CMS Finalizes Discarded Drug Refund Requirements with Key Changes

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Summary

The MPFS final rule implements the discarded drug refund requirement for certain single-use physician-administered drugs, presenting risks to manufacturers of these products.

On November 1, 2022, the Centers for Medicare & Medicaid Services (CMS) issued the Calendar Year 2023 Medicare Physician Fee Schedule (MPFS) final rule, which implements specific provisions of the Infrastructure, Investment and Jobs Act by specifying which types of Part B drugs are subject to waste refunds and operationalizing the drug wastage calculation and refund process. CMS kept consistent the methodology to calculate discarded amounts of drugs and the definitions of drugs subject to refunds.

The final rule also includes key changes to the MPFS proposed rule and considers implications of the Inflation Reduction Act (IRA). Key finalized provisions that differ from what was proposed include:

  • Timing: CMS did not finalize the date an initial report to manufacturers would be issued and when manufacturers would be required to pay the first refund payment. CMS seeks to coordinate the reporting and collection of these refunds with the IRA price inflation penalties to be implemented in the coming years.
  • Eligibility Exclusions: CMS indicates it does not have the authority to exclude products not specified in statute but could explore increasing the applicable wastage threshold (10%) for other drugs each year through rulemaking. For example, CMS finalizes an applicable wastage threshold of 35% for a drug that is reconstituted with hydrogel and administered via ureteral catheter or nephrostomy
  • Use of Coding Modifiers: While the JZ modifier will be available on January 1, 2023, CMS will not require providers to use the modifier until July 1, 2023. CMS will not perform claims processing edits on using the JW and JZ modifiers appropriately until October 1, 2023.

Implications for Manufacturers

Avalere’s analysis of Q3 2021 Medicare Part B claims determined that 44 drugs with waste greater than 10% are at risk for refunds. Now that the final rule has been issued, it is critical for manufacturers of single-use physician-administered products to consider potential implications for their portfolio. Components of a successful strategy may include the following.

An image with icons representing the five items discussed in the list below.
  1. Assess Exposure: Manufacturers must monitor utilization and billing trends to identify how discarded drug quantities relative to the 10% threshold may change over time and tailor a mitigation strategy accordingly.
  2. Adapt Reimbursement Support Materials or Product Billing and Coding Guides: Given new coding requirements, updating billing guidance and materials for field reimbursement teams will be critical to support providers and prevent challenges or delays with payment.
  3. Evaluate Pipeline Assets: Manufacturers will not only need to consider implications for on-market therapies but also carefully consider dosing regimens and product packaging for pipeline therapies to reduce future susceptibility.
  4. Consider CMS Engagement Strategy: Manufacturers should weigh if and how to engage CMS in future MPFS rulemaking as the agency contemplates provisions of these new refund requirements (e.g., dispute resolution) and whether products are eligible for a higher applicable threshold.
  5. Monitor Policies Across Payer Segments: Medicare FFS decision-making often informs private payer policies. Manufacturers should monitor the broader landscape to understand the implications within the commercial payer landscape.

Have You Evaluated the Steps You Should Take?

Avalere’s robust expertise and data assets can support manufacturers in adapting to this new policy. Avalere’s access to up-to-date discarded drug data can support manufacturers in understanding wastage for products on-market and provide insight for new launches.

Connecting with Avalere’s Part B reimbursement experts can help manufacturers assess potential solutions, mitigation strategies, and impacts for stakeholders.

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