Medicare ASP Drug Pricing: What You Need to Know for Reimbursement Success

yourownpatientadvocate

12 Oct, 2023

Medicare ASP Drug Pricing: What You Need to Know for Reimbursement Success

When it comes to Medicare ASP drug pricing, there’s a lot to keep track of. If you’re handling billing for a medical office, you probably already know the complexity of getting reimbursed for drugs administered in the office. Unlike regular services, drug reimbursement isn’t found on the CMS Physician Fee Schedule. Instead, Medicare publishes these prices separately, and they use a distinct formula—known as ASP plus 6%—to calculate what you’ll be paid back for the drugs you purchase and administer to patients.

In this post, we’ll discuss the details of Medicare ASP drug pricing and give you the tools to stay current, avoid costly mistakes, and ensure your office isn’t losing money.

Key Takeaways:

  • Medicare ASP drug pricing uses an ASP + 6% formula, updated quarterly.
  • Regularly check Medicare’s pricing updates to ensure accurate billing and avoid underpayment.
  • Commercial insurers often use Medicare’s ASP rates as a baseline, though they may apply a different markup.
  • Monitor yearly Medicare updates to anticipate major pricing or coverage changes.
  • Automated billing systems track J codes and review reimbursements regularly to catch discrepancies early.

What is ASP and Why Does it Matter for Medicare Drug Pricing?

ASP stands for Average Sales Price. Essentially, Medicare takes the average price of a drug and then adds 6% as a reimbursement buffer. You’ll often hear this formula—ASP + 6%—mentioned in conversations about Medicare drug reimbursements. But here’s the tricky part: prices are updated every quarter. That means the price you get reimbursed for in Q1 might not be the same in Q2.

If you don’t check the latest ASP drug pricing updates regularly, you could end up undercharging or, worse, paying out of pocket if reimbursement rates suddenly drop. Assigning someone in your office to check these updates and adjust your billing and inventory tracking is essential.

How to Access the Medicare ASP Drug Pricing Updates

Medicare makes these ASP drug pricing updates available through spreadsheets that you can download directly from their website. Here’s a quick step-by-step guide:

  1. Download the ASP Pricing Spreadsheet
    Medicare’s quarterly updates come in the form of downloadable spreadsheets. These spreadsheets contain the most recent prices, sorted by drug codes, to help you quickly look up specific drugs.
  2. Look Up Drug Codes by J or Q Codes
    Most of the drug codes you’ll encounter are HCPCS codes that start with the letter J (for example, J1234). Some may begin with Q, but the majority are J codes. Search by these codes in the spreadsheet to find the exact reimbursement amount for each drug you administer.
  3. Bookmark the ASP Pricing Page
    Medicare releases the new ASP fee schedule on the first day of each quarter. Ensure your office manager or billing specialist has this page bookmarked and checks it at the beginning of each quarter.

Why Quarterly Updates to ASP Drug Pricing Matter

The quarterly updates aren’t just bureaucratic noise. Drug prices can fluctuate dramatically, and these updates reflect the real-time changes in Medicare ASP drug pricing. While it’s rare for prices to swing wildly from one quarter to the next, it’s still a possibility—and one you don’t want to ignore.

For example, if the price of a certain injectable you routinely use increases significantly, you’ll need to budget accordingly. Otherwise, you could end up with a bill that Medicare won’t fully cover since you typically buy these drugs upfront, out of pocket, and then seek reimbursement later. In a worst-case scenario, failing to monitor these changes could mean a reimbursement gap big enough to impact your office’s cash flow.

Make Sure Your Billing System Tracks J Codes Automatically

To stay on top of Medicare ASP drug pricing efficiently, ensure your billing or EMR system is set up to automatically track J codes (and any other codes you use). This will save you time and reduce billing errors.

Your system should be able to generate reports listing all the J codes you’re billing, what prices you’re charging, and what you’re getting reimbursed. That way, you can quickly check if you’re getting the correct reimbursement from Medicare and your commercial payers.

Commercial insurance companies often base their pricing on the Medicare ASP drug pricing schedule, though they might add a different markup or percentage. So, by monitoring your Medicare reimbursement, you can get a ballpark idea of what to expect from your commercial plans.

Planning for Next Year: Keep an Eye on Upcoming Changes

Medicare updates to ASP drug pricing don’t just happen quarterly—they also release significant updates yearly. These yearly changes are crucial to track, especially since they often reveal:

  • Newly Covered Drugs: Any new drugs added to Medicare’s approved list could open new treatment options or require you to adjust inventory.
  • Drugs Losing Coverage: Medicare may also stop covering certain drugs or adjust its reimbursement formula, impacting what’s feasible to stock in the office.
  • Significant Rate Changes: Some years bring major updates to the ASP formula or significant shifts in Medicare reimbursement amounts for certain drug categories.

