Medication Cost Discrepancies in Healthcare Bill Audits & Reviews

Feb 20, 2024

Drug costs have steadily risen in the United States since the 1980s. Payers are spending upwards of $2 billion on prescription drugs every year, and pharmaceutical billing is becoming more and more important as the price of prescription drugs rises. In the past three years, half of all drugs covered by Medicare have increased above the rate of inflation. Medication pricing errors related to discrepancies between drug acquisition costs and the amount charged by hospitals have been an issue for years in the United States as medication costs vary wildly from manufacturers to payers to consumers.

For a specific example of a cost-to-charge billing discrepancy, let’s look at an actual charge on an itemized bill for a medication called Ceftriaxone.

As you can see, the cost for this medication is $826.89 per unit.

Ceftriaxone has a NADAC drug acquisition cost of $1.86743 per 1g vial, while at the time of writing this article, the payment limit Medicare would spend on this drug is $0.513. To add another level of discrepancy to this comparison, Ceftriaxone’s wholesale price (AWP) is $18.

Regardless of which price method you use in reviewing medication, there is an increase in the level of increase for this medication. Health plans are starting to notice, review, and develop policies around the margins providers are allowed to build around supplies to combat price inflation.

Common Errors that Affect Drug Prices

The US is the most expensive country when it comes to prescription drug costs and spending, and patients and payers pay the price for it. Some of these costs are attributed to errors – easily caused by new or inexperienced employees.

Some of the most common errors afflicting drug costs for various parties include: 

  • Drug administered does not match billed amount
  • Duplicate charges
  • Dosing errors
  • Cost discrepancies
  • Lack of support staff

New technology and AI are paving the way for more transparent drug prices and are encouraging higher accuracy in medical coding and documentation. Technology dramatically decreases the number of manual errors, and many software has built-in systems to flag errors and automatically eliminate duplicate charges without too much human interference.

Choosing Drug Pricing Models

In addition to these errors, there are also discrepancies between the various models and methodologies used to determine appropriate pricing. Average Wholesale Price (AWP), National Average Drug Acquisition Cost (NADAC), Wholesale Acquisition Cost (WAC), Average Sale Price (ASP), and Federal Upper Limit (FUL) are still utilized by many providers, with varying success.

AWP was the previous standard for reimbursement. It was the list price that distributors used when selling to pharmacies. Initially, it was created to give distributors a 20% margin back. Medicare realized that the actual cost paid by the pharmacy to the manufacturer was as low as AWP-80% for some drugs. This discrepancy is because pharmacies do not generally pay the wholesale price listed because pharmacies receive bulk item discounts and rebates from distributors. To create a more accurate pricing model, Medicare created theASP, where the cost is the average reported price paid to the drug manufacturer, with a few exceptions. Medicare and many commercial health plans use ASP.

On the other hand, costs for pharmacy dispensed drugs vary widely and can range from AWP-80% – WAC-25%.  Medicaid has been transitioning to actual acquisition cost (NADAC), where pharmacies report the invoice price so the state can reimburse the weighted average plus a dispensing fee, but some states still rely on the antiquated AWP or WAC.

Drug Discrepancies

The discrepancies between drug costs are massive, and all come down to the pricing method used to review a given medication. As health plans around the country continue developing their understanding of these nuances, they’re working to create appropriate policies around margins on billable items. In an age where healthcare pricing is exceedingly complex and experienced records reviewers are difficult to find, the need for automated, streamlined solutions has never been greater.

How TREND Can Help

The most reliable way to avoid costly errors and ensure you choose the best pricing model for every treatment is with an advanced automation solution. CAVO® is an enterprise platform that helps payers streamline the medical record review process. With over one million completed case reviews to date, CAVO gives your team the ability to directly access EMR data, utilize advanced search capabilities for medical records, filter and sort IB data, and surface non-payables faster with machine learning, all within the same platform.

To discover how CAVO can help your organization, schedule a 20-minute demo via the button below.