Allowable Cost for Drugs in Provider Setting

270 - Allowable Cost for Drugs in Provider Setting (Rev. 4, 10-01-01) The allowable cost to the cost-based HMO/CMP for any multiple source drug may not exceed the lesser of: • The actual cost; • The amount which would be paid by a prudent and cost conscious buyer for the drug if obtained from the lowest priced source that is widely and consistently available; or • The maximum allowable cost limit. The Department of Health and Human Services (DHHS) publishes in the Federal Register a list of specific multiple source drugs and their maximum allowable costs limitations. For these drugs, the allowable cost to the Medicare program may not exceed the drug ingredient cost incurred in purchasing the drugs that would be paid by a prudent and cost conscious buyer if obtained from the lowest priced source that is widely and consistently available (whether sold by generic or trade name). Moreover, the drug ingredient cost cannot exceed the maximum allowable costs published in the Federal Register. For a more detailed discussion of this provision, see the “Provider Reimbursement Manual” Part I.