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Pharmacy Retroactive Claim Adjustments FAQs

Pharmacy Retroactive Claim Adjustments

  1. Why is the Department of Health Care Services (DHCS) reprocessing fee-for-service pharmacy claims for covered outpatient drugs?
    The Centers for Medicare & Medicaid Services (CMS) approved State Plan Amendment (SPA) 17-002 on August 25, 2017, with a mandated policy effective date of April 1, 2017. This SPA outlines the new actual acquisition cost (AAC)-based methodology DHCS has adopted for reimbursement of Medi-Cal fee-for-service covered outpatient drugs (CODs), to comply with the CMS COD Final Rule (CMS-2345-FC). The SPA also outlines the methodology for a new two-tiered professional dispensing fee. It took significant time for the state to update the claims processing system to reimburse using the new methodology. As a result, DHCS must make retroactive adjustments for impacted claims with dates of service on and after the policy effective date of April 1, 2017 that were processed before the system implementation date of February 23, 2019.

  2. Are all pharmacy claims impacted?
    No, the following pharmacy-related claims are not subject to retroactive adjustments:
    • Blood factors
    • Enteral products
    • Incontinence supplies
    • Medical supplies

    Note: Physician-administered drug (PAD) rates impacted by this adjustment were implemented in fall 2017, and claim adjustments occurred at that time.

  3. Are 340B pharmacy claims impacted?
    Yes, 340B fee-for-service pharmacy claims for covered outpatient drugs will be reprocessed. However, because the drug ingredient cost reimbursement is already equal to the actual acquisition cost, only the professional dispensing fee component will be recalculated for these claims.

  4. When was the first claim adjustment processed?
    Pharmacy providers saw the first claim adjustment (Iteration 1 for claims with dates of service during April 2017) in the last checkwrite in May 2019, and for some providers, this continued into the first checkwrite in June 2019.

  5. How will the remaining claim adjustments between May 1, 2017 and the system implementation date of February 23, 2019 occur?
    The remaining claim adjustments for providers not participating in the alternative payment arrangement (described below) will be broken out into an estimated eight iterations, from early February 2020 to early February 2021, as follows:
    • Iteration 2: May and June 2017 claims
    • Iteration 3: July - September 2017 claims (3rd Quarter 2017)
    • Iteration 4: October - December 2017 claims (4th Quarter 2017)
    • Iteration 5: January - March 2018 claims (1st Quarter 2018)
    • Iteration 6: April - June 2018 claims (2nd Quarter 2018)
    • Iteration 7: July - September 2018 claims (3rd Quarter 2018)
    • Iteration 8: October - December 2018 claims (4th Quarter 2018)
    • Iteration 9: January - February 22, 2019 claims

  6. What Remittance Advice Detail (RAD) code will be used for these adjustments?
    These adjustments will appear on RAD forms beginning May 30, 2019, with RAD code 0812: Covered Outpatient Drug Retroactive Payment Adjustment.

  7. How will the iterations and checkwrites work together to complete all of the claim adjustments over this period?
    There are several scenarios that could play out for each iteration, which will differ by provider. These scenarios include, but may not be limited to the following:

    • Scenario 1: All claims are reprocessed for the iteration, and the provider has a positive amount to be refunded to them. This positive reimbursement will be applied in its entirety to the next checkwrite.
    • Scenario 2: All claims are reprocessed for the iteration, and the provider's amount owed for that iteration is fully recovered in the next checkwrite. Recoupment for that iteration is now complete.
    • Scenario 3: All claims are reprocessed for the iteration, and the provider's amount owed for that iteration is NOT fully recovered in the next checkwrite. The remaining balance for that iteration would roll over to be applied to subsequent checkwrites until recovered.
    • Scenario 4: Claims are reprocessed for the iteration, but the claim volume exceeds weekly limits and not all claims are reprocessed before the checkwrite begins. The first checkwrite will attempt to recover the initial balance owed. The amount owed from the iteration may increase the following week after the remainder of the claims have been reprocessed and add to the amount owed for that iteration. The following checkwrites will attempt to recover any remaining balance for the iteration.

  8. What will my weekly claim adjustment amount be?
    It depends on your net difference for that iteration, and your weekly checkwrite amount. It is not a set amount. Up to 100 percent of your checkwrite will be used to satisfy any amount owed.

  9. When will we be notified of our liability in totality for the claim adjustment period?
    Since the remaining claims in the adjustment period spans 22 months broken into eight remaining iterations, providers will not receive notification of their total liability in advance.

  10. Is the authority to collect retroactive payments approved by CMS?
    Yes, with the policy effective date of SPA 17-002 being April 1, 2017 as approved by CMS, DHCS is obligated to reprocess pharmacy claims according to the new methodology between the policy effective date and the implementation of the new methodology.

  11. Will an Erroneous Payment Correction (EPC) letter for each iteration be posted to the DHCS website explaining these claim adjustments?
    No,While an EPC letter posted to the EPC page of the Medi-Cal website explaining the claim adjustments in totality and the RAD code identified for this EPC will be posted, there will not be one letter posted per iteration. One mailer will be sent to each impacted pharmacy provider officially informing them of the start of the claim adjustment process.

