Self-Administered Medication – Earned Revenue or Another Write Off

Caveat emptor et provisor

[Let buyer and provider beware]

Written by Bill Malm, ND CMAS CRCR
Caveat emptor is for buyers... Caveat provisor is for providers. Tricky stuff, either way.

Caveat emptor is for buyers… Caveat provisor is for providers. Tricky stuff, either way. And oh joy for hospitals: they are both.

Many facilities struggle with the implementation and collection of earned revenues from Self-Administered Medications (SAD.)  SAD has had a litany of guidance made by CMS, and now the OIG, that has confused many suppliers and providers.  In addition, while SAD is not a commercial payor concept, some have jumped on board as a way of shifting responsibility to the beneficiary.  Finally, SAD has had a history of news articles that show over-inflated charges being billed to beneficiaries.

In this article, we will explore the facts that will let the facility decide what their best approach would be.

What is a Self-Administered Medication?

Self-administered medications are a Medicare concept, however some commercial payors have jumped on board.  The source authority describing the SAD concept is found within the Social Security Act 1861(s)(2)(A), as follows:

Medical And Other Health Services

(s) The term “medical and other health services” means any of the following items or services:

(1) physicians’ services;
(2)(A) services and supplies (including drugs and biologicals which are not usually self-administered by the patient) furnished as an incident to a physician’s professional service, of kinds which are commonly furnished in physicians’ offices and are commonly either rendered without charge or included in the physicians’ bills (or would have been so included but for the application of section 1847B);

Within this authority, Congress specifically excludes SAD from coverage by the Medicare Part B program.  It is important to note that benefit coverage must be present prior to the expectation of reimbursement.  In this case, without the benefit category there would be no expectation of reimbursement by the Medicare program.

A SAD is a concept defined by a number of criteria, as stated in the Medicare Benefit Policy Manual (100-02), Chapter 15, Section 50, as follows:

50 – Drugs and Biologicals

(Rev. 1, 10-01-03)
B3-2049, A3-3112.4.B, HO-230.4.B

The Medicare program provides limited benefits for outpatient drugs. The program covers drugs that are furnished “incident to” a physician’s service provided that the drugs are not usually self-administered by the patients who take them.

Generally, drugs and biologicals are covered only if all of the following requirements are met:

  • They meet the definition of drugs or biologicals (see §50.1);
  • They are of the type that are not usually self-administered. (see §50.2);
  • They meet all the general requirements for coverage of items as incident to a physician’s services (see §§50.1 and 50.3);
  • They are reasonable and necessary for the diagnosis or treatment of the illness or injury for which they are administered according to accepted standards of medical practice (see §50.4);
  • They are not excluded as noncovered immunizations (see §; and
  • They have not been determined by the FDA to be less than effective. (See §§50.4.4).

Medicare Part B does generally does not cover drugs that can be self-administered, such as those in pill form, or are used for self-injection. However, the statute provides for the coverage of some self-administered drugs. Examples of self-administered drugs that are covered include blood-clotting factors, drugs used in immunosuppressive therapy, erythropoietin for dialysis patients, osteoporosis drugs for certain homebound patients, and certain oral cancer drugs. (See §110.3 Chapter 17, Claims Processing Manual )for coverage of drugs, which are necessary to the effective use of Durable Medical Equipment (DME) or prosthetic devices.)

pills-vialsIn other words, Medicare generally only gives Part B coverage to injectable drugs (intramuscular or intravenous). Therefore, oral, subcutaneous injections, creams and topical applications, suppositories, inhalation agents are considered self-administered and thereby excluded from Part B coverage.

In addition to the administration criteria, the MACs have the ability to take covered Part B medications and make them non-covered SADs.  When this is performed the medications are listed on the CMS website under the SAD exclusions list.

When the MAC does change coverage they tend to do it based on acuity and frequency. (See MBPM (100-02), Chapter 15, Section 50 – page 52) Essentially, the conditions are, put simply:

  • Acute condition
    • Long term use – more likely to be made SAD
    • Short term/emergent use – less likely to SAD
  • Frequency of Administration
    • More frequent – more likely to be SAD
    • Less frequent / one time use – less likely to be SAD

Facilities must monitor the SAD exclusions list to ensure the billing is performed accurately to ensure a clean claim.