The proposed changes typically come out around July and are finalized toward the end of the year. To stay ahead, assign someone to monitor these announcements and incorporate the anticipated changes into your office’s budgeting and ordering for the upcoming year.

If it looks like prices will go up on January 1st, you might consider ordering extra inventory at the end of December. But remember, you only want to buy in bulk if the coverage or reimbursement rate isn’t set to change significantly. Otherwise, you could be left holding expensive inventory on which you can’t recover costs. Every year, Medicare releases proposed changes to ASP drug pricing for the following year. These changes are usually announced in July and finalized in the last quarter. This is particularly important for budget planning, as some drugs might be added to or removed from coverage, or reimbursement rates might shift significantly.

If you’re ordering drugs in bulk at the end of the year to prepare for Q1, you’ll want to know if any upcoming changes will affect the drugs you’re buying. Keep an eye on the CMS announcements, newsletters, and proposed updates to ensure you’re not caught off guard by big changes.

Maximizing Reimbursements from Commercial Insurance Plans Using Medicare ASP Drug Pricing as a Benchmark

When it comes to Medicare ASP drug pricing, understanding how it influences commercial insurance reimbursement is crucial. Many private insurers use Medicare’s ASP drug fee schedule as their baseline. They might apply a different markup or a custom formula, but Medicare’s rates often serve as the foundation. Knowing this allows you to estimate what you should expect from commercial payers and avoid surprises in your billing.

How Commercial Insurers Use Medicare’s ASP as a Base Rate

Here’s a breakdown of how commercial plans typically handle drug reimbursement rates:

  • Reference to Medicare’s ASP Rate: Most commercial insurers will start by referencing Medicare ASP drug pricing and then apply a percentage markup. For instance, they might pay ASP + 8% or ASP + 10% instead of Medicare’s standard ASP + 6%.
  • Contract-Specific Variations: Commercial contracts can have wildly different reimbursement rates, depending on your negotiated deal. Some may pay slightly more than Medicare, while others could be lower. Understanding these variations helps you manage expectations—and cash flow.
  • Quarterly Adjustments Just Like Medicare: Just like Medicare updates its ASP pricing quarterly, some commercial plans will adjust their reimbursement rates quarterly. This is especially common in more competitive insurance markets, where insurers want to keep costs closely aligned with real-time drug prices.

Knowing the general markup your commercial plans use on Medicare ASP drug pricing can help you estimate your reimbursement. If you expect ASP + 10% but see ASP + 6% on your reimbursement, you can immediately spot discrepancies and address them with the insurer.

Checking Reimbursements: Make Sure You’re Getting What You Deserve

You must check your Medicare and commercial insurance reimbursements each quarter to ensure reimbursement accuracy. This will ensure that your office gets the correct amount back for each J code and matches the contracted rates.

Here are a few tips to make this easier:

  1. Run Regular Reports: Use your billing or EMR system to generate quarterly reports that show every J code you billed and the reimbursement received. This should include Medicare and commercial payers to compare what’s hitting your accounts.
  2. Audit Against Medicare’s ASP Spreadsheet: Cross-reference these reports with Medicare’s ASP drug pricing spreadsheet. Any discrepancies could mean you’re being underpaid or could flag potential errors in billing or coding that need correction.
  3. Look for Consistent Errors with Specific Insurers: Sometimes, you may find that one particular commercial payer consistently under-reimburses or doesn’t apply the correct markup. Keeping an eye on patterns like this allows you to quickly address recurring issues before they affect your bottom line too much.
  4. Have a System for Follow-Up: If you spot any discrepancies, it’s best to address them quickly. Assign someone in your office (often the billing specialist or office manager) to follow up with insurers to ensure they correct any errors in reimbursement.

Managing Drug Costs vs. Reimbursement: When It’s Not Worth It

Sometimes, even with the best efforts to track and maximize reimbursement, the math doesn’t work out in your favor. Medicare ASP drug pricing can only cover costs, especially if you factor in additional expenses like storage, staff time, and supplies.

Deciding Whether to Administer Costly Drugs

If the reimbursement doesn’t cover the cost (or barely covers it), you might need to think twice about stocking certain medications. Consider these points:

  • Inventory Costs: Some drugs are expensive to store or have short shelf lives, meaning there’s a high risk of wastage if they’re not used promptly. For instance, some injectables require refrigeration or specific storage conditions. The more delicate the storage needs, the more costly it can be.
  • Labor and Administration Time: Administering drugs and managing inventory takes time. If a drug’s ASP pricing reimbursement barely covers its purchase cost, it may not be worth the added expense of staff time, storage, and other logistics.
  • Consider the Financial Impact of Unused Inventory: If you’re ordering a drug to keep in stock for occasional use, consider the likelihood of it expiring before it’s administered. When reimbursement is close to the cost of the drug, unused inventory can quickly lead to financial losses.

