2.4 Insurance, Billing, and Claims Processing
Key Takeaways
- PBMs (Pharmacy Benefit Managers) process prescription claims between pharmacies and insurers.
- Prior authorization (PA) is required when a drug is not on formulary or has quantity limits.
- Common rejection codes include refill too soon, NDC not covered, and PA required.
- AWP (Average Wholesale Price) is used as a benchmark for drug pricing.
- NCPDP standards are used for electronic prescription transmission and claims.
Quick Answer: Pharmacy claims are processed through PBMs (Pharmacy Benefit Managers) using NCPDP standards. Common rejections include refill too soon, PA required, and NDC not covered. Understanding copays, deductibles, and formulary tiers is essential for helping patients.
Pharmacy Benefit Managers (PBMs)
PBMs are intermediaries that process prescription drug claims between pharmacies, insurers, and patients.
Major PBMs
| PBM | Notes |
|---|---|
| CVS Caremark | Largest PBM |
| Express Scripts | Major mail-order operations |
| OptumRx | United Health Group |
| Humana Pharmacy Solutions | Medicare focus |
| Prime Therapeutics | Blue Cross Blue Shield plans |
PBM Functions
- Process prescription claims
- Manage drug formularies
- Negotiate drug prices with manufacturers
- Administer mail-order pharmacies
- Manage specialty pharmacy programs
- Implement drug utilization review
Insurance Terminology
| Term | Definition |
|---|---|
| Premium | Monthly payment for insurance coverage |
| Deductible | Amount patient pays before insurance kicks in |
| Copay | Fixed amount patient pays per prescription |
| Coinsurance | Percentage patient pays (e.g., 20%) |
| Out-of-pocket maximum | Annual limit on patient costs |
| Formulary | List of covered drugs |
| Prior Authorization (PA) | Pre-approval required for certain drugs |
| Step Therapy | Must try cheaper drugs first |
| Quantity Limit (QL) | Maximum quantity covered per period |
Formulary Tiers
| Tier | Description | Copay (Typical) |
|---|---|---|
| Tier 1 | Preferred generics | $5-15 |
| Tier 2 | Non-preferred generics | $15-30 |
| Tier 3 | Preferred brands | $30-50 |
| Tier 4 | Non-preferred brands | $50-100 |
| Tier 5 | Specialty drugs | 20-30% coinsurance |
Claims Processing
Information Required for Claims
| Field | Description |
|---|---|
| BIN | Bank Identification Number (6 digits) |
| PCN | Processor Control Number |
| Group Number | Plan/employer identifier |
| Member ID | Patient's insurance ID |
| Person Code | Identifies patient within family |
| Cardholder Name | Primary insurance holder |
Claims Transmission
Claims are transmitted electronically using NCPDP (National Council for Prescription Drug Programs) standards.
Key Data Elements:
- Patient information (ID, DOB, gender)
- Prescriber information (NPI, name)
- Drug information (NDC, quantity, days supply)
- Pharmacy information (NPI, NCPDP number)
- DAW code
- Diagnosis code (if required)
Common Rejection Codes
| Code | Meaning | Resolution |
|---|---|---|
| 75 | Prior Authorization Required | Contact prescriber for PA |
| 76 | Plan Limitations Exceeded | Check quantity limits |
| 79 | Refill Too Soon | Wait until eligible date |
| 70 | Product/Service Not Covered | Check formulary alternatives |
| 88 | DUR Reject | Address drug interaction/duplicate therapy |
| 25 | Missing/Invalid Prescriber ID | Verify NPI |
| MR | M/I Patient ID Number | Verify member ID |
| 65 | Patient Not Covered | Verify insurance active |
| ER | M/I Quantity Prescribed | Correct quantity |
| 26 | M/I Unit of Measure | Use correct units |
Handling Rejections
Refill Too Soon (79):
- Check when refill is eligible
- Inform patient of eligible date
- Offer to fill as cash pay if urgent
Prior Authorization Required (75):
- Inform patient PA is needed
- Contact prescriber's office
- Fax PA form with clinical information
- Follow up on PA status
NDC Not Covered:
- Check if different NDC is covered
- Offer therapeutic alternative
- Contact prescriber for change
Drug Pricing Terms
| Term | Definition |
|---|---|
| AWP | Average Wholesale Price - benchmark price |
| WAC | Wholesale Acquisition Cost - manufacturer to wholesaler |
| AAC | Actual Acquisition Cost - what pharmacy paid |
| MAC | Maximum Allowable Cost - generic price cap |
| U&C | Usual and Customary - pharmacy's retail price |
Reimbursement Formula
Typical Reimbursement = (AWP - Discount%) + Dispensing Fee
Example: AWP is $100, discount is 15%, dispensing fee is $2
- Reimbursement = ($100 - 15%) + $2 = $85 + $2 = $87
Medicare Part D
Coverage Phases
| Phase | Description | Patient Pays |
|---|---|---|
| Deductible | First $545 (2026) | 100% |
| Initial Coverage | Until total drug costs reach $5,030 | Copay/coinsurance |
| Coverage Gap | $5,030 - $8,000 (2026) | 25% for most drugs |
| Catastrophic | After $8,000 out-of-pocket | $0 or 5% |
Note: Coverage gap ("donut hole") largely closed - patients pay 25% for most drugs.
