CMS Pub. 100-18, ch. 6, § 10.4

Compounded prescription drug products can contain: (1) all Part D drug product components; (2)

some Part D drug product components; or (3) no Part D drug product components. As defined in

§423.120(d), only compounds that contain at least one ingredient that independently meets the

definition of a Part D drug, and that do not contain any ingredients covered under Part B as

prescribed and dispensed or administered, may be covered under Part D. Only costs associated

with those components that satisfy the definition of a Part D drug are allowable costs under Part

D because the compounded products as a whole do not satisfy the definition of a Part D drug.

For a Part D compound to be considered on-formulary, all ingredients that independently meet

the definition of a Part D drug must be considered on-formulary. Bulk powders (i.e., Active

Pharmaceutical Ingredients for compounding) do not satisfy the definition of a Part D drug and

are not covered by Part D. For any non-Part D ingredient of the Part D compound, the Part D

sponsor’s contract with the pharmacy must prohibit balance billing the beneficiary for the cost

of any such ingredients.

Sponsors treating compounds as non-formulary products should be applying the cost sharing

associated with an exceptions tier, regardless of whether the compound contains brand name or

generic products. For a Part D compound considered off-formulary, transition rules apply such

that all ingredients that independently meet the definition of a Part D drug must become payable

in the event of a transition fill and be covered if an exception under §423.578(b) is approved for

coverage of the compound.

The labor costs associated with mixing a compounded product that contains at least one Part D

drug component can be included in the dispensing fee (as defined in 42 CFR §423.100). For

compounds containing all generic products, the generic cost-sharing should be applied. If a

compound contains any brand name products, the Part D sponsor may apply the higher brand

name cost-sharing to the entire compound. For low income subsidy (LIS) beneficiaries the

copayment amount is based on whether the most expensive ingredient that independently meets

the definition of a Part D drug in the Part D compound is a generic or brand name drug.