Manufacturers Should Assess Wastage to Inform Mitigation Strategy

  • This page as PDF

Summary

Manufacturers impacted by the Part B discarded drug refund policy should assess claims billing and adjudication patterns to inform mitigation strategy.

The Infrastructure Investment and Jobs Act requires manufacturers to pay a refund to the Centers for Medicare and Medicaid Services (CMS) for discarded units of single-dose vials or single-use drugs within Medicare Part B. Beginning in 2023, manufacturers are liable to pay a refund above a specified threshold associated with a particular Healthcare Common Procedure Coding System (HCPCS) code unless granted an exception. Since the law was passed in 2021, CMS has published additional details on how the agency will implement the provision in Medicare Physician Fee Schedule rulemaking and subregulatory guidance.

Manufacturers should account for potential refund liability when setting business goals and product revenue projections. Avalere supported a life sciences client by analyzing 100% Medicare Part B Fee-for-Service (FFS) claims data for an infused, weight-based dosing product (Product X) from October 2020 through June 2022. Results were stratified by key metrics to inform recommendations for a broader wastage mitigation strategy.

Findings

Avalere used CMS’s definition of discarded units and calculated the total discarded units of Product X (based on the identification of claims with the corresponding HCPCS code) as a percentage of total units billed. Avalere assessed discarded units overall and by key metrics that may impact claims adjudication (i.e., Medicare Administrative Contractor [MAC] jurisdiction) or billing practices (e.g., site of care). Reported discarded units for Product X increased over the study period and varied by both MAC jurisdiction (Figure 1) and site of care. Note that this analysis did not control for patient weight, which impacts wastage for drugs with weight-based dosing.

MACs are private companies that are contracted by CMS to process and pay Medicare FFS medical claims in a designated geographic jurisdiction on behalf of Medicare. They specifically review claims for accuracy, medical necessity, and appropriate billing practices. Since each MAC is responsible for adjudicating claims within its jurisdiction and within the framework of CMS guidelines, it is important to assess if and how wastage differs by MAC region. Differences in billed discarded drug for a product may be partially dependent on geographic variation in provider billing practices and patient demographics. While all MACs are required to follow Medicare guidelines, audit processes may vary and result in different proportions of claims with the required JW modifier, where applicable. Manufacturers should consider ways that regional differences may impact wastage and the resulting CMS-level refund liability.

Avalere stratified wastage by the site of care, which was defined by the Place of Service code on each claim. Claims in the office setting had the greatest use of the JW modifier and were associated with the highest discarded drug rate, while claims in the Hospital Outpatient Departments had lower reported wastage. In the context of disease state progression and the impact of titration requirements, it’s crucial to emphasize that weight-based dosing serves as a pivotal factor in determining the optimal administration amount, ensuring a personalized and effective treatment approach for patients. However, the site of care stratification of this analysis similarly suggests that wastage may vary across sites of care settings due to a number of factors. Further analysis of these differences could improve manufacturers’ understanding of these factors’ impact on refund liabilities.

Figure 1. Product X Wastage Percentage by MAC Jurisdiction, October 2020–June 2022
Figure 1. Product X Wastage Percentage by MAC Jurisdiction, October 2020–June 2022

Each color on the map corresponds to a specific MAC jurisdiction as indicated by the associated letter.

Conclusion

CMS will calculate a manufacturer’s refund liability based on discarded units across all of Medicare FFS Part B claims for an eligible single-dose vial or single-use product. As manufacturers assess potential discarded product and refund liability, they should consider the underlying data reporting and audit process as well as updates to billing. For example, CMS has required the use of the JZ modifier on claims starting in July 2023 for claims with no discarded units. Additionally, claims auditing will go into effect in October 2023, which means that incorrect use of JW and JZ modifiers may lead to claim denials. This may impact discarded drug billing and refund liabilities as providers will need to use these modifiers diligently.

Manufacturers may leverage several strategies to mitigate financial risk related to the discarded drug refund liability. However, manufacturers must first understand the driving forces of wastage to implement the best strategy.

To discuss tailored claims analysis or strategic options related to discarded units or to receive Avalere updates, connect with us.

Methodology

Avalere performed this analysis using 100% Medicare FFS claims, accessed by Avalere via a research collaboration with Inovalon, Inc., and governed by a research-focused CMS data use agreement. This includes the 100% sample of Medicare Part A and Part B Medicare FFS claims data.

Webinar | Election 2024: What’s at Stake for Healthcare? 

On August 14 at 1:30 PM ET, Avalere experts and guests will discuss the 2024 elections, exploring the candidates’ health policy approaches and implications for stakeholders. 

Learn More

Register
From beginning to end, our team synergy
produces measurable results. Let's work together.
Back To Top