Coordination of Benefits (COB)
When a patient has multiple insurance plans:
- Primary insurance - bills first
- Secondary insurance - bills for remaining balance
- Patient - pays any remaining amount
Common COB Rules
| Situation | Primary Insurance |
|---|---|
| Patient is subscriber | Their own plan |
| Dependent child | Birthday rule (parent whose birthday comes first in year) |
| Divorced parents | Custodial parent's plan |
| Medicare + employer (>20 employees) | Employer plan |
| Medicare + employer (<20 employees) | Medicare |
Workers' Compensation
| Aspect | Requirement |
|---|---|
| Billing | Bill WC carrier directly, not patient |
| Copay | Patient pays nothing |
| Generic substitution | May vary by state |
| Prior authorization | Often required |
| Claim forms | State-specific forms may be needed |
Components of a Third-Party Claim
Every electronic claim is adjudicated in real time. To process it, the technician must enter three routing identifiers plus the member data.
| Field | Purpose |
|---|---|
| BIN | Bank Identification Number - routes the claim to the processor |
| PCN | Processor Control Number - directs to the specific plan |
| Group / Member ID | Identifies the patient's specific coverage |
| Person code | Distinguishes dependents on one policy |
Exam Tip: BIN and PCN are the two routing fields most often tested. If a claim rejects with "missing/invalid BIN," the technician re-checks the insurance card and re-enters the routing data.
Reading and Resolving Rejections
Adjudication returns either a paid response (with copay) or a rejection code. The technician resolves the rejection, never simply collects cash without trying.
| Rejection | Typical Resolution |
|---|---|
| Refill too soon | Verify date; patient pays cash or waits |
| Prior authorization required | Notify prescriber to submit PA |
| Non-formulary / not covered | Suggest formulary alternative to pharmacist |
| Therapy duplication | Flag for pharmacist review |
| Invalid member ID / BIN | Re-verify card data and re-submit |
Medicare Parts and Coverage Types
The ExCPT tests which Medicare part pays for outpatient drugs versus those administered in a clinical setting.
| Coverage | What It Covers |
|---|---|
| Medicare Part A | Inpatient hospital, including drugs given during admission |
| Medicare Part B | Some outpatient/clinic-administered drugs, vaccines, DME |
| Medicare Part D | Outpatient prescription drug benefit (most retail Rx) |
| Medicaid | State/federal program for low-income patients |
| Workers' Compensation | Work-related injury; patient pays nothing |
Worked Example: A patient picks up an oral diabetes medication at a retail pharmacy. This is billed to Part D. An influenza vaccine administered at the pharmacy is typically billed to Part B.
Tiered Copays and Patient Cost
Formularies group drugs into tiers; the tier sets the copay. Tier 1 (generics) costs the least; specialty tiers cost the most. Coordination of benefits applies the primary plan first, then the secondary plan to the remaining balance. The technician explains copays, deductibles, and tier differences but defers therapeutic substitution decisions to the pharmacist.
A claim rejects for 'missing/invalid BIN.' The BIN is used to:
An outpatient oral prescription at a retail pharmacy for a Medicare beneficiary is generally billed to:
A claim returns 'prior authorization required.' The technician should: