Billing for Supplies

Executive Summary

NCVHS Subcommittee on Standards and Security

March 31, 2004

The Center for Medicare and Medicaid (CMS) interpretation of the HIPAA Transactions and Code Sets regulation is that when retail pharmacies bill supplies, they should use the ASC X12N 837. Representatives of the industry including pharmacies, vendors, as well as payers, do not agree with this interpretation.

It is requested that the billing of supplies that are consumed or used during, or as a consequence of, the administration of a drug therapy, or commonly dispensed via a retail pharmacy use the NCPDP standards. (The topic of billing of supplies should not be confused with the topic of billing for professional pharmacy services. The billing for professional pharmacy services is a different subject and not related to this paper.)

The industry requests that when supplies are billed by the dispensing retail pharmacy:

  • The NCPDP Telecommunication Standard Version 5.1 (and equivalent Batch Standard Version 1.1) should be designated as HIPAA-compliant standards for billing and authorization of supplies. The NCPDP standards have been used successfully for over 20 years.
  • The National Drug Code (NDC) be designated as the standard code set that must be used to bill for supplies with the NCPDP standards when an NDC number is available. If there is no NDC, the parties may use any codes in the NCPDP standards that they mutually agree to, such as the Uniform Product Code (UPC), the Health Related Item Code (HRI) or the HCPCS (where non-specific codes will not lead to potential for problems in patient care, fraud or abuse). This would be similar to the treatment of billing for drugs and biologics in non-retail pharmacy transactions, where no standard currently applies.

There are several reasons for requesting the use of the NCPDP standards and the related NDC code set when available. Most importantly, this is the predominant method currently used to bill for supplies in the retail pharmacy context today. The world of pharmacy encompasses much more patient care than just drugs. The industry did not realize the limits being placed on current business by CMS’ interpretation. If the pharmacy industry had realized this interpretation was implied, comments would have been made to the original NPRM. The industry is using contingency plans today until this matter is resolved.

The following health care providers and processors currently use NCPDP transactions for supplies transactions:

Pharmacies, including retail, IV infusion, home health, compounding, long term care, nursing home, assisted living, hospice, specialty product dispensing, and mail service; dispensing physicians; pharmacy benefit managers/processors, value added networks; claims adjudicators; Medicaid fiscal agents and payers.

The use of NCPDP standards for the transmission of claims for supplies, and the specific endorsement of the NDC, where available, in the transmission of claims via these standards will benefit HIPAA-covered entities as follows:

  • Enables pharmacies, dispensing physicians, and processors, to continue to offer existing services to the patient, with Drug Utilization Review (DUR), benefit, copay, and other essential processes in place.
  • Enables pharmacies, dispensing physicians, processors, and systems vendors to continue to process claims for supplies using the existing on-line real-time process.
  • Enables pharmacies, dispensing physicians, processors, and systems vendors to continue to process prior authorizations for claims for supplies and drugs in one transaction, an existing practice.
  • Requiring the use of the NDC where available, improvements in efficiency and standardization will continue. Pharmacists, dispensing physicians, processors, and systems vendors will have to deal with only one code set for those supplies that have an NDC, but may continue to use the UPC and HRI where mutually agreeable as they have for many years. This will eliminate the cost, disruption and delays that will occur in converting to a new standard that is both unnecessary and provides less functionality than the current standard.
  • Facilitates the transmission of claims for supplies to processors of pharmacy claims in the same standard they use for pharmacy drug product claims. Processors of pharmacy claims require that the same standard be used for drug product and supply claims so these activities can be integrated into the total patient record.
  • Allows pharmacists to continue to transmit claims to medical claims processors in a manner supported by both parties and that today facilitates payment of these services under the medical rider.

Interruption to Patient Care

For many patients with chronic diseases, such as diabetes, retail pharmacies and home delivery pharmacies are their only source for supplies such as insulin syringes, lancets, and test strips, which are critical to the daily assessment and control of their disease.

  1. Mandating the use of the ASC X12N 837 as the only transaction standard for billing supplies will interrupt the current supply chain for these individuals. Pharmacies who currently receive real-time responses for the billing of supply claims will wait days or weeks for batch transactions to process. The patient will likewise be required to wait the same length of time before receiving those supplies.
  2. Patients will be harmed if the real-time nature of co-pay information and drug utilization review messages cannot be returned to the pharmacist while the patient is in the pharmacy. Patients will be further inconvenienced if the prescription (drug and supply) cannot be billed using the NCPDP standards.  As stated above, responses to an NCPDP standards claim occur in real time, however, claims billed using the ASC X12N 837 standard may be subject to a delay of days or weeks before a response is received. Pharmacies have billed for these supplies using the NCPDP standards for 20 years. By implementing separate transactions, one for providing medication and the other for the required supplies to utilize the medication, the patient is placed at risk.


Allow the continued use of the NCPDP standards for billing of supplies that are consumed or used during, or as a consequence of, the administration of a drug therapy, or commonly dispensed via the retail pharmacy channel, using a standard developed and embraced by the industry.

