2023 DRUG WASTAGE RULE TO IMPACT
PHARMA MANUFACTURERS

Pharmaceutical manufacturers continue to experience regulatory and program changes that result in new rebates and/or penalties which have the potential to negatively impact profitability. Last year, the Inflation Reduction Act (IRA) introduced drug price negotiations, inflation rebates and a significant change in the Medicare Part D program design coming in future years. In additional to the IRA, a new congressional ruling from the Infrastructure Investment and Jobs Act, specifically a provision from the Recovering Excessive Funds for Unused and Needless Drugs (REFUND) Act of 2021, introduced a new requirement for rebates in 2023 on drug wastage for applicable products within the Medicare program.

This blog outlines how drug wastage is defined, what the new requirements are and what pharma manufacturers need to know for 2023 and beyond.

WHAT IS PHARMACEUTICAL DRUG WASTAGE?

Drug wastage or pharmaceutical wastes are drugs that can no longer be used due to being expired, unused, spilled, withdrawn, recalled, damaged, contaminated, or for any other reason. Note that within CMS, this drug wastage is commonly referred to as “Discarded Drug Units”.

WHAT DOES THE DRUG WASTAGE RULE MEAN FOR PHARMA MANUFACTURERS?

Effective January 1, 2023, pharma manufacturers are now responsible for rebates on the unused, excess portion of the drug (wastage) for applicable drugs dispensed within the Medicare program. Applicable drugs must meet the following criteria:

• Single source drug or biologicals
• Single use/single dose package drugs
• Medicare Part B drugs

Exclusions from drug wastage rebates include the following:

• The first 10% wastage threshold
• Drugs that require filtration during the preparation process
• Newly approved drugs (drugs approved within the last 18 months)
• Radiopharmaceuticals and imaging agents

Manufacturers need to pay these rebates or face a large penalty of 125% of the rebate amount. It has been proposed that an invoice will be sent in future years by October 1 (with a due date of December 31), although the exact payment schedule and refund obligations have not yet been finalized.

HOW WILL DRUG WASTAGE REBATES BE CALCULATED?

Rebate amounts for drug wastage are equal to the total number of discarded units and the amount of payment determined for each drug.

For example, if $5,000,000 was reimbursed by Medicare Part B, the first $500,000 of unused product would not be subject to rebates for the manufacturer (in alignment with the 10% threshold). However, any unused product above $500,000, would be applicable for drug wastage rebates. Therefore if $750,000 was reimbursed for unused portions of drugs, the manufacturer would then be invoiced a total of $250,000 in drug wastage rebates owed to Medicare.

WHEN SHOULD MANUFACTURERS EXPECT A BILL?

Initially, it was proposed that drug manufacturers would receive the first drug wastage rebate invoice for the first two quarters of 2023 no later than October 1, 2023. This date has been pushed back and a final date is not yet available, however CMS currently plans to send a preliminary invoice no later than December 31, 2023 for the first two quarters of 2023 to manufacturers.

Data received in the preliminary drug wastage report from CMS will not be final, however it will provide an indication of estimated utilization of discarded amounts to manufacturers.

WHAT ACTION SHOULD PHARMA MANUFACTURERS TAKE BECAUSE OF THE DRUG WASTAGE RULING?

Depending on a drug manufacturer’s product portfolio, accruals for rebates may need to be adjusted to account for incremental rebates on drug wastage. Manufacturers should carefully evaluate which of their drugs may be subject to this rebate, how much historically has been wasted and accrue appropriately for the coming rebates.

For support estimating the accrual impact from drug wastage, partner with your Government Pricing professional today.