In 2021, Congress passed the Infrastructure Investment and Jobs Act, which included a provision giving the Centers for Medicare & Medicaid Services (CMS) new authority to require refunds from manufacturers for Medicare Part B drug wastage in some instances. CMS estimated $3 billion in savings from these refunds over 10 years.

On July 7, 2022, CMS published the CY 2023 Medicare Physician Fee Schedule (MPFS) Proposed Rule, which specifies which types of Part B drugs are subject to the waste refund and operationalizes the drug wastage calculation and refund process. The final rule is expected in November of this year and will go into effect on January 1, 2023.

The proposed rule outlines the requirement for manufacturers to provide a refund to CMS for any amount of discarded drug over 10% of the total allowed charges in each calendar quarter, as determined by the JW modifier within Medicare claims. The refund amount will be benchmarked to the average sales price (ASP) of the drug or to the wholesale acquisition cost if ASP is unavailable.

Current Drug Wastage Trends

To estimate the financial impact on manufacturers, Avalere analyzed Q3 2021 Medicare Part B claims (the most recent available) to determine the number of drugs with waste that exceeded the 10% threshold and calculated the potential refund liability. This is an updated version of an analysis that Avalere previously conducted using the 2020 CMS Drug Spending Dashboard.

Avalere’s analysis found that in Q3 2021, 379 drugs reported some degree of wastage. Of those drugs, 44 had waste over 10% and 15 had waste between 8% and 10%. While drugs between 8% and 10% waste are not currently included in the provision, stakeholders should continue to monitor drugs in this category. By annualizing Q3 2021 data, Avalere estimates that manufacturers of the 44 drugs over 10% could be liable for $210 million in annual refunds, an uptick of 5 drugs and $61 million in waste refunds from Avalere’s last analysis using 2020 data. These findings are consistent with CMS’s 10-year projections and mark growth in drug wastage from 2020.

Considerations for Stakeholders

As the implementation date for the waste refund approaches, manufacturers should evaluate the impact that the drug waste provision could have on their portfolio to anticipate and mitigate adverse financial impacts. Manufacturer liability will vary based on the type of drugs in their portfolio and the single-use nature, method of administration, vial size(s), dosing requirements, and time on the market associated with each drug. Stakeholders should consider exclusion criteria outlined in the rule and evaluate mitigation strategies that could vary for drugs at risk of reaching the 10% threshold compared to drugs already over the threshold.

Methodology

Avalere used a 20% sample of 100% Medicare Part B Fee-for-Service claims data to conduct this analysis via a research collaboration with Inovalon, Inc., and governed by a research-focused CMS data-use agreement. Carrier and hospital outpatient claims in Q3 of 2021 were used for this analysis.