Comment Period Now Open for Proposed Rule Implementing Manufacturer Refunds for Discarded Drugs

The Infrastructure Act and CMS Policy

The Infrastructure Act, passed in November 2021, included a new refund requirement for manufacturers of drugs in single-dose or single-use containers where a portion of the drug is discarded. Existing CMS policy provides payment for the unused and discarded amount of Part B drugs, up to the amount of the drug indicated on the vial or package labeling. On a Medicare Part B claim, many contractors require providers to use the JW modifier to submit the amount of the drug administered and the amount of the drug discarded.

In the Proposed Rule, CMS reports that in 2020, Medicare paid nearly $720 million for discarded amounts of drugs from a single-dose container or single-use package paid under Part B. Based on the 2020 data, more than half of Medicare spending for discarded amounts were attributed to about 40 billing and payment codes (i.e., HCPCS codes).

Proposed Refund Program

In the Proposed Rule, CMS requests comments on the following issues: 

• Applicability. CMS proposes to include in the Refund Program all separately payable drugs using the JW modifier, including such drugs that have been granted pass-through status in the hospital outpatient setting.
• Modifier Use. CMS asserts that the JW modifier is not used by providers in all cases where a portion of a drug is discarded. Based on this stated concern, CMS proposes that providers be required to report a new JZ modifier when the full amount is administered, to “attest” that there were no discarded amounts.
• Definition of “refundable single-dose container or single-use package drug.” CMS proposes that “refundable single-dose container or single-use package drug” applies to separately payable drugs paid under Medicare Part B that are described in the Food and Drug Administration (FDA)–approved labeling or product information as being supplied in a “single-dose” container or “single-use” package. This proposed definition would also include single-dose or single-use “kits.” CMS further proposes that for a drug to meet this definition, all National Drug Codes (NDCs) assigned to the drug’s billing and payment code must be single-dose containers or single-use packages.
  • Exclusions: Consistent with the statutory text, CMS proposes that the following drugs would be excluded from this definition: radiopharmaceuticals and imaging agents, drugs requiring filtration, and drugs for which payment under Medicare Part B has been made for fewer than 18 months.
  • The 18-month period runs from the date of first sale as reported to CMS for the drug to the first day of the sixth calendar quarter thereafter. This 18-month exclusion would apply only once for a drug. If additional NDCs in the same billing and payment code were subsequently approved under the same FDA-approved application, a new 18-month period would not apply.
• CMS Annual Report. The Infrastructure Act requires the Secretary of the Department of Health and Human Services to provide each manufacturer of a refundable single-dose container or single-use package drug with a report for each calendar quarter, beginning on or after January 1, 2023. CMS proposes to send these reports annually to manufacturers no later than October 1 of each year for claims data finalized by the end of the second calendar quarter. The reports would include the total number of units of the billing and payment code of such drug, if any, that were discarded during the applicable quarters and the refund amount that the manufacturer must pay. 
  • CMS further proposes that such annual reports would include any additional lagged claims data not included for the quarters first reflected in the prior year’s report.
• The Infrastructure Act specifies that absent “unique circumstances,” the refund is the amount equal to the estimated amount by which
  • 10% of the estimated total allowed charges for a drug during a quarter exceeds the product of
    • (i) the total number of units of the billing and payment code for such drug that were discarded during such quarter and
    • (ii) the payment limit amount for the refundable single-dose container or single-use package drug
  • CMS solicits comments on its detailed proposal for estimated refund amounts, including a proposal to account for lagged data and the potential for manufacturer overpayments. 
• Manufacturer Provision of Undisputed Refunds by December 31. CMS proposes that refund amounts set forth in the annual reports be paid no later than December 31 of the year in which the report was sent to the manufacturer, except in circumstances where a dispute is pending. 
• Dispute Resolution. CMS proposes that each manufacturer have an opportunity to dispute the annual report “because of the nature of determining the estimated total allowed charges ... and the methods by which the estimated refund amount is determined.” The limitation on what can be disputed is a significant limitation in this proposed process that raises potential Administrative Procedure Act issues. CMS proposes that this dispute resolution process be initiated by manufacturers by submitting an “error report.”
  • The dispute would require the inclusion of the following information:
    • manufacturer name and address
    • the name, telephone number, and email address of one or more employees or representatives of the manufacturer with whom the Secretary may discuss the claimed errors
    • for a mathematical calculation error, the specific calculation element(s) that the manufacturer disputes and its proposed corrected calculation
    • for any other asserted error, an explanation of the nature of the error, how the error affects the refund calculation, an explanation of how the manufacturer established that an error occurred, the proposed correction to the error, and an explanation of why CMS should use the proposed corrected data
  • CMS proposes that the agency will respond to disputes in 30 days. 
  • CMS seeks comments regarding whether CMS should develop an appeal mechanism on the dispute resolution process.
• Audits. The Infrastructure Act requires CMS to perform periodic audits on each manufacturer of a refundable single-dose container or single-use package drug that is required to provide refunds under the Refund Program. CMS requests comments about what the audits should entail, which the agency states it will consider in future rulemaking. In particular, CMS proposes that its review contractors would “periodically review Part B medication claims to ensure the JW modifier, JZ modifier¹, and discarded drug amounts are billed appropriately consistent with our normal claims audit policies and protocols.” Manufacturer audit rights are not addressed. 
• Civil Money Penalty. Under the Infrastructure Act, civil money penalties (CMPs) apply for failing to pay the refund amounts set forth in the report from CMS. As discussed in the Proposed Rule, CMPs for violations of the program would equal 125% of the amount that the manufacturer would have paid in refunds with respect to the drug for such quarter.

The Proposed Rule reflects a significant step by CMS in pursuing implementation of the Refund Program. Manufacturers and drug developers affected by the Proposed Rule should give significant consideration to CMS’ proposal and may wish to submit comments to address the many legal and implementation issues it raises.