For outpatient prescription drugs, Medicare has two distinct programs with a maze of complex policies. Physicians, Medicare patients, retail pharmacies, Medicare drug plans, Medicare Advantage health plans, nursing homes, and long-term care pharmacies are all struggling with how to navigate Medicare drug coverage under Part B and Part D. To help you, here’s an overview:

Basics of Medicare Part B Drug Coverage:

Drug coverage applies under Part B under this basic situations:

1. Drugs billed by physicians and provided incident to physician service for that patient (e.g., chemotherapy drugs).

2. Drugs billed by pharmacy suppliers and administered through durable medical equipment (DME) benefit (e.g., respiratory drugs given via nebulizer).

3. Some drugs billed by pharmacy suppliers and self-administered by the patient (e.g., immunosuppressive drugs, some oral anti-cancer drugs).

4. Separately billable drugs provided in hospital outpatient departments. Increasingly, Medicare is bundling drug costs within outpatient hospital payment rates.

5. Separately billable End Stage Renal Disease (ESRD) drugs (e.g., erythropoietin). Increasingly, Medicare is bundling ESRD drug costs within ESRD facility payment rates.

Medicare Part B Drug Coverage in Physician Offices:

For Medicare Part B drug coverage in a physician’s office, here are the basics:

1. Must be furnished “incident to” a physician service. Normally, this means the drug is physician prescribed and dispensed or physician prescribed and administered during a patient office visit.

2. As a result, Medicare Part B drug coverage is usually limited to drugs or biologicals administered by injection or infusion.

3. If the injection is generally self-administered it is not covered under Part B (e.g., Imitrex). That is, in most cases Part B coverage of a specific drug stops if more than half of Medicare beneficiaries on the drug self-administer it.

4. Medicare uses mix of local and national coverage decisions. Therefore, in absence of a national coverage decision by CMS, local coverage decisions are made my individual Medicare contractors (Part B claims processors, commonly called “carriers”). Therefore, regional differences can and do occur. That is, a specific drug could be covered in one state and not another.

Formulary Basics in Medicare Part D Drug Benefit:

1. While Medicare drug plan formularies are subject to CMS review during the annual bidding process, the Medicare Modernization Act (MMA) gives Medicare prescription drug plans (PDPs and MA-PDs) wide latitude.

2. There is no national drug formulary or mandated formulary. Most Medicare drug plans use commercial-like drug formularies.

3. Regarding therapeutic classes or categories used to structure a formulary, Medicare drug plans may use USP model guidelines or use their own structure. The USP model is not a formulary and not mandated.

4. Medicare drug plans must use P&T committees for formulary decisions.

5. For most drug classes, PDPs and MA-PDs must cover at least two drugs. CMS reviews each formulary to make sure Part D plans are not cherry picking or otherwise discriminating against certain kinds of patients.

6. Plans must cover “all or substantially all” of the drugs in six classes: Antidepressant, Antipsychotic, Anticonvulsant, Anticancer, Immunosuppressant, and HIV / AIDS.

7. Step therapy, prior authorization and cost tiers are allowed. Many Medicare drug plans are using four tiers in their benefit designs.

Coverage of Non-Formulary Drugs Under Medicare Part D:

1. The Medicare Modernization Act (MMA) requires Medicare drugs plans to ultimately cover any drug (not otherwise excluded under Part D) if “medically necessary” and “medically accepted”, regardless of formularies.

2. Drug plans are not required to list off-label on formularies, but physicians may still prescribe off-label drugs for medically accepted indications. Physicians must justify off-label use and the indication must be listed one of four compendiums accepted by CMS (e.g., DRUGDEX, USP).

3. To justify off-label coverage for a medically necessary, medically accepted drug, the physician must determine that all drugs on plan’s formulary for the treatment of the same condition (a) would not be as effective and/or (b) have adverse effects for patient. The same applies to justify an exception from a higher tier co-payment.

4. A multi-step appeal process is available to beneficiary to seek coverage of a non-formulary drug or an exception from a tier. Steps include drug plan review, independent review, administrative law judge, HHS department appeals board, and the federal courts. The exceptions and appeals process may be initiated by the beneficiary, their physician, or another person designated by the patient.

Prescription Drugs Excluded from Medicare Part D:

1. The following kinds of drugs are not covered under Part D:

– Weight-related, fertility, cosmetic, symptomatic relief cough or colds, vitamins (except prenatal), barbiturates, and benzodiazepines.

– Over-the-counter (OTC) drugs, unless through a CMS-approved step therapy program and then only if free using the drug plan’s non-benefit dollars. Few Medicare plans are covering OTCs this year.

– Drugs covered by Medicare Part A or Part B for that individual in that instance.

2. For dual eligibles, Medicaid may cover drugs not covered by Part D. State Medicaid programs must cover if drug is covered for non-dual Medicaid population (e.g., OTCs). This means dual eligibles will obtain drugs through multiple programs.

Naturally, this is a high-level overview and is neither comprehensive or an official statement of federal policy. For more details, click here to read CMS’ draft guidance explaining differences between Part B and Part D drug coverage. There are many nuances, twists and turns. So please be careful and closely monitor guidance from CMS and OIG.