Drugs and biologicals for use in the hospital, which are ordinarily furnished by the hospital for the care and treatment of inpatients are covered. Three basic requirements must be met for a drug or biological furnished by a hospital to be included as a covered hospital service. (1) The drug or biological must represent a cost to the institution in rendering services to the beneficiary. (2) It must either be included, or approved for inclusion, in the U.S. Pharmacopoeia, the National Formulary, or the U.S. Homeopathic Pharmacopoeia; or, except for those unfavorably evaluated, in AMA Drug Evaluations (the successor publication to New Drugs) or Accepted Dental Therapeutics (the successor publication to Accepted Dental Remedies); or be approved by the pharmacy and drug therapeutics or equivalent committee of the medical staff of the hospital for use in the hospital. (3) The drug or biological must be reasonable and necessary as specified in HI 00620.010.

An investigational drug ordinarily is not considered as reasonable and necessary since its efficacy has not been established. Therefore, even if a drug or biological is approved by an appropriate hospital committee, the reasonable cost of an investigational or other non-approved drug or biological (e.g., Laetrile) cannot be reimbursed. This exclusion applies whether or not the drug or biological is administered during an otherwise covered hospital stay. (An exception has been made, however, for certain cancer drugs known as group C drugs, approved and distributed by the National Cancer Institute, in cooperation with the Food and Drug Administration for treatment by physicians who agree to participate in approved studies.)

Drugs and biologicals furnished by a hospital to an inpatient for use outside the hospital are, in general, not covered as inpatient hospital services. However, if the drug or biological is deemed necessary to permit or facilitate the patient's departure from the hospital, and a limited supply is required until they can obtain a continuing supply, the drug or biological is covered as an inpatient hospital service.