US Medicare Wastage ‘Refund’: Wasted Effort?
Executive Summary
The upcoming implementation of a new ‘refund’ program for unused drugs included in single-use vials is a remarkable story of a policy idea moving from academic research into the real world. But the actual impact sure has shrunk along the way.
Sometime next fall, pharmaceutical manufacturers will receive invoices from the US Medicare agency seeking “refunds” on unused amounts of injectable products left over in single-use vials.
The Medicare Part B wastage rebate program stands out as a rare example of a new policy idea moving rapidly from academic proposal to real-world implementation.
“Rapidly” is of course a relative term. In this case, it took about six years, from when Memorial Sloan-Kettering’s Peter Bach et al. first published an article highlighting the potential savings from recouping wastage until the US Centers for Medicare & Medicaid Services formally implemented the plan via regulations released in July. (Also see "Medicare Rebates On Drug ‘Wastage’: New Products Get Limited Time Reprieve" - Pink Sheet, 12 Jul, 2022.)
But in the world of drug pricing policy, ideas tend to gestate for a lot longer than that. Consider how long Democrats have been calling for Medicare to “negotiate” prices – or the even longer time that calls for Canadian drug imports have been a political talking point.
In this case, however, the rapid speed from journal article (2016) to legislative adoption (in the 2021 bipartisan infrastructure law) to formal implementation (Jan. 1, 2023) is matched by an equally rapid decline in the projected savings from the new policy.
Bach’s 2016 article claimed that 10% of the spending on the top 10 Part B products went for quantities left in the vial. That in turn attracted the attention of the New York Times, which extrapolated to the full Part B market to trumpet the notion that Medicare was quite literally wasting $3 billion a year on discarded product. That number got legislators interested. (Also see "Cancer Drug "Oversized" Single-Dose Vials Waste Money, Need Rethinking – Article" - Pink Sheet, 2 Mar, 2016.)
It did not immediately lead to adoption of a new rebate, but it did prompt further discussion – including a National Academy of Medicine project to look at the issue. During that process other stakeholders (including the US Food & Drug Administration) were able to remind policymakers that there are good reasons to allow for at least some excess fill amounts in vials – and that there are benefits from simplicity in packaging even if it seemingly increases “waste.” (Also see "Rebate Proposals Targeting Single-Use Vials May Be Barking Up The Wrong Tree" - Pink Sheet, 25 Feb, 2021.)
So when it came time to enact the proposal, the legislation did not attempt to recoup the cost of all the discarded product, instead setting a 10% threshold: refunds would be due only for products where more than 10% of the product is discarded – and only on the amount discarded above that 10% level. At the time of enactment, the Congressional Budget Office scored the legislation far lower than that $3 billion a year number that made headlines: more like $3 billion over 10 years ($3.16 billion to be exact).
To be fair, the first two years included in CBO’s analysis were before the effective date of the rebate, so CBO’s projected annual savings was higher than the average number implies. In fact, CMS saw the rebate climbing above $500 million a year by the start of the 2030s. On the hand, Part B has grown substantially since 2016 and is projected to continue growing rapidly in the future. That means CBO’s savings estimate was closer to 1% than 10% of total spending.
Now comes the implementing rule itself, where the savings look to be even smaller than projected. CMS says that, had the rule been in effect in 2020 (the last year with complete claims data), it would have collected $140 million in refunds. That is just 0.3% of the $40.7 billion in Part B drug claims that year.
It is also just a fraction of the $720 million CMS says was “wasted” during the year. But, it turns out that while some products do generate a lot of wastage, they do it just a little bit at a time. So drugs like Avastin or Herceptin that generated hundreds of millions of dollars in wasted payments in Bach’s analysis will not be likely to pay a dime in refunds – since the wastage is just a small percentage of the total amount of drug used.
Indeed, based on CMS’ analysis of the 2020 data, only four products would have owed refunds of more than $10 million: Takeda Pharmaceutical Co. Ltd.’s Velcade ($66.8 million); Sanofi’s Jevtana ($24.6 million); Amgen, Inc.’s Nplate ($16.4 million) and Bristol Myers Squibb Company’s Abraxane ($15.7 million). Only four other products would have owed more than $1 million, and just 26 products would owe anything at all.
Moreover, those refund checks might shrink over time. As part of its follow-up to the policy development process, FDA has recently issued a draft guidance for manufacturers who want to repackage drugs to reduce waste by using a “dose-banding” strategy. That means that any manufacturer that does face burdensome refund payments may find it more cost-effective simply to change its dosing presentations.
Either way, the Part B wastage issue can now be considered resolved – though one might wonder if it was a bit of a wasted effort.