Drug Waste is Packed with a Punch and a Refund

Billing for pharmaceutical waste has changed over the past decade with the JW modifier being first introduced in 2003. In January 2017, CMS revised the policy regarding discarded drugs and began requiring the use of the JW modifier for all claims for Part B separately payable drugs with discarded drug amounts from single-use vials or packages. This policy change allowed CMS the opportunity to identify and monitor billing and payment for discarded drugs more effectively. Based on an analysis of 2020 claims, CMS determined they paid out $720 million for discarded drugs billed with a JW modifier. These dollars represented about 40 different HCPCS in which 10 percent or more of total charges represented discarded drugs.

The Medicare and Medicaid Programs CY 2023 Payment Policies Under the Physician Fee Schedule finalized part of the implementation plan for section 90004 of the Infrastructure Act which requires manufacturers to submit rebates to the Federal Supplementary Medical Insurance (SMI) Trust Fund. However, providers are not off the hook and a new modifier, JZ, will be required to attest no discarded drug amounts were billed in addition to the already required JW modifier. A review of the final rule is as follows:

Billing for discarded drug: Effective January 1, 2023, the JW modifier will be required to bill discarded drug amounts for any separately payable refundable single-dose or single-use package. Separately payable is represented by HCPCS that have an assigned status indicator of “K” (Nonpass-Through Drugs and Nonimplantable Biologicals, Including Therapeutic Radiopharmaceuticals) or “G” (Pass-Through Drugs and Biologicals).

Billing without discarded drugs: It was recognized that the JW modifier may have been incorrectly reported or omitted from claims. Thus, CMS will require the use of a JZ modifier to attest that there was no discarded drug amount from single-dose or single-use separately payable packages. The JZ modifier is required no later than July 1, 2023, and CMS will begin editing claims for the JW and JZ modifier beginning October 1, 2023.

Refundable single-dose container or single-dose package: Section 90004 of the Infrastructure Act defines a refundable single-dose container or single-dose package as a single source drug or biosimilar biological product for which payment is made by Part B that is furnished from a single-dose container or single-dose package.

Exclusions from refundable single-dose container or single-dose package: Exclusions from the definition of refundable single-dose container or single-dose package include diagnostic and therapeutic radiopharmaceuticals and imaging agents (i.e., contrast). Also, drugs that require filtration according to the FDA labeling during preparation, prior to dilution and administration, and the unused filtered portion of the drug is discarded are excluded from the definition. Lastly, drugs for which payment has been made by Part B for fewer than 18 months are excluded. This will represent the first 6 full calendar quarters following the date of the first sale for any NDC. The JW and JZ modifiers will still be required during the 18-month exclusion for all single-dose containers or single-dose packages.

Information to the manufacturer: CMS is required to submit annual information to the manufacturer including the total number of billing units, discarded billing units represented by a JW modifier, and the refund amount for which they are liable. A preliminary report will be sent to manufacturers no later than December 31, 2023, with estimated amounts for the first 2 quarters of CY2023. The future rulemaking will define the timing of the annual reports.

Manufacture provisions: Manufacturers are required to remit refunds annually; however, the timing has not been finalized. The refund amount for which the manufacturer is liable is equal to the total number of units of the billing and payment codes multiplied by the payment limit amount for the respective quarter dates of service. The amount which exceeds the applicable percentage of the total allowed charges for such drugs. Currently, the applicable percentage is 10 percent except for a drug reconstituted with hydrogel and has variable dosing based on patient-specific characteristics in which the percentage is increased to 35.

Shout Outs!

1.       Pharmacy and Revenue Integrity teams should begin collaborating to develop a solution to identify all refundable single-dose or single-use packages and operationalize the application of the JW and JZ modifier. Conduct self-audits to ensure the modifiers and billing units are reported accurately as CMS will begin editing claims on October 1, 2023, and claims are subject to CMS provider audits. 

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