Glossary

The 340B program is a government program that provides discounts on prescription drugs to healthcare providers who serve vulnerable or low-income populations. Providers that participate in the 340B program purchase drugs for 20%-50% less than the average wholesale price (AWP) of the drug. Today, many hospitals qualify for 340B status.

A 505(b)(2) drug is approved through an abbreviated FDA pathway designed for modifications of already-approved products, such as a new formulation, dosage form, route of administration, or indication.

505(b)(2) products qualify for their own unique J codes and are not grouped into generic codes.

Average Manufacturer Price (AMP) is a pricing benchmark used to determine the payment amount for certain drugs covered by Medicaid. The AMP is defined as the average price paid by wholesalers to drug manufacturers for drugs sold to retail community pharmacies.

The APC or Ambulatory procedure code payment limit is used to reimburse hospitals for outpatient services provided to Medicare beneficiaries.

The ASP describes the real average price that a drug is being sold for including discounts. The ASP provides a benchmark for reimbursement rates for prescription drugs in government programs, such as Medicare and Medicaid, as well as in private insurance plans.

ASP+6% is the standard formula Medicare uses to reimburse most physician-administered Part B drugs: the average sales price (ASP) of the drug plus a 6% add-on. Because of federal sequestration, the effective add-on is closer to 4.3%. When an ASP is not available, Medicare may instead reimburse based on wholesale acquisition cost (WAC) or another benchmark.

The AWP, or average wholesale price, is the manufacturer-suggested retail price for a drug. Typically, the AWP is 20% higher than the WAC.

A billing unit is the standardized quantity defined by a drug's HCPCS code, used to report how much of a drug was administered. The billing unit often differs from the actual dose — for example, a code defined as "1 mg" requires reporting 100 units for a 100 mg dose. Calculating billing units correctly, and reconciling them against the NDC units on the package, is a common source of claim errors.

A biosimilar is a biological product that is highly similar to an existing FDA-approved reference biologic, with no clinically meaningful differences in safety or efficacy.

Think of a biosimilar as a generic for a biologic: because biologics are large, complex molecules derived from living organisms, they can't be copied exactly, so a biosimilar is comparable to, but not an identical copy of, its reference product.

Box 19 on the CMS 1500 form is used to provide additional information or clarification regarding the medical services provided and billed on the claim form. This box may be used to provide a brief explanation of the medical condition being treated, to specify the type of service provided, or to provide any other relevant information that may help the insurance provider process the claim accurately and efficiently. Box 19 is optional and may be left blank if no additional information is needed.

Box 21 on the CMS 1500 form is designated as "Diagnosis or Nature of Illness or Injury." This box is used to specify the diagnosis or medical condition for which the healthcare provider is billing. The information entered in this box should be the primary or most significant diagnosis code, based on the International Classification of Diseases (ICD) coding system, for the services provided to the patient. Note that this information appears opposite lines with letters A-L. Relate lines A-L to the lines of service in 24E by the letter of the line.

Box 24 on the CMS 1500 form provides a wide variety of information concerning the submitted claim. This includes the date of service, the place of service, the procedure code, the diagnosis pointer (reference Box 21), charge information, drug units administered, certain plan information, the provider ID number, and can also include NDC information.

Buy-and-bill is a drug distribution model in which a healthcare provider purchases a physician-administered drug directly from a manufacturer or wholesaler, stores it, administers it to the patient in an office or outpatient setting, and then bills the payer for reimbursement. Because the provider takes ownership of the drug, buy-and-bill drugs are typically covered under the medical benefit (e.g., Medicare Part B) rather than the pharmacy benefit.

A C code is a temporary HCPCS Level II code used to identify drugs, biologicals, and devices that are eligible for pass-through payment in the hospital outpatient (OPPS) setting. C codes allow Medicare to pay separately for these new items under OPPS until a permanent code is assigned.

The Centers for Medicare & Medicaid Services (CMS) is a federal agency which administers the Medicare program, the Children's Health Insurance Program (CHIP), and the Medicaid program. CMS publishes quarterly Medicare pricing files.

The CMS 1500 form is a standard medical claim form used by healthcare providers to bill Medicare and other insurance providers in the United States.

CPT (Current Procedural Terminology) code is a standardized medical code system used in healthcare to describe medical, surgical, and diagnostic services and procedures performed by healthcare providers. Each CPT code corresponds to a specific service or procedure and is used to identify the specific service provided by the healthcare provider.

DRGs are primarily used for hospital reimbursement by government payers, such as Medicare in the United States, and are designed to control healthcare costs by setting fixed payment rates for hospital stays based on the patient's diagnosis, procedures performed, age, and other relevant factors.

The Federal Upper Limit (FUL) in healthcare refers to the maximum amount that Medicaid will reimburse for a specific generic drug product.

Government Pricing in healthcare refers to the pricing of drugs and medical devices established by government programs and agencies in the United States. These programs and agencies, such as Medicare and Medicaid, set the reimbursement rates for these products, which determine the payment amounts for healthcare providers and suppliers.

A Group Purchasing Organization (GPO) negotiates drug and supply pricing on behalf of its member providers, such as hospitals and physician practices. By aggregating the purchasing volume of many members, a GPO secures discounted contract pricing that members use when acquiring buy-and-bill drugs.

HCPCS is a standardized system of codes used to describe medical procedures, supplies, and equipment in the United States healthcare system. It is maintained by the Centers for Medicare & Medicaid Services (CMS) and is used to classify and reimburse medical services, supplies, drugs, and equipment provided to patients.

The HCPCS NDC Crosswalk is a mapping tool used to link HCPCS codes with their aligned NDC codes. The HCPCS NDC Crosswalk helps healthcare providers and insurance companies accurately identify and match the specific drug product with the corresponding HCPCS code for billing purposes.

