Carve Out Drugs - Hospital Billing Guidelines
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Defines which high-cost pharmaceuticals are excluded from inpatient DRG reimbursement and must be billed and reimbursed separately as outpatient claims when State Medicaid is the primary payer; applies to hospitals billing Kansas Medical Assistance Program (KMAP).
A specific list of pharmaceutical products deemed Carve Out Drugs with retroactive effective dates (mostly 06/30/2025; one item retroactive to 10/18/2024) was published.
Billing and reimbursement rules requiring outpatient billing, invoice submission, prohibition of white bagging, duplicate-billing recoupment, and claim-edit/post-pay review were specified for Carve Out Drugs.
Carve Out Drugs — Coverage & Billing Criteria
Carve Out Drugs coverage and billing criteria
Conditions under which Carve Out Drugs are reimbursed separately from inpatient DRG:
ALL of the following
- Drug is one of the products specifically identified as a Carve Out Drug (see designated product list with retroactive effective dates).
These products are designated Carve Out Drugs with specified retroactive effective dates.
- State Medicaid (KMAP) is the primary payer for the claim.
Coverage under this policy applies only when the State Medicaid program is the primary payer.
- The drug is billed as an outpatient claim and reimbursed separately from the inpatient DRG; the cost of the drug must not be included in the inpatient DRG rate.
- The provider submits a clear, readable invoice with the outpatient claim; claims billed without a clear, readable invoice will be denied. Additional documentation (including NDC information and supporting details) must be provided upon request during claim editing or post-pay review.
Hospitals must submit the invoice with the claim; may be contacted for invoices, NDCs, and supporting details during review.
- White bagging of Carve Out Drugs (product billed through the pharmacy benefit and sent to the rendering provider/facility) is prohibited.
- Duplicate billing of the Carve Out Drug on both inpatient and outpatient claims is not allowed; duplicate billing will be subject to recoupment and the provider will be required to void and resubmit the claim excluding the drug.
Same-day billing exception (EDITS WAIVED ONLY IF):
- Carve Out Drug administration is part of an approved inpatient treatment.
- Complications during outpatient treatment necessitate inpatient admission.
Coding and Cost Thresholds
| 025X | Pharmacy |
| 063X | Pharmacy - Extension of 025X |
| 026X | IV Therapy |
| 0294 | Supplies/Drugs for DME |
| 089X | Pharmacy - Extension of 025X and 063X |
Billing, Documentation, and Operational Requirements for Providers
Billing submission and documentation requirements
Submit the outpatient claim with a clear, readable invoice; claims billed without a clear, readable invoice will be denied. During claim editing or post-pay review, hospitals must provide additional documentation upon request, including drug invoices, NDC (National Drug Code) information, and other supporting details.
- Include a legible invoice with the outpatient claim; unclear or missing invoices will result in denial.
- Be prepared to supply drug invoices, NDC information, and other supporting documentation if contacted during claim editing or post-payment review.
White bagging prohibition
White bagging of Carve Out Drugs is prohibited; products billed through the pharmacy benefit and sent to the rendering provider/facility are not allowed.
- Do not accept or bill Carve Out Drugs that were white-bagged from a pharmacy benefit.
Same-day billing exception — limited conditions
Same-day inpatient/outpatient billing edits will be waived only in limited circumstances: when the drug administration is part of an approved inpatient treatment or when complications during outpatient treatment necessitate inpatient admission.
- Edits are waived only if administration is part of approved inpatient treatment.
- Edits are waived only if complications from outpatient treatment require inpatient admission.
Key Definitions
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