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Medicare Hospital Outpatient Prospective Payment System (HOPPS) and Physician Fee Schedule (PFS) Final Rules Released; What Pharma Needs to Know

The Centers for Medicare & Medicaid Services (CMS) has issued its annual final rules related to both the Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems for calendar year 2023 (the HOPPS Final Rule) and the Physician Fee Schedule Final Rule (the PFS Final Rule). 

A copy of the HOPPS Final Rule can be found hereThe recently released PFS Final Rule can be found here.

2023 HOPPS Final Rule

The following finalized payment policies in the HOPPS Final Rule should be of most interest to pharmaceutical manufacturers:

  • The final packaging threshold amount (in order to establish a separate payment amount for drugs and biologicals without pass-through status) for calendar year (CY) 2023 will be set at $135 per day, a slight increase over the amount for calendar year 2022.

  • For CY 2023, CMS will continue the payment policy that has been in effect since CY 2013 to pay for separately payable drugs, biologicals, and therapeutic radiopharmaceuticals (with the exception of drugs purchased by hospitals that are 340B Covered Entities) at the drug’s Average Sales Price (ASP) plus 6%. If a drug, biological, or radiopharmaceutical does not have an established ASP reimbursement amount, CMS will default to determining reimbursement at the drug’s Wholesale Acquisition Cost (WAC) plus 3%. All biosimilar biological products will continue to be eligible for pass-through payment status, not just the first biosimilar biological for a reference product (guaranteeing separate reimbursement for the drug for a period of time regardless of whether under the packaging threshold).

  • For 2023, CMS has finalized a payment rate of ASP plus 6% for drugs and biologicals obtained through the 340B Program, in light of the Supreme Court decision in American Hospital Association v. Becerra (No. 20-1114, 2022 WL 2135490). This new payment policy represents a change from the agency’s prior position of paying ASP minus 22.5% for drugs and biologicals acquired under the 340B Program. 

  • Similarly, CMS will reimburse separately payable Medicare Part B drugs and biologicals (other than vaccines and drugs on pass-through status) that are acquired through the 340B Program at ASP plus 6% when billed by a hospital paid under the HOPPS. 

  • Drugs acquired under the 340B Program and that are priced using average wholesale price (AWP) methodology will continue to be paid an adjusted amount of 69.46% of AWP. For CY 2023, CMS has finalized a policy to pay for biosimilars acquired under the 340B Program at the rate for which non-340B acquired biosimilars are paid, which is generally the biosimilar’s ASP plus 6%of the reference biological product’s ASP. Finally, CMS will continue to exempt rural sole community hospitals, PPS-exempt cancer hospitals, and children’s hospitals from the 340B payment policies.

2023 PFS Final Rule

While referenced by the HOPPS Final Rule, the PFS Final Rule includes a substantive discussion regarding a new payment policy impacting the reporting (and subsequent refunds due) with respect to discarded amounts of certain drug products. Specifically:

  • The Social Security Act has been amended to require manufacturers to provide a refund to CMS for certain discarded amounts from a refundable single-dose container or single-use package drug. The refund amount is the amount of discarded drug that exceeds an applicable percentage, which is required to be at least 10% of total allowed charges for the drug in a given calendar quarter. This refund applies to refundable single-dose container or single-use package drugs beginning January 1, 2023.

  • In the PFS Final Rule, CMS has finalized the definition of a refundable single-dose container or single-use package drug as a drug or biological for which payment is made under Part B and that is furnished from a single-dose container or single-use package. CMS has also finalized exclusions to this definition as required by statute for drugs that are either radiopharmaceuticals or imaging agents, drugs that require filtration during the drug preparation process, and drugs approved on or after November 15, 2021, for which payment under Part B has been made for fewer than 18 months.

  • The PFS Final Rule also sets forth requirements for the use of the JW modifier, for reporting discarded amounts of drugs, and the JZ modifier, for attesting that there were no discarded amounts. Providers will be required to report the JW modifier beginning January 1, 2023, and the JZ modifier no later than July 1, 2023, in all outpatient settings. Notably, CMS is not finalizing the timing of initial reporting to manufacturers or the date by which the first refund payments are due. CMS did indicate that they will issue a preliminary report on estimated discarded drug amounts based on claims from the first two calendar quarters of 2023 no later than December 31, 2023, and will revisit the timing of the first report in future rulemaking.

As always, drug manufacturers and other participants in the pharmaceutical supply chain should take every opportunity to review these final rulemakings.

© 2023 ArentFox Schiff LLPNational Law Review, Volume XII, Number 335
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About this Author

Stephanie Trunk Partner ArentFox Schiff LLP
Partner

Her practice extends to counseling on drug pricing and government price reporting, HIPAA and privacy matters, counseling on Medicare Part D, developing corporate compliance programs, representing clients in contract negotiations and providing transactional support to her clients. Stephanie is a member of the firm’s Life Sciences Industry Group.

Stephanie represents pharmaceutical manufacturers of both pioneer and generic drugs as well as wholesale distributors of prescription drugs and devices. Her recent work has included:

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202-857-6171
Erin E. Atkins Senior Attorney ArentFox Schiff LLP
Senior Attorney

Erin counsels pharmaceutical and device manufacturers and their customers on statutory and regulatory compliance, drug pricing transparency requirements, and privacy, reimbursement, and transactional issues involving state, Federal, Medicare, 340B, and Medicaid laws and regulations.

Erin provides her clients with fraud and abuse counseling under the federal Anti-Kickback Statute and Beneficiary Inducement Statute. Erin counsels clients on Medicare Part D matters, compliance program operations, and contract negotiations. Erin also has experience...

202-828-3436
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