Choosing Financially Sustainable Drugs

Sometimes, limiting the types of drugs you administer in the office is best, primarily if Medicare’s ASP rate doesn’t provide a sufficient margin. Suppose there’s a drug you use infrequently, and the reimbursement rate is marginal. In that case, it might be worth discussing alternative options with patients, such as referral to a specialist who can handle the administration of that drug more cost-effectively.

FAQ

What is Medicare ASP Drug Pricing?

Medicare ASP drug pricing uses the Average Sales Price (ASP) plus a 6% markup to determine reimbursement rates for drugs administered in medical offices. This pricing approach ensures that practices are compensated for the drugs they provide, though rates are updated quarterly, requiring frequent monitoring for accuracy.

Why is Medicare’s ASP Pricing Updated Quarterly?

Quarterly updates reflect changes in drug market prices. This ensures that Medicare’s reimbursement rates align closely with current costs, helping providers receive fair compensation and manage cash flow without excessive out-of-pocket expenses due to outdated pricing.

How Can I Access Medicare ASP Drug Pricing Updates?

Medicare provides ASP drug pricing updates in quarterly spreadsheets available on its website. Download the latest files to look up specific J or Q code prices, ensuring your billing rates match the current reimbursement amounts for accurate financial planning.

Why Should Billing Systems Track J Codes Automatically?

Automatic tracking of J codes in billing systems reduces errors and streamlines reimbursement tracking. This setup allows practices to compare billed amounts to Medicare’s ASP rates, ensuring accurate compensation and minimizing financial discrepancies with Medicare and commercial insurers.

Do Commercial Insurers Use Medicare’s ASP Pricing?

Yes, many commercial insurers reference Medicare’s ASP pricing as a base. They may apply different markups, such as ASP + 8% or 10%, so knowing the Medicare baseline helps estimate commercial reimbursements and address discrepancies promptly.

How Can I Prepare for Annual Medicare ASP Pricing Changes?

Medicare releases proposed updates mid-year and finalize them in the last quarter. Monitor these announcements to anticipate significant reimbursement changes, newly covered drugs, or coverage losses, allowing your office to adjust inventory and budgeting strategies accordingly.

What Should I Do if Reimbursement Doesn’t Cover Drug Costs?

If Medicare’s ASP reimbursement barely covers a drug’s cost, consider whether to keep it in stock. Associated costs like storage and staff time may make it financially unsustainable. Alternative options or referrals may be more viable for seldom-used, costly drugs.

How Do I Ensure Reimbursement Accuracy with Medicare and Commercial Plans?

Run quarterly reports in your billing system to track reimbursements for each J code. Cross-reference these reports with Medicare’s ASP spreadsheets and compare them with commercial payers’ contracted rates. This process ensures you’re being reimbursed relatively and flags any discrepancies for follow-up.

Wrapping Up: Key Takeaways for Navigating Medicare ASP Drug Pricing

Medicare ASP drug pricing can be complex and sometimes confusing, but staying on top is essential for any practice that administers drugs in the office. Here’s a quick recap of what we covered to help you streamline your billing, optimize reimbursements, and avoid costly mistakes.

Understand the ASP + 6% Formula

Medicare reimburses based on the ASP (Average Sales Price) plus 6% formula. This reimbursement rate changes quarterly, so you must stay up-to-date to avoid undercharging or losing money on administered drugs.

Use Medicare’s Quarterly Updates


Medicare releases updated ASP pricing every quarter. Download these spreadsheets, look up specific drug codes (often starting with J or Q), and adjust your billing rates accordingly.

Track Commercial Reimbursements Based on Medicare’s ASP Rates


Many commercial insurers use Medicare ASP drug pricing as their baseline but might apply their markup. By understanding this, you can approximate what you should be reimbursed from commercial payers and spot discrepancies early.

Review Reimbursements Regularly


Use your billing or EMR system to track J codes and run reports on what you’re billing and being reimbursed. Compare these with Medicare’s rates and commercial contracts to ensure you receive the correct amount.

Manage Inventory and Drug Costs Strategically


Some drugs may not be worth keeping in stock if their reimbursement barely covers costs, especially when factoring in storage, labor, and the risk of wastage. Decide which drugs to administer in the office to protect your bottom line.

Monitor Yearly Announcements for Major Changes


Medicare releases proposed updates mid-year and finalize them in the last quarter. These changes can include newly covered drugs, coverage loss, or significant reimbursement rate adjustments. Keep an eye on these updates to inform your inventory and budgeting decisions for the upcoming year.

By following these steps and regularly checking the Medicare ASP drug pricing updates, you can optimize your practice’s reimbursement process, reduce financial risk, and ensure that your office remains profitable and efficient.