Interruption to the Pharmacy Industry

  1. The NCPDP standards were developed with consensus from the pharmacy industry, for use in the pharmacy industry. Requiring only the ASC X12N 837 denies the pharmacy industry the ability to use the ANS approved standards of the industry.
  2. The code sets named do not reflect current industry practice, improve efficiency, or promote standardization. Supplies are currently billed using primarily NDC numbers, but also UPC or HRI where appropriate; conversion to non-specific HCPCS is unacceptable.  All major pharmacy database companies identify products via NDC, UPC and HRI. The NDC, UPC, and HRI code sets have been the pharmacy payer standard for 20 years.
    1. For example, one of the major published databases contains 85,104 “active” items.  71,186 are identified by NDC, 4304 by HRI, and 9614 by UPC.  “Active” means the product is available from the manufacturer.  The entire drug file (all active and all inactive items) has 254,489 total items on file of which 202,944 are identified by NDC, 6223 by HRI, and 15,487 by UPC. These numbers are readily available to all pharmacies and processors. Specifying the NDC as the code set to be used when an NDC number is available will create greater uniformity, while allowing the parties to continue to agree on a mutually acceptable code set for instances where there is no NDC.
  3. A serious consequence that may result from the use of HCPCS is the inability to bill correctly for supplies. Conversion to HCPCS will result in less specific billings than using NDC UPC or HRI codes, leading to an increased potential for fraud and abuse. In addition, dollars could be spent incorrectly due to this lack of specificity, causing problems in pricing and payment. For an industry that strongly supports clear identification for drugs and products, stepping back into identifiers with less specificity is unacceptable for patient care and correct billing for the pharmacy products and services, especially since there is no clear evidence of potential benefit.
  4. It is not the pharmacy industry’s intent to mandate the use of NCPDP standards for DME providers or DMERCs who currently utilize the ASC X12N 837 for covered medical expenses. The pharmacy industry is requesting the NCPDP standards be accepted standards for products consumed or used during, or as a consequence of, the administration of a drug therapy, or commonly dispensed via the retail pharmacy. More than 14 million pharmacy claims for supplies are processed through pharmacies each year via NCPDP standards, representing approximately $447,000,000.


Allow the continued use of the NCPDP standards for billing of supplies that are consumed or used during, or as a consequence of, the administration of a drug therapy, or commonly dispensed via the retail pharmacy.

Specify that the NDC is the standard code set where an NDC number is available, but allow the continued use of other code sets as agreed by the parties where no NDC is available, such as the UPC and HRI code sets for specific identification of supplies in billing. HCPCS may be used in situations where the use of non-specific codes in billing will not lead to potential for problems in patient care, fraud and abuse.

By denying pharmacies the ability to continue to submit claims using the NCPDP standards, implementation of this segment of HIPAA will cause massive upheaval to patients, providers and payers nationwide. The industry is in agreement about the continued use of the NCPDP standards for billing of supplies that are consumed or used during, or as a consequence of, the administration of a drug therapy, or commonly dispensed via the pharmacy. That is the intent of Administration Simplification.

Use of the Codes


Delivery devices used in the administration, consumption, or application of drug products to or by the patient, or consumable medical supply, or assistance device, or for the protection of the patient from additional harm by providing a barrier to contamination or harm.

NDC=National Drug Code, where available

UPC=Uniform Product Code – when NDC not available

HRI=Health Related Item Code – when NDC is not available

The final rule for electronic transactions does not recognize that pharmacies provide supplies such as insulin syringes, test strips and aerochambers that are used in conjunction with a drug therapy, i.e., insulin, anti-diabetic drugs, and asthma aerosol drugs.  Claims for these supplies are processed by the same industry participants that process claims for the corresponding drug products.

An example is empty gelatin capsules that may be prescribed with prednisone or other hard to swallow tablets. Patients pull the capsules apart, place one or more tablets into one half of the capsule, re-join the halves and swallow the whole capsules with water. These capsules are considered supplies, dispensed by a pharmacy with the prescription, and billed in the same manner as the prescription, using NCPDP standards. In addition, plan coverage may be contingent upon a patient receiving both the supply and the corresponding drug concurrently. The NCPDP standards allow for the association of drugs and supplies, in one transmission.

Some drug supplies, including many insulin syringes, have no NDC.  The manufacturer of these products must identify them with UPC and/or HRI numbers because the Food and Drug Administration will no longer allow them to use NDC numbers.  These UPC and HRI numbers identify the manufacturer and the individual product distributed by that manufacturer. Different manufacturers have different prices for the same or similar products; however, the items will have the same HCPCS code. HCPCS do not support the level of specificity required. Reverting to less specificity will result in DUR errors, fraudulent and abusive claims, billing errors and price adjudication errors.

Patient safety is another consideration for the use of the NCPDP standards.  Should a product be subject to a recall by the manufacturer or FDA, NDC, UPC and HRI codes may be used to identify the recalled product.  Because HCPCS does not provide individual product specificity, such a recall would not be possible. The more specific codes are required for processors to implement real-time rejects on recalled items to provide additional protection for consumers.

NDCs, UPCs, and HRIs are updated constantly throughout the calendar year. Drug database companies may distribute information about new and revised codes to pharmacies and processors on a daily basis. The HCPCS are only updated annually. In the interim, providers are forced to use “not otherwise specified” (NOS) codes when billing for a new supply item for which a HCPCS code has not yet been created. This leaves processors and plan sponsors vulnerable to fraudulent claims and compromises their ability to make correct determinations about a patient’s care and negatively impacts their ability to calculate an accurate reimbursement.