Validating Pharmaceutical Chargebacks
Pharmaceutical manufacturers receive chargeback requests through EDI and in a variety of other formats, either comma-separated, or as MS Excel files. These requests can contain multiple errors of different types: basic information missing; incorrect pricing; sales made to ineligible customer or by non-qualifying distributor, etc. According to industry sources, such errors when unchecked can take 5-7% of sales amount.
Regardless the format in which chargebacks are submitted, these requests need to be validated. After the validation, an adjustment document, often referred to as EDI 849, must be sent back to the wholesaler with all pricing errors marked and an adjusted chargeback amount provided.
The official title of the EDI form 849 is “Response to Product Transfer Account Adjustment Transaction Set”. Many wholesalers and distributors posted their own formatting requirements for 849 documents.
The list of adjustments specific to pharmaceutical chargebacks “EDI Guidelines For 845-844-849 Contract & Chargeback Administration (Electronic Download)” was published by Healthcare Distribution Management Association, and is currently available for download at https://www.hda.org/resources/edi-guidelines-for-845-844-849-contract-and-chargeback-administration.
A failure to send the EDI 849 response back within an specified period of time, usually 1-2 weeks, results in the wholesaler taking the entier amount of the requested chargebacks, even if the manufacturer eventually finds errors.
Mandatory Fields for Chargeback Submissions
Wholesalers must provide the following data elements for a valid chargeback submission:
- Some ID of the distribution center (DC), submitting the debit memo (DM) with chargebacks
- DM number and date
- Acceptable ID of the pharmacy or hospital the product was sold to
- Product identifier
- Invoice number and date
- Contract, on which the item was sold
- WAC or distributor price
- Contract Price
- Quantity sold
- Extended chargeback amount
Absence of some the data elements, like DC info, DM or invoice number, contract and customer ID makes it impossible to validate the chargeback. Other elements can be corrected by the manufacturers.
Main Chargeback Validation Rules
Here is a list of standard EDI validation rules, which is supported by the most wholesalers:
Contract number invalid
Contract Price incorrect
Contract Price missing
Contract was not loaded at the submitting distributor
Customer ID invalid
Customer Info missing or provided ID invalid
Customer not authorized for the contract
Distributor dropped from the contract
Drug ID missing or invalid
Drug is not on the contract
Duplicated chargeback request
Extended chargeback amount blank
Extended chargeback amount incorrect
Invoice date after contract expiration date
Invoice date after customer membership in the contract expired
Invoice date after drug was removed from the contract
Invoice date before customer membership in the contract started
Invoice date before drug was included into the contract
Invoice date before wholesaler loaded the contract
Invoice date occurred before contract start date
Invoice Date missing or invalid
Insufficient wholesaler inventory
Missing contract number
Missing Invoice Number to the pharmacy
Quantity is missing
WAC is missing
WAC price is incorrect
Many manufacturers and wholesalers published additional validation rules that could be utilized for reporting various errors in pharmaceutical chargebacks.
Auto-Correction Options
A good chargeback processing solution offers users plenty of tools to auto-correct submissions. For example, NDC-10 can be converted to NDC-11,misspelled contract number can be reset to a valid one, correct pricing can be retrieved from the system, etc.
Some corrections require caution. Take for example, a DM submitted as an Excel file with missing DM Date. A common sense can suggest to set the DM Date to the date when the DM was received. However, if the same file is submitted by the wholesaler again, the check for duplicates may fail to recognize the second submission as a duplicated DM, because generally speaking DCs can submit DM with the same number over time, and the check for duplicates must include DM Date. And though the validation will still mark all lines submitted second time as duplicated lines, this breakage of the first line of defence should be avoided – or done with extreme care.
Should you have questions on chargeback processing, please submit them here or call us at 416-783-1027 for a free advice.