Integral Drugs & Supplies

anesthesiaAlternatively, a SAD that is deemed so integral to the procedure may be covered as a supply.   In CMS Transmittal A-02-129 (pg. 30) CMS describes items such as sedatives before a procedure as so integral that they would constitute a supply item, which is covered.  Only when the SAD is so integral is it covered by the program. Examples listed by CMS include:

  • Sedatives administered to patients while they are in the preoperative area being prepared for a procedure are supplies that are integral to being able to perform the procedure.
  • Mydriatic drops instilled into the eye to dilate the pupils, anti-inflammatory drops, antibiotic ointments, and ocular hypotensives that are administered to the patient immediately before, during, or immediately following an ophthalmic procedure are considered an integral part of the procedure without which the procedure could not be performed.
  • Barium or low osmolar contrast media are supplies that are integral to a diagnostic imaging procedure.
  • Topical solution used with photodynamic therapy furnished at the hospital to treat nonhyperkeratotic actinic keratosis lesions of the face or scalp.
  • Local anesthetics such as marcaine, lidocaine (with or without epinephrine).
  • Antibiotic ointments such as bacitracin, placed on a wound or surgical incision at the completion of a procedure.

The Transmittal also lists examples of cases where the drug is not considered a packaged supply, to include:

  • Cases where drugs are given to a patient for their continued use at home after leaving the hospital.
  • In the situation where a patient who is receiving an outpatient chemotherapy treatment develops a headache, any medication given the patient for the headache would not meet the conditions necessary to be treated as a packaged supply.
  • In the situation where a patient who is undergoing surgery needs his or her daily insulin or hypertension medication, the medication would not be treated as a packaged supply.

It is also important to note that drugs treated as supplies should be reported under the revenue code associated with the cost center under which the hospital accumulates the costs for the drugs.

Compliance Concerns with SADs

OIGlogoUntil October 2015, CMS and OIG were resistant to allowing facilities to write off and/or not bill for SAD medications.  The OIG had considered this methodology of a write off, write down or non-billing of the SAD as a “beneficiary inducement.“ This is particularly true if one facility within the same geographic area charged for SAD and the other did not.  OIG saw this as a beneficiary inducement.

In 2015, however, the OIG changed direction in a new Policy Statement, indicating their intent to not create administrative sanctions for facilities that chose to waive or discount SAD medications.


So the OIG says they “have no intent” to come after hospitals for waiving or discounting SADs. Uh… but that’s ONLY the OIG. Notice that CMS has made no such announcement… so what about the MACs, QIOs and RACs?

While this seems like good news, they still have not wavered from their concerns regarding cost shifting to the program, and as a result, carefully outline very specific conditions of compliance

[Ed.Note: We remind readers of the deceptively simple sounding task of rebilling a Part A claim to Part B. To our ears, as with “rebilling,” these conditions are likely far more complicated than they seem at first glance.]

Specifically, on page 2 of the Policy Statement, the OIG document states:

“…in the limited circumstances described in this Policy Statement, hospitals will not be subject to OIG administrative sanctions if they discount or waive amounts that Medicare beneficiaries owe for Noncovered SADs (including Noncovered SADs that may be covered under Medicare Part D) the beneficiaries receive in outpatient settings, subject to the following conditions:

  • This Policy Statement applies only to discounts on, or waivers of, amounts Medicare beneficiaries owe for Noncovered SADs that the beneficiaries receive for ingestion or administration in outpatient settings; *
  • Hospitals must uniformly apply their policies regarding discounts or waivers on Noncovered SADs (e.g., without regard to a beneficiary’s diagnosis or type of treatment);
  • Hospitals must not market or advertise the discounts or waivers; and
  • Hospitals must not claim the discounted or waived amounts as bad debt or otherwise shift the burden of these costs to the Medicare or Medicaid programs, other payers, or individuals.

* A beneficiary is not considered an outpatient if the only service received from the hospital is the dispensing of a drug for subsequent self-administration”

The Politics of SAD

brill.pill9.inddIn the past, SAD posed a political nightmare for facilities.  The billing of Medicare beneficiaries for these non-covered medications ended up in newspapers, magazines and focus reporting.  The most significant concern was that the facility billed the patient for these non-covered medications, and at a charge far in excess of the community standard.  Articles such as the “Bitter Pill: Why Medical Bills Are Killing Us” demonstrate common medications, such as Tylenol, at charges where one pill billed by the hospital exceeds the cost of an entire bottle at your local retail pharmacy.

Despite these concerns, Congress has not resolved the issue, which has put facilities in a political double bind, or a veritable conundrum.  If they charge the patient, and the charge is too high, it is a community concern; yet if they don’t charge the patient, the facility (previously) could be accused of inducement.  The underlying and very real issue at hand, however, certainly for facilities, is REIMBURSEMENT and PRICING.

