The 2025 Proposed Hospital Outpatient Prospective Payment System and Physician Fee Schedule Rules: What Pharma Stakeholders Need to Know

The unpublished HOPPS proposed rule can be found here (published version scheduled to be issued on July 22), with a high level summary in the CMS fact sheet available here. Comments to the HOPPS proposed rule are due September 9.

The unpublished PFS proposed rule can be found here (published version scheduled to be issued on July 31), with the companion CMS fact sheet available here. Comments to the PFS proposed rule are also due September 9.

Below is an overview of the relevant provisions for pharmaceutical manufacturers and the pharma community.

Hospital Outpatient Prospective Payment System Proposed Rule

CMS is proposing several changes, including:

• Updating HOPPS payment rates for hospitals that meet applicable quality reporting requirements by 2.6% based on the projected hospital market basket percentage increase of 3.0%, reduced by a 0.4% productivity adjustment.
• The proposed packaging threshold (to establish a separate payment amount for certain drugs and biologicals above the threshold) for calendar year 2025 will remain set at $140 per day, with the caveat that it will be set at $630 per day for diagnostic radiopharmaceuticals.
• Separately reimbursed drugs and biologics administered in the hospital outpatient setting reimbursement will remain at Average Sales Price (ASP) +6% (4.3% after sequestration) or Wholesale Acquisition Cost (WAC) +3% if there not an established ASP. For biosimilars, CMS has set reimbursement at ASP +8% of the reference product’s ASP during the first five years in accordance with the Inflation Reduction Act of 2022 (IRA) mandate.

Physician Fee Schedule Proposed Rule

CMS is proposing numerous changes to this year’s PFS rule, as explained below.

Implementing the IRA-Mandated Medicare Prescription Drug Inflation Rebate Program

As we have previously explained, the IRA established new requirements under which drug companies must pay inflation rebates if they raise their prices for certain Medicare Part B and Part D drugs faster than the rate of inflation.

As part of the 2025 PFS proposed rule, CMS now proposes to codify policies established in the revised guidance for the Medicare Part B Drug Inflation Rebate Program and Medicare Part D Drug Inflation Rebate Program, including the process to seek a rebate reduction for a drug in shortage, likely to be in shortage, or in the event of a severe supply chain disruption.

CMS is also proposing policies:

• Establishing the method and potential data sources to remove 340B units from the total number of units used to calculate the total rebate amount for a Part D rebatable drug. Specifically, CMS is proposing to estimate 340B units in the applicable period. To estimate total 340B purchasing, CMS proposes to use data from the 340B prime vendor, Apexus, LLC. The denominator will be based on unit sales reported by manufacturers to CMS under the Medicaid Drug Rebate Program. CMS is soliciting comments on what other data sources may be available to estimate 340B purchasing/sales.
• Establishing the method and process for reconciliation of a rebate amount for Part B and Part D rebatable drugs, including the circumstances that may trigger such a reconciliation.
• Clarifying rebate calculations for Part B and Part D rebatable drugs in specific circumstances, including exclusion of Part B units of single-dose container or single-use package drugs subject to discarded drug refunds.

Inflation rebates began accruing on Part B drug utilization in 2023, and CMS will invoice manufacturers for any inflation rebates due on a Part B drug’s utilization by September 30, 2025. For calendar quarters in 2025 and beyond, CMS will invoice manufacturers six months after the end of the applicable quarter. Inflation rebates began accruing on Part D utilization as of October 1, 2022, and CMS will invoice for the applicable periods beginning October 1, 2022, and October 1, 2023, no later than December 31, 2025. For periods beginning October 1, 2024, and beyond, CMS will invoice manufacturers no later than nine months after the end of the applicable period (12 months from October 1 to September 30).

Drugs and Biologics Paid Under Medicare Part B: Single-Dose and Single-Use Refunds

Section 90004 of the Infrastructure Investment and Jobs Act of 2021 requires manufacturers of single-dose or single-use vials reimbursed under Medicare Part B to pay a rebate on discarded amounts above a 10% threshold. Over the last several years, CMS has finalized numerous policies to implement this section.

In the 2025 PFS proposed rule, CMS is seeking to clarify certain already-implemented policies, such as (1) excluding drugs for which payment has been made under Part B for fewer than 18 months from the definition of refundable single-dose container or single-use package drug and (2) identifying “single-dose containers” or “single-use package drugs.”

The 18-month exclusion runs from the date of the first product sale reported to CMS with one exception. To the extent the date of first sale did not adequately approximate the first date of a Medicare Part B payment for the product under an applicable National Coverage Determination, CMS may select a date more reflective of Medicare Part B’s first payment and coverage of the product.

CMS has proposed clarifications for certain single dose or single use products approved prior to the US Food and Drug Administration’s (FDA) guidance issued in October 2018 addressing single patient use containers. Specifically, some drugs approved prior to the October 2018 FDA guidance do not include the package type terms and explicit discard statements. CMS identifies digoxin, oxytocin, diphenhydramine, and phenobarbital as being single use despite not having the single use package type or discard statements in their labels. CMS now proposes including injectable drugs with a labeled volume of 2mL or less that lack the package type terms or discard statements on their labels in the definition of single use. CMS also proposes including ampules in the single use definition even if the products lack the package type terms or discard statements in their FDA-approved product labels.

CMS also proposes requiring the JW modifier if a billing supplier is not administering a drug, but there is an amount of the single dose or single use drug discarded during the preparation process before supplying the drug to the patient.

Finally, CMS is proposing to continue to exclude skin substitutes from application of the refund.

ASP Approach When Negative or Zero ASP Data Is Reported to CMS

CMS proposes that negative and zero ASP data be considered “not available” under section 1847A(c)(5)(B) of the Social Security Act. As such, CMS proposes calculating reimbursement based only on available ASP data for single source drugs, biosimilars, and multiple source drugs. For a single source drug, if the ASP for all National Drug Codes (NDCs) is negative or zero, the last positive ASP will be used to establish reimbursement (i.e., a carry forward). CMS will substitute the current or previous quarter WAC for ASP to the extent lower than the last positive ASP.

For biosimilars, if the ASP for all NDCs is negative or zero, CMS will base reimburse for the biosimilar on the ASP data of other biosimilars with the same reference product (even though such biosimilars have their own codes). Reimbursement would be based on the volume weighted ASPs of the other biosimilars with the same reference product.

Consequently, for a multiple source drug, if there is a zero or negative ASP for one product, the zero or negative is ignored and reimbursement will be calculated based on the weighted average of the other manufacturers’ ASPs only.

Payment for Radiopharmaceuticals in a Physician’s Office

CMS proposes to clarify that, for radiopharmaceuticals furnished in a setting other than a hospital outpatient department, Medicare Administrative Contractors (MACs) shall determine payment limits for radiopharmaceuticals based on any methodology used to determine payment limits for radiopharmaceuticals in place on or prior to November 2003. CMS notes that such methodology may include, but is not limited to, the use of invoice-based pricing.

As always, drug manufacturers and other participants in the pharmaceutical supply chain should take every opportunity to comment on policy and proposed rulemaking. ArentFox Schiff routinely drafts comments for our clients and reviews policy positions impacted by agency rules and guidance.