Welcome to the Department of Health Care Services Welcome to Medi-Cal Welcome to the Department of Health Care Services

Medi-Cal Logo
Click to Sign Up for MCSS emails

Update on Payment Methodology for Physician-Administered Drugs

November 7, 2017

In response to new reimbursement requirements outlined in the Centers for Medicare and Medicaid Services (CMS) Final Rule on Covered Outpatient Drugs (CODs), (42 CFR Part 447), the Department of Health Care Services (DHCS) submitted State Plan Amendment (SPA) 17-002, which was approved by CMS on August 25, 2017. SPA 17-002 authorizes DHCS to change the Medi-Cal payment methodology for CODs effective April 1, 2017; specifically, it changes how the drug’s ingredient cost, which is used to establish the pharmacy rate of reimbursement, is determined. The ingredient cost is now defined as the lowest cost of:

  1. The National Average Drug Acquisition Cost (NADAC) of the drug; or, when no NADAC is available, the Wholesale Acquisition Cost (WAC) + 0%, or

  2. The Federal Upper Limit (FUL), or

  3. The Maximum Allowable Ingredient Cost (MAIC)

Although a majority of physician-administered drugs (PADs) are reimbursed based on the Medicare Part B reimbursement rate for drugs and biologics pursuant to SPA 11-018, there remain a handful of Healthcare Common Procedure Coding System (HCPCS) codes for which a Medicare Part B reimbursement rate is not available or published by CMS. For these HCPCS codes, the reimbursement rate is determined based on the pharmacy rate of reimbursement as outlined in SPA 11-018.

Therefore, effective April 1, 2017, reimbursement rates for HCPCS codes that are based on the pharmacy rate of reimbursement will be established according to the lowest ingredient cost as stated above. Affected PAD claims with dates of service on or after April 1, 2017, until implementation of the updated rates will be adjusted through the department’s normal erroneous payment correction (EPC) process in the coming months.

PLEASE NOTE: The process of updating PAD rates (using the CMS-approved pharmacy rate, effective April 1, 2017) for HCPCS codes for which a Medicare Part B reimbursement rate is not available or published by CMS, is specific to PADs only. This process is separate, distinct, and has no impact on the implementation of the new reimbursement methodology and professional dispensing fee for pharmacy claims that is estimated to implement in August 2018.