If the hospitals were to price SAD at community retail prices, then the political concerns, as seen in all those news articles, would be minimized.  At the same time, however, it is a hard fact that all insurance plans cover some services and do not cover others, and the same is true of Medicare. SAD is one of the non-covered benefits within those programs, but SAD nevertheless represents costs to the institution in the provision of care, and therefore should be reimbursed.

Overcoming the Politics of SAD

pricingThere are two keys to unlocking the politics of all this while still being successful in retaining earned revenue and appropriate reimbursement for medically necessary care:

  1. Appropriate and competitive pricing consistent with retail pharmacies
  2. Extensive beneficiary and community education on SAD

To achieve these success keys, a facility’s finance department will need to review pricing methodologies for SAD.  Generally, these medications just get lumped into a tier pricing structure or automated mark-up plan, without consideration of the fact that these charges may be paid personally by the Medicare beneficiary or commercial beneficiary, instead of by the insurer.  To change this, the facility will need to adopt a new category of medications and price them not with the standard mark-up, but rather with community-sensitive pricing.   Having achieved this key then, the next challenge is educating the patient as to why these are not covered benefits.

medicare-n-youEducation is not as difficult as many believe.  CMS has done a good job of informing the beneficiary that SAD are the beneficiary’s responsibility and are not covered by Medicare.   Each year, every beneficiary receives a “Medicare and You” manual.  Within this manual of coverage, it specifically addresses SAD as not being covered.

Additionally, CMS has published a document specifically covering SAD, “How Medicare Covers Self-Administered Drugs Given in Hospital Outpatient Settings,” which can be given to the patient.

The beauty of these documents is that the CMS logo is prominent and the beneficiary can see that this is not something your facility decided to charge without Medicare input.

cms-logoProviding these documents to the patient at time of admission for a Medicare outpatient status service is the first step in their education.  The documents should be made available in multiple points of entry to the facility, to include the ED, Ambulatory Surgery, Clinics and Observation services.

It is important to remember that SAD applies to Part B services only.

One of the provisions of the OIG article is the ability to discount the amount the beneficiary may owe.  Discounts can follow “prompt pay guidelines”, financial standards discounting, or even the avoidance of collection procedures due to limited financial resources.  Discounting is therefore a strong tool in the toolkit to maintain the facility’s earned revenue without causing fiscal havoc for the patient.  Nevertheless, in order to meet the discounting standards set forth by the OIG, legal counsel should be consulted to ensure compliance with all regulations.

Bill Part B or Part D?

partDWhile CMS defines SAD as being relative to Part B services, many beneficiaries have Part D coverage as well.  While the facility is not required to charge the Part D pharmacy benefit, facilities that also have retail pharmacies can bill for the SAD directly to the Part D program.

In the OIG article, the CMS SAD document mentioned above, “How Medicare Covers Self-Administered Drugs Given in Hospital Outpatient Settings,” is quoted:

“Although some or all of the SADs a Medicare beneficiary receives in an outpatient setting may be covered by Medicare Part D, most hospital pharmacies do not participate in Medicare Part D.”

The article further refers to another CMS document, “Information Partners Can Use On: Billing for Self-Administered Drugs Given in Outpatient Settings,” concerning what hospitals should do in any case:

“CMS has stated that only hospitals with pharmacies that dispense prescriptions to outpatients and have contracts with Medicare Part D plans should bill the contracted plans directly as in-network pharmacies; otherwise, the hospitals should bill the Medicare beneficiaries for any Noncovered SADs that the hospitals dispense.”


caution-tapeSAD medications do have challenges, but these medications are necessary for the provision of appropriate clinical care.   While noncovered by Medicare and other payors, SAD still represent a cost to provide.  As such, billing the beneficiary is certainly appropriate to retain earned revenue.  But it is the method in which the patient is billed that the facility must approach with defined policies and procedures that result in comprehensive patient education as well as community-sensitive pricing.

The recent policy stance by the OIG may be a nod to the political situation, but also signals their intent to watch hospitals and other facilities for what is in their eyes inappropriate behavior in billing. Indeed, the recent changes in the requirements for handling, reporting and billing drug wastage via the JW modifier should leave no doubt that the government wants and will be actively watching all the statistics.

cautionNevertheless, these drugs should no longer just be written off, but should be pursued as earned revenue, with a sharp eye to staying compliant.

Provider beware.



From the Editors

Be sure to review our free webinar from May 20:

“Finally Friday!” Review of CMS’ JW Modifier and SAD Billing Policies


…and download our FAQs from the webinar, which includes the email address to provide feedback to CMS:

UPDATED May 27 2016: FAQs from “JW Modifier and SAD Demystified” Webinars v052716


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