Corporate Compliance

Note from the Instructor: Coverage of prescription drugs under Medicare Parts A, B, C, and D, Part II

Medicare Insider, July 7, 2015

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This week’s note from the instructor is written by Judith L. Kares, JD, regulatory specialist for HCPro.

Several weeks ago, we began a discussion on coverage of prescription drugs under Medicare Parts A, B, C, and D. Although each part of Medicare provides some coverage for drugs, there are distinct differences among them regarding the requirements for, and scope of, such coverage. In the prior note, we discussed drug coverage available under Parts A, B, and C, including relevant limitations. In this note, we will focus on Part D, which is the most recently implemented part of Medicare and specifically designed to close some of the gaps in Medicare drug coverage. We will also explore the potential for additional coverage for prescription drugs under Part D when those drugs are not covered under other parts of Medicare.

Coverage under Parts A, B, and C

First, let us briefly review coverage under Parts A, B, and C. Medicare covers most drugs provided during an otherwise covered Part A inpatient stay. However, there are limitations on the number of inpatient days covered under Part A.

Coverage for prescription drugs provided to hospital outpatients under Part B is more limited. Generally, outpatient hospital drugs are not covered unless they fall within one of the following three exceptions:

  • Certain categories of outpatient drugs covered by statute (e.g., blood clotting factors for hemophilia patients, etc.);
  • Outpatient drugs that are provided “incident to” a physician’s services and are “not usually self-administered,” as determined by the MAC with jurisdiction for those hospital services; and
  • Certain self-administered drugs if they are an integral component of a procedure, are directly related to it, or facilitate the performance of, or recovery from, the procedure.

Some coverage may also be available under Part B for prescription drugs provided to hospital inpatients when there is no coverage under Part A. Under inpatient Part B, coverage is generally on the same terms and conditions as those that would have applied had the services been provided in the outpatient setting.

Under Part C, managed care plans (currently referred to as “Medicare Advantage Plans” or “MA Plans”) contract with Medicare to provide coverage to their enrollees for all services (including prescription drugs) otherwise covered under Parts A and B. Since their inception, MA Plans have also been permitted to offer additional benefits in the form of reduced cost sharing or additional services. Many of them have elected to offer expanded outpatient drug coverage. In addition, starting in 2006 with the implementation of Part D, many MA Plans are either required, or have elected, to provide Part D drug coverage to their enrollees.

Coverage under Part D

Part D is an optional federal Medicare program designed to subsidize the costs of prescription drugs and prescription drug insurance premiums for individuals entitled to Medicare benefits under Part A and/or enrolled in Medicare benefits under Part B. Beneficiaries who enroll in most MA Plans, as well as those who qualify for both Medicare and Medicaid (full benefit dual-eligible) automatically receive the Medicare drug benefit. Enacted as part of the Medicare, Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”), Part D originally went into effect on January 1, 2006, and has been subsequently amended by several federal statutes, including the Medicare Improvements for Patients and Providers Act of 2008.

Under the MMA, Medicare beneficiaries generally receive coverage for prescription drugs in one of two ways:

  • Enrollment in a supplemental Prescription Drug Plan (PDP) offered by a private insurance company, to supplement the health coverage they receive under Medicare Part A and/or B; or
  • Enrollment in a private MA Plan that offers coverage for prescription drugs (MA-PD) as an integral part of the health coverage it provides under Medicare Part C.

Organizations offering drug plans (both PDPs and MA-PDs, referred to collectively as “Drug Plans”) have flexibility in the design of the prescription drug benefit packages they offer, including the establishment of formularies. Formularies are lists of prescription drugs that have been approved by that Drug Plan for coverage. Even when not included on the formulary, beneficiaries may request an exception in certain circumstances. Other variables include deductibles, coinsurance, coverage, and out-of-pocket limits.

In addition, currently, there is a coverage gap—popularly referred to as the donut-hole—during which the beneficiary bears the primary responsibility for payment of otherwise covered prescription drugs. This gap occurs between the time the beneficiary has met the initial coverage limitation under the particular PDP or MA-PD and before he or she has reached his or her out-of-pocket threshold. Over time, the intent under Part D is for coverage to expand and cost sharing to diminish.

Potential coverage under Part D when there is no coverage under Parts A, B, and/or C

In its brochure “How Medicare Covers Self-Administered Drugs Given in Hospital Outpatient Settings,” Medicare notes that most self-administered drugs provided in the hospital outpatient setting will not be covered and that the hospital will probably bill the beneficiary for those non-covered drugs.

In that case, they recommend that a Medicare beneficiary with Part D do the following:

  • Check with the hospital to see if it participates in Part D;
  • If the hospital pharmacy does not participate in Part D, the beneficiary may need to pay up front and out-of-pocket for these drugs and submit the claim to his or her PDP for a refund;
  • Follow the instructions in the PDP’s enrollment materials on how to submit an out-of-network claim, or call the PDP for information about how to submit a claim; and
  • Keep copies of any receipts and any paperwork sent to the PDP.

The PDP will probably ask the hospital for the following additional information:

  • Certain records, including the emergency room bill that shows what self-administered drugs were given. He or she may also need to explain the reason for the hospital visit; and
  • The PDP may ask if the beneficiary could reasonably have obtained any of the drugs from a participating network pharmacy. For example, if he or she could have taken a dose of a drug obtained from a network pharmacy before the outpatient hospital appointment, the PDP may not pay for that drug.

To determine whether the drug is covered under Part D, the PDP will check to see whether it is included on the PDP’s formulary or qualifies under an exception. Even if the drug is covered, the PDP may only reimburse the in-network cost for the drug, minus any deductibles, copayments, or coinsurance that normally apply. In addition, the beneficiary also may need to pay the difference between what the hospital charged and what the PDP paid. This amount will be counted toward his or her Part D out-of-pocket costs, as long as he or she submits the claim to the PDP. If the drug is not covered, the beneficiary will be obligated to pay the full amount that the hospital charged for the drug.

Arguably, following the same analysis, prescription drugs that are provided in the inpatient hospital setting but are neither covered under Part A nor fall within a coverage category under inpatient Part B, would also potentially qualify for coverage under Part D. A similar argument might be used for coverage under Part D when certain prescription drugs are not covered under Part C; the MA Plan is neither an MA-PD nor does it otherwise provide additional drug benefits.

Hospitals are encouraged to educate themselves and their patients with respect to the coverage policies and procedures for prescription drugs under Parts A, B, C, and D and to facilitate their patients’ ability to communicate and seek guidance from their respective PDPs and MA-PDs on these issues, if applicable.

Additional resources

In the meantime, additional information is available in the following source authorities:



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