As Applied Policy reported in January, under Section 90004 of Infrastructure Investment and Jobs Act (Infrastructure Act) which was passed in November 2021, manufacturers of drugs, including biosimilar biologic products, in single dose container or single use packages which are separately payable under Medicare Part B are required to provide the Centers for Medicare & Medicaid Services (CMS) a refund for unused portions of specified drugs.

Although CMS adopted some requirements in connection with the discarded drug refund policy in the Calendar Year (CY) 2023 Physician Fee Schedule (PFS) final rule, until this summer, the agency had not yet proposed specifics on certain provisions of the legislation including timelines for reports and the due date for initial payments.

The issuance of the Calendar Year 2024 Medicare Physician Fee Schedule Notice of Proposed Rulemaking (NPRM) in August provided important clarifications. These include timelines for when the agency will issue key reports, as well as responses to concerns from drug manufacturers and healthcare providers. With Medicare Administrative Contractors (MACs) issuing instructions on compliance and a final rule expected in the coming weeks, the program should soon be fully implemented.

Timelines

In the proposed rule, CMS indicated that it intends to send the initial refund report, with information for all calendar quarters of 2023, no later than December 31, 2024. Refund amounts specified in these initial reports will need to be paid no later than February 28, 2025.

The agency distinguished the initial report from its preliminary report containing estimated discarded amounts based on available claims data for the first two quarters of CY 2023, which will be sent no later than the end of this calendar year.

CMS also indicated that going forward it would send annual refund reports for the four quarters of a calendar year “at or around the time” it sends the Part B inflation rebate report for the first quarter of the subsequent year.

To address lag time between the administration of drugs and the submission of claims data, reports will include data from eight calendar quarters. This will include the four calendars from the previous calendar year and four from the year before that.

Percentages

The Infrastructure Act specifies that the refund amount will be equal to the amount of discarded drug that exceeds an applicable percentage of total charges for the drug in a given calendar quarter. With the exception of drugs with unique circumstances, the applicable percentage must be at least 10 percent, with the quantity of discarded drugs recorded through the use of the JW modifier (“Drug Amount Discarded/Not Administered to Any Patient”) in claims.

In the CY 2023 final rule CMS acknowledged comment letters requesting clarification as to how it would exercise its authority to increase the applicable percentage for drugs with unique circumstances, as well as how such drugs would be identified. The agency indicated that it would be soliciting additional public input on relevant provisions of the Act before addressing the issue in future rulemaking.

Stakeholders were given the opportunity  to provide this input on the implementation and operationalization of the provisions at a town hall held in February. And the language of the August proposed rule suggests that CMS considered, if did not adopt, each of the recommendations presented at the public forum.

In one example, the American Society of Retinal Specialists (ASRS) recommended against the establishment of drug-by-drug exclusions, requesting, instead, that CMS make a categorical exemption for all ophthalmic drugs and/or – all drugs under 1 mL volume.

While CMS declined this recommendation, it does propose increasing percentages in certain circumstances.

For drugs with labeled doses contained within 0.1 mL or less when removed from the vial or container, CMS proposes increasing the applicable percentage to 90 percent. For drugs with doses ranging from 0.11 to 0.4 ml, the increased applicable percentage would be 45 percent.

Acknowledging their unique circumstances, CMS proposed adding a category for products meeting the definition of orphan drugs under section 526 of the Federal Food, Drug, and Cosmetic Act (FD&C Act) and administered to fewer than 100 unique Medicare fee-for-service beneficiaries per calendar year and providing this category with an increased applicable percentage of 26 percent.

The proposed rule also outlined procedures by which manufacturers can apply for increased applicable percentages for their products and identified instances in which exceptions would not be considered. Stating that it believes that manufacturers could optimize the availability of products for weight-based doses, body-surface-area doses, tapering doses, or dose adjustments for toxicity, CMS excluded these from consideration as unique circumstances.

The August proposed rule emphasized that the discarded drug refunds pertain only to Medicare Part B and are not applicable under the Medicare Advantage program.

Additional clarifications

The August proposed rule outlined how CMS intends to use average sales price data to identify the expectedly few instances in which drugs have more than one manufacturer, as well as a methodology for calculating refunds in such circumstances.

Data documetentation

In scoring, the Congressional Budget Office estimated that the discarded drug refund program could save Medicare over $3 billion by 2031. Realization of these savings will, in large part, depend upon accurate data collection through provider use of the JW and JZ Healthcare Common Procedure Coding System Level II coding modifiers.

CMS has required providers to use the JW modifier to report any unused amounts from single-dose containers or single-use packages on Medicare Part B claims for separately payable drugs and biologicals since 2017. The amount of discarded product must also be documented in the patient’s medical record. Providers are reimbursed for the discarded amount, as well as the dose administered, up to the amount of the drug indicated on the vial or package labeling.

Some provider organizations have characterized the JW modifier as a welcome means for ensuring that their members received payment to which they were entitled. In a 2016 blog post, the American Academy of Family Physicians (AAFP) described the JW modifier as making it “easier for physicians to get paid for leftover medication or biologicals.”

For other providers and their billing staff, the JW modifier has been a source of confusion.

In a study commissioned by CMS at the direction of Congress, the National Academies of Science, Engineering, and Medicine (the National Academies) noted that “the level of compliance with JW coding (was) highly variable” and that requiring its use appeared to present an administrative burden. The National Academies recommended against its continued use.

In its implementation of the Infrastructure Act, CMS not only codified the use of the JW modifier as a means of determining discarded billing units of discarded drugs, but it also added an additional modifier.

Since July 1, 2023, CMS has required providers to use the newly established JZ modifier “on all claims that bill for drugs from single-dose containers that are separately payable under Medicare Part B when there are no discarded amounts.”  In essence, use of the JZ modifier serves as an attestation that no medication was discarded.

The American Hospital Association has argued that the JZ modifier will increase reporting burdens for providers. Implementation of the modifier has also been opposed by such specialty groups as the American Academy of Ophthalmology.

By contrast, the Association for Clinical Oncology has expressed support for the use of both the JW and JZ modifiers and urged CMS to make the data public.

Even as the debate continues, MACs began reviewing claims for appropriate use of the JW and JZ modifiers this month. CMS has said that as of October 1, claims for drugs from single-dose containers submitted without appropriate use of the JW or JZ modifiers may be returned as un-processable.

Monitoring

The Infrastructure Act requires that the Department of Health and Human Services’ Office of the Inspector General (OIG) submit a report to Congress on any impact which the implementation of the refund program may have on the “licensure, market entry, market retention, or marketing of biosimilar biological products.”

The OIG has indicated that the initial report, which is to be undertaken after consultation with CMS and the Food and Drug Administration will be available next year. We look forward to it and subsequent updates as a means for better understanding the implications of the refund program.