insurance company (e.g., once a month).

What are some examples of the different types of payers pharmacies may bill Rx drugs to?

  • Government plans
    • Medicaid
    • Medicare
  • Pharmacy benefit managers (PBMs; e.g., OptumRx, Express Scripts, etc)
  • Health plans (e.g., BlueCross, BlueShield, Aetna, etc)

Why is payment for prescription drugs sometimes rejected by insurance companies?

Claims can be rejected for a variety of reasons. For example, incorrect information may have been entered in the computer, it may be too soon for the patient to refill the medication, or the medication may require prior authorization or step therapy.

How should I handle insurance rejections?

It depends on the specific rejection. If there was an error in the information submitted to the insurance company, then correct the information and try to resubmit the claim. Make sure you enter all information correctly, such as the patient name, plan information, NDC number, quantity, days’ supply, directions for use, origin code, ICD diagnosis code (usually required for Medicare Part B durable medical equipment), and DAW code. If the rejection message mentions a prior authorization or step therapy requirement, you should get the pharmacist involved to work with the prescriber to submit the prior authorization request or change the med to an alternative. Be sure to reverse the claim that generated the prior authorization or step therapy rejection if the prescriber orders a different medication for the patient. If you don’t understand the insurance rejection message, or if it’s too vague (e.g., “drug not covered”), it’s best to call the insurance company to get more information, such as alternative meds that are covered. DUR-related rejections should be referred to the pharmacist for review.

What can I do to help prevent insurance rejections and ensure billing accuracy?

  • Know your pharmacy’s policies on how to handle partial fills.
  • Always dispense the NDC that you billed the insurance for.
  • Check with the pharmacist if you are unsure of which NDC number to use when billing.
  • Clarify any “Take (or use) as directed” sigs and get additional information for topical meds (e.g., size of area being treated) to help determine an accurate days’ supply.
  • Submit the correct quantity and clarify with the pharmacist if you are unsure of whether to enter the quantity in number of package sizes or in volume.

[March 2020; 360380]

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