ICD-10 is used to code and classify diagnoses and procedures for healthcare billing purposes. Healthcare providers use ICD-10 codes to communicate the diagnoses and procedures associated with a patient's care to insurance companies and other healthcare organizations.

The Inflation Reduction Act (IRA) of 2022 authorized Medicare to negotiate prices directly with manufacturers for certain high-spend drugs. The negotiated ceiling price is called the Maximum Fair Price (MFP) — the amount Medicare and its beneficiaries pay for a selected drug once negotiation takes effect. Many of the drugs subject to negotiation are physician-administered Part B drugs.

A J code is a HCPCS Level II code, beginning with the letter "J," used to identify and bill for drugs administered by a healthcare provider rather than self-administered. Each J code describes a specific drug and a defined billing unit (for example, "1 mg" or "10 mg"), and J codes are the primary codes used to bill physician-administered, buy-and-bill drugs to Medicare and other payers.

The JW and JZ modifiers report drug wastage on a claim for a single-dose vial or package. The JW modifier identifies the amount of a drug that is discarded and not administered to the patient, allowing that wasted amount to be billed separately. The JZ modifier attests that there was no discarded drug. Medicare requires one of the two modifiers on applicable single-dose container claims.

Maximum Allowable Cost (MAC) in healthcare refers to the maximum amount that a payer will reimburse for a specific drug or medical device.

A Medicare Administrative Contractor (MAC) is a private company that has been contracted by the Centers for Medicare and Medicaid Services (CMS) to process Medicare claims, provide customer service, and handle other administrative tasks related to the Medicare program.

Medicare Part B covers drugs administered by a healthcare provider in an office or outpatient setting — the physician-administered, buy-and-bill drugs billed with HCPCS J codes. Medicare Part D covers self-administered prescription drugs dispensed by a pharmacy. Whether a drug falls under Part B or Part D determines how it is purchased, coded, and reimbursed.

National Average Drug Acquisition Cost (NADAC) in healthcare refers to the average price paid by retail pharmacies for prescription drugs, as reported by the Centers for Medicare & Medicaid Services (CMS). NADAC is calculated based on the prices that retail pharmacies pay to purchase drugs from wholesalers, and it provides a benchmark for determining the reimbursement rates for prescription drugs in government programs, such as Medicare and Medicaid, as well as in private insurance plans.

The NDC is an 11-digit code that consists of three segments: the labeler code, product code, and package code. The NDC is used by Medicare, Medicaid, and private insurance companies to determine reimbursement for these products.

On a drug claim, the NDC unit reports the quantity of drug actually used, measured by the NDC's unit of measure rather than by HCPCS billing units. CMS recognizes five NDC units of measure: F2 (international unit), GR (gram), ML (milliliter), UN (unit), and ME (milligram). Reporting the correct unit of measure and quantity — and reconciling it with the HCPCS billing units — is required for accurate payment and is a frequent source of claim errors.

In medical billing, NOC codes are used to describe diagnoses, procedures, and drugs that are not covered by a specific code in the classification system. The use of NOC codes helps to ensure that all diagnoses and procedures are captured and accounted for in medical billing, even if they do not fit into a specific category or code.

The New Technology Add-on Payment (NTAP) is a payment mechanism used by the Centers for Medicare and Medicaid Services (CMS) in the United States to provide additional payment to hospitals that use qualifying new technologies that are deemed to be significantly costly and demonstrate substantial clinical improvement in the treatment of Medicare beneficiaries.

OPPS is the Medicare payment system used to reimburse hospitals for outpatient services. Under OPPS, services are grouped into Ambulatory Payment Classifications (APCs), each tied to a payment rate. Separately payable drugs administered in the hospital outpatient setting are paid under OPPS — often at ASP plus a percentage — while lower-cost drugs may be packaged into the payment for the associated procedure.

The FDA's Orange Book, or Approved Drug Products with Therapeutic Equivalence Evaluations, is a resource that provides information on drugs that have been deemed to be therapeutically equivalent by the FDA. The Orange Book helps healthcare providers and insurance companies determine which drugs can be substituted for one another in the treatment of specific medical conditions.

Place of Service (POS) is a two-digit code on the CMS 1500 claim that identifies where a service or drug was administered — for example, 11 (office), 19 or 22 (hospital outpatient), or 21 (inpatient hospital). The POS code affects coverage and the reimbursement rate, since payers may pay differently for the same drug depending on the setting in which it was administered.

Prior authorization is a payer requirement that a provider obtain approval before administering or billing for certain drugs or services. For buy-and-bill drugs, a payer may require prior authorization to confirm medical necessity and coverage before the drug is administered; a claim submitted without required authorization may be denied.

Therapeutic Equivalence refers to the concept that two or more drugs have the same clinical effect and can be used interchangeably for the same medical condition.

The UB-04 form, also known as the CMS 1450 form, is a standardized claim form used for hospital inpatient and outpatient services. The UB-04 form is used in place of the CMS 1500 form for hospital claims and is used to provide more detailed information about the services provided and the costs associated with those services.

The WAC, or the wholesale acquisition cost, is a price that pharma manufacturers set when selling their drug to wholesalers.

White bagging and brown bagging are alternatives to the buy-and-bill model in which the provider does not purchase the drug. In white bagging, a specialty pharmacy dispenses a patient-specific drug and ships it directly to the provider's office for administration. In brown bagging, the drug is dispensed to the patient, who brings it to the appointment. In both cases the drug is billed under the pharmacy benefit rather than the medical benefit, shifting acquisition and inventory risk away from the provider.