CMS Finalizes Rule on Medicare Part B Discarded Drug Rebates

November 8, 2022By Alan M. Kirschenbaum

On Friday, November 4, CMS finalized a rule to implement mandatory rebates (called “refunds”) for discarded amounts of separately paid Medicare Part B single-source drugs packaged in single-dose or single-use containers.  For a summary of the rule, we refer readers to our July 2022 post on the proposed rule (click here), since he substance of the final rule has not changed from the proposal.  The only differences relate to timing.  Refunds will still be owed for quarters beginning with 1Q 2023, and CMS will still send annual reports to manufacturers containing the number of discarded units and the refunds owed for four quarters.  However, whereas the proposed rule provided that CMS would send the first annual report by October 1, 2023 and manufacturers would have to pay undisputed refunds by December 31, 2023, CMS has now decided to postpone establishing a timeline for the reports and payment.  The preamble explains that CMS wants to coordinate the collection of these refunds with the collection of Part B and D inflation rebates imposed under the Inflation Reduction Act (see our summary of those requirements here).  CMS will address the timing of reports and payment deadlines in a future rulemaking.  A preliminary report on discarded amounts during the first two quarters of 2023 will be issued by December 31, 2023, but the report will not be final and will not require payment of refunds.

Other clarifications in the preamble include the following:

  • Part B refunds on discarded amounts will be excluded from average sales price (ASP) and Medicaid rebate average manufacturer price (AMP) and best price because CMS deems them to be refunds for “otherwise unsaleable return goods,” which are excluded from those prices.
  • The requirement to use a JZ modifier where there were no discarded amounts has been delayed for six months until July 1, 2023. The requirement to use a JW modifier for discarded amounts beginning on January 1, 2023 remains in place.
  • CMS clarifies that units of drugs packaged under the end-stage renal disease (ESRD) prospective payment system, like other packaged drugs, are not subject to the discarded drug refund.

The refunds for discarded drugs seem a relatively benign and narrowly focused government discount in comparison to the Part B and D inflation rebates and negotiated prices imposed under the Inflation Reduction Act.  CMS notes that Medicare Part B spending on discarded drugs is weighted heavily toward a small number of drugs.  However, even assuming CMS is correct, manufacturers of drugs in single-use containers will still be faced with decisions about whether to spend resources introducing smaller container sizes, or risk ongoing liability for discarded drug refunds.