Knowledge Base Article

If you are a fan of old TV Westerns like I am, the phrase “just passing through” may conjure up the image of the Old West lawman confronting the new, potentially trouble-making, cowboy in town. The Sheriff or Marshall or Ranger often suggests the cowboy pass on through the town quickly without disturbing the peace of the local community. Medicare has items and products that “pass-through” payment wise for a limited amount of time such as pass-through drugs and biologicals.

“For CY 2019, we are proposing to continue to pay for pass-through drugs and biologicals at ASP+6 percent…” 2019 Outpatient Prospective Payment System (OPPS) Proposed Rule

Those of us that deal with Medicare hospital regulations and payments hear a statement similar to the one above every year. Most of us also know that pass-through drugs and biologicals are identified in the OPPS addenda with a payment status indicator of “G.” And somewhere, back in the beginning of OPPS, the requirements and rules of drug pass-through payments were created. But even for those of us that see this annually, do we really know what “pass-through” means, what the rules are, and if those rules are working as intended?

The regulations for pass-through drugs/biologicals can be found in Section 419.64 of the Code of Federal Regulations (CFR) and are summarized in the annual OPPS rule. Basically, Section 1833(t)(6) of the (Social Security) Act provides for temporary additional payments or “transitional pass-through payments” to hospitals for certain drugs and biologicals.

• These payments are for orphan drugs; drugs, biologicals and brachytherapy sources used in cancer therapy; and radiopharmaceuticals – all for which payment has been made since the implementation of OPPS.
• Transitional pass-through payments are also provided for certain “new” drugs and biologicals that were not being paid for as a hospital outpatient service as of December 31, 1996 and whose cost is “not insignificant” in relation to the OPPS payments for the procedures or services associated with the new drug or biological.
• For pass-through payment purposes, radiopharmaceuticals are included as “drugs.”
• Transitional pass-through payments for a drug or biological can be made for a period of at least 2 years, but not more than 3 years, after the payment was first made for the product as a hospital outpatient service under Medicare Part B.
• The pass-through payment equals the amount determined under section 1842(o) of the Act minus the portion of the APC payment that CMS determines is associated with the drug or biological.
• Prior to CY 2017, CMS expired pass-through status for drugs and biologicals on an annual basis through notice-and-comment rulemaking.
• Beginning CY 2017, CMS accepts applications and begins pass-through payments for newly approved pass-through drugs and biologicals on a quarterly basis. This allows the maximum pass-through payment period for each pass-through drug without exceeding the statutory limit of 3 years.
• When pass-through status expires, drugs and biologicals of certain groups that are “always packaged” become packaged. This includes anesthesia drugs; drugs, biologicals, and radiopharmaceuticals that function as supplies when used in a diagnostic test or procedure (including diagnostic radiopharmaceuticals, contrast agents, and stress agents); and drugs and biologicals that function as supplies when used in a surgical procedure.
• When pass-through status expires for “not always packaged” drugs and biologicals, the standard methodology for providing payment for drugs and biologicals is used. This means drugs/biologicals whose estimated per day cost exceeds the OPPS drug packaging threshold for that calendar year are separately paid at the applicable relative ASP-based payment amount which is currently ASP+6% for drugs not purchased through the 340B program.
• The decreased payment rate for drugs purchased through the 340B program does not apply to pass-through drugs and biologicals. Providers are to report pass-through drugs purchased through the 340B program with the informational only modifier “TB.”

For some reason, in Section 1301(a)(1) of the Consolidated Appropriations Act of 2018 (Public Law 115-141), Congress extended the pass-through status of drugs or biologicals whose period of pass-through payment status ended on December 31, 2017, and for which payment was packaged into a covered hospital outpatient service furnished beginning January 1, 2018. For drugs and biologicals meeting the criteria, the pass-through status is extended for a 2-year period beginning on October 1, 2018, through September 30, 2020. The four products that meet these criteria and with reinstated pass-through status are noted in the table at the end of this article. The law also defines the calculation of the pass-through payment amount for a portion of the extension. It further requires adjustment of the APC payment amount to remove the packaged costs of such drug or biological from the covered outpatient service with which it was packaged. This resulted in new payment rates for 10 APCs from October 1, 2018 through December 31, 2018. The affected APCs and more discussion on Public Law 115-141 can be found in the October 2018 OPPS Update MLN Matters Article.

Section 1301 of the Law also included a requirement for a study and report by the Government Accounting Office (GAO) which may reflect the reasoning for this extension. Congress requests an analysis of the impact of the drug packaging policy on utilization of affected drugs/biologicals, the availability of treatment options, the health outcomes of Medicare beneficiaries, and also the impact on price competition and cost-sharing as a result of these changes to the Law. You can read the complete Section 1301 of the Law at this link - https://www.congress.gov/bill/115th-congress/house-bill/1625/text/enr (Tip: Search for the term “pass-through” in the document to locate the applicable section quickly.)

Since Congress is not known for swift action, it may be years before revisions, if any, are made to the pass-through policy for drugs and biologicals. Until then, these products will only be passing through for a limited period of time.

The table below contains the products with reinstated pass-through status and other code/status changes from the October 2018 OPPS Update.