  12. With so many claims being reprocessed in batch, it makes it difficult to dispute a claim.
    Historical NADAC prices are listed by week on the CMS Pharmacy Pricing website. Pharmacy providers may leverage the information provided on that website to determine appropriate claim reimbursement.

  13. Does this affect Medi-Cal Managed Care pharmacy claims also?
    No, this only affects Medi-Cal fee-for-service pharmacy claims.

  14. If there has been a change in pharmacy ownership between April 1, 2017 and now, who is responsible for the recoupment?
    The “owner” on file for the date of service of the claim is responsible for any recoupment on that claim.

  15. I have erroneously been identified as the owning provider for an accounts receivable for an amount owed to DHCS because of these claims adjustments. My pharmacy sales contract clearly articulates the liability for the debt to the other party. What should I do?
    Please visit the Third Party Liability and Recovery Division’s (TPLRD) Provider Overpayments Program web page at http://dhcs.ca.gov/OP to submit an online update, or call TPLRD at (916) 713-8222 for assistance.

  16. Option for Alternative Payment Arrangement

  17. I am a fee-for-service Medi-Cal Pharmacy provider experiencing a hardship as a result of these retroactive adjustments against my weekly checkwrites. Does DHCS offer an alternative payment arrangement?
    Yes, all fee-for-service Medi-Cal Pharmacy providers that submitted pharmacy claims between April 1, 2017, and February 23, 2019, and that have outstanding balances due to DHCS over $1,500, are eligible to submit an application with required documentation to the Third Party Liability and Recovery Division (TPLRD) to be considered for an alternative payment arrangement, if their application is submitted within the specified application period (see #20 below).

  18. How can I estimate my outstanding balance due to DHCS?
    Providers may estimate their total liability outstanding to DHCS by identifying the amount offset from the initial recoupment (Iteration 1), and multiplying that amount by 22 (the number of remaining months of claims from the retroactive period). Please note: The accuracy of this calculation assumes the pharmacy’s claim volume for the period impacted was consistent.

  19. What information is required to be provided in the application?
    All applicants must submit information related to the following items via the online form:

    1. Total Annual Revenue for 2017, 2018, and Total Revenue for the first six months of 2019 (1/1/2019 – 6/30/2019)
    2. Total Annual Cost of Goods Sold for 2017, 2018, and Total Cost of Goods Sold for the first six months of 2019 (1/1/2019 – 6/30/2019)
    3. Total Annual Expenses for 2017, 2018, and the Total Expenses for the first six months of 2019 (1/1/2019 – 6/30/2019)
    4. Bank statements for the most recent three months
    5. Federal Income Tax Returns for 2017 and 2018

  20. When can I submit my application to be considered for an alternative payment arrangement?
    The online form for alternative payment arrangement applications will be open from October 28, 2019 to November 22, 2019. The online form will close on November 22, 2019.

  21. What happens if I do not submit my application between October 28, 2019 and November 22, 2019? Will DHCS process exceptions?
    No applications will be accepted after November 22, 2019. No exceptions.

  22. I am a chain pharmacy, and our corporate office would like to complete batch submissions of several chain pharmacies’ applications on our behalf. Does the online form accommodate batch application submissions of this nature?
    No, Batch submissions of multiple applications cannot be accommodated in the online form. Chain pharmacies must complete individual forms specific to each National Provider Identifier (NPI) for those seeking this arrangement.

  23. Where can I find the online form to submit my application?
    The online form can be accessed at https://www.dhcs.ca.gov/provgovpart/pharmacy/Pages/PharmSurvey.aspx under the subheading “Latest News” using the link entitled “Alternative Payment Arrangement Option.”

  24. How will I know if my application has been received by TPLRD?
    TPLRD will send providers an email within two business days confirming receipt of an application.

  25. When will I be informed of the approval or denial of my application?
    By December 4, 2019, TPLRD will email providers either a request for additional information, or a notification that the application has been approved or denied. If approved, the notification will include the length of your repayment term, which will not exceed 48 months.

  26. If my application is approved for the alternative payment agreement, when will I be informed of the amount to be withheld monthly?
    A final letter indicating the specific monthly amount to be withheld will be sent in February 2020.

  27. What are the various repayment terms that TPLRD may assign to my approved application, and what are the criteria used to make that assignment?
    Approved providers will qualify for repayment terms based on their overall pharmacy operation’s gross profit margin, as follows:
    Gross Profit Margin Repayment Term
    10% or higher 24 Months
    5 – 9.99% 36 Months
    4.99% or less 48 Months

  28. Is the calculated Gross Profit Margin applicable only to the pharmacy’ s Medi-Cal line of business, or all business operations?
    The calculated Gross Profit Margin is applicable to all business operations.

  29. If I still have an unanswered question regarding the alternative payment arrangement option, where can I direct my question?
    If your question is not addressed with the FAQs, you may submit your questions online to TPLRD via the Provider Overpayments Program webpage at http://dhcs.ca.gov/OP, or call TPLRD at (916) 713-8222 for assistance.

  30. Where can I direct my question related to retroactive payment adjustments not specific to the alternative payment arrangement option?
    Contact the Medi-Cal Telephone Service Center at 1-800- 541-5555. If outside of California, please call (916) 636-1980.


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