EDI 844 Chargeback. What is it?
Terms “EDI 844” and “chargeback” are one of the terms most frequently heard with anything related to pharmaceutical manufacturers. Be it rebates, government pricing, gross-to-net calculations or just regular daily processing, EDI 844 and chargebacks are always mentioned.
What are they?
Definition of a Pharmaceutical Chargeback
A wholesaler buys a drug from a manufacturer at a price called Wholesaler Acquisition Cost (WAC).
A Group Purchasing Organization (GPO) enters into a contract with the manufacturer to buy that product at a lower contract price.
However, the pharmacies – members of the GPO – still buy them at wholesalers, because wholesalers ship the product.
After a wholesaler sells a product to a pharmacy at a contract price, the wholesaler wants to get a reimbursement from the manufacturer for the difference between the WAC and the contract price.
That difference is called “chargeback”.
The amount of a chargeback varies from $0.01 and up to 60% of WAC.
What is EDI
The volume of chargebacks is huge: over 90% of many drugs are sold on contracts.
Wholesalers can email their chargeback requests as files in a variety of formats, including spreadsheets and text files.
Emailing chargebacks as Excel files has several issues:
- Text files are prone to formatting errors and have no checks over its content
- Limited size of attachments
- Email can be sent to a wrong person in the company, and be ignored
Electronic Data Interchange (EDI) solves all these issues.
EDI is a communication network, where EDI partners exchange their “EDI Addresses” and send files to each other. Document templates, called EDI Forms, provide specifications on data inclusion and formatting.
A complete listing of all EDI Forms can be found at https://www.gs1ca.org/files/dir-sets.pdf#M8.newlink.844
The benefits of using EDI:
- Files pass through rigid validation rules and have no formatting errors
- Prove of transmission, because partners send status notifications for all transmissions
- EDI format is compact, and supports sending large files
- The transmissions just copy files over the network, and are instant
What is EDI 844 Chargeback
EDI has several hundred forms to transfer documents. These forms cover transactions happening in many industries and government.
Form EDI 844 contains specification for the chargeback requests. The official name of the form is “Product Transfer Account Adjustment”.
Wholesaler sends EDI 844 to the pharmaceutical manufacturer with all details related to the claimed chargeback: product NDC, WAC and Contract Price, quantity of units sold, customer name and address and a contract number.
Processing 844 EDI
Manufacturer translates EDI 844 chargeback files and loads them into the chargeback processing software to check data by standard and custom business validation rules. Standard validation rules check if all required data elements are provided, WAC and contract price are correct, the customer was eligible to buy on the contract during the time of sale, and so on.
The chargeback amount approved by the manufacturer can differ from the amount requested by the wholesaler if validation detects errors.
Manufacturer issues a credit to the wholesaler for the approved chargeback amount, and sends back a chargeback reconciliation file. The format for that reconciliation file is EDI form 849, “Response to Product Transfer Account Adjustment”.
EDI 849 format provides formatting and code to communicate to the wholesalers all error details.
The wholesaler reviews and corrects errors received in EDI 849, and sends to the manufacturer another EDI 844. A correction to a previously submitted chargeback is called a resubmission.
EDI 844 format accommodates both original chargebacks and resubmissions.
Relasoft developed software to translate, validate and integrate EDI 844 Chargebacks and EDI 849 with many ERP. The software is efficient, fast, easy to use and helped numerous pharmaceutical manufacturers.
For any questions, please call us at 416-783-1027.