Using Modifiers to Untangle Billing for Waste

Telling a patient’s story accurately, completely and in a codable fashion is essential when submitting payment claims to payers, whether it is a commercial plan, Medicaid, Medicare or Medicare Advantage plan. Virtually all of the verbiage in the electronic health record (EHR) is converted into codes that are electronically transmitted to payers. Disease states, presenting conditions and reason for the visit fall into the International Classification of Diseases-10 series; procedures and tests are covered by Current Procedural Terminology codes; and all products, including drugs and biologicals, are given designated Healthcare Common Procedure Coding System codes. Medicare then identifies payment possibilities by assigning status indicators.

Implementation of JW and JZ Modifiers

Even with all these coding sets, it is sometimes necessary to increase the specificity of the data or to add a contingency of payment by adding modifiers. This is because payers, including Medicare, may want to capture particular types of data or use payment information for policy planning or implementation purposes. Modifiers are alpha character designations that add details or clarifying facts or differentiate between actions/events to indicate a service or procedure performed has been altered by some specific circumstance, but not changed in its definition or code. They are used to add information or change the description of service to improve accuracy or specificity.

Modifiers play a specific role in waste billing. Medicare created the ability to bill for expensive waste in the outpatient area shortly after moving to the concept of “billing units representing actual dose given” for reimbursement, away from the “whole vial” method of billing under the Outpatient Prospective Payment System. Medicare does not mandate billing for waste, but makes it possible to recoup some lost dollars if facilities choose to bill for them. However, it does mandate the use of the JW modifier to differentiate the billing units for waste from the billing units for the dose administered. As of Jan. 1, 2017, the Centers for Medicare and Medicaid (CMS) established a consistent policy among all Medicare administrative contractor jurisdictions to use the JW modifier billing for waste for discarded amounts of drugs from single-dose containers. CMS encourages physicians, hospitals and other providers and suppliers to care for and administer drugs and biologicals to patients in such a way that they can use drugs or biologicals most efficiently and in a clinically appropriate manner. Overfill in vials is not considered either as billable administered drug or as potential drug waste. Rather, all calculations are based on the labeled amount of the container.

Implementation of the Infrastructure Act

Unfortunately, use of the JW modifier has not been particularly successful. Observed low compliance with the use of JW modifier has led to incomplete JW modifier data, as well as lack of data integrity in billing for waste.¹ This has caused a major problem with the recently passed Waste Refund Act (Section 90004 of the Infrastructure Investment and Jobs Act [Pub. L. 117-9, Nov. 15, 2021], hereafter the Infrastructure Act, amended section 1847A of the Act). The goal of the Act is for CMS to obtain rebates from manufacturers for the value of the amount of drug wasted. The bill requires drug companies/manufacturers to reimburse Medicare for certain wasted medications, although some exclusions apply. Specifically, the Act states that those administering certain single-dose container or single-use package drugs payable under Medicare Part B will provide refunds with respect to discarded amounts of such drugs. Wasted medications include leftover portions of drugs packaged in single-use containers. To ensure accurate rebate transactions, it became necessary to differentiate between each single-dose package sold that had some CMS-billable waste (identified with the JW modifier) versus those that did not have any waste billed to CMS. Hence, on July 1, 2023, a second modifier, JZ, was initiated to be included on claims for single-dose container drugs to attest when there were no discarded amounts. This is because the JW modifier relies on the discarded drug refund data for audit purposes. Use of the JZ modifier was made mandatory effective Oct. 1, 2023.

Claims for drugs with discarded amounts furnished on or after Jan. 12, 2017, to June, 30, 2023, that have not used the JW modifier correctly may be subject to review. Those billed on or after July 1, 2023, that do not report the JW or JZ modifier may be subject to provider audits. In addition, claims not reporting the modifiers as appropriate on or after Oct. 1, 2023, may be returned as unprocessable until claims are properly resubmitted.

Further provisions require the Department of Health and Human Services (HHS) to quarterly aggregate the total amount of discarded Part B drugs using Medicare Part B claims and to calculate refunds using the average wholesale price (ASP) (or wholesale acquisition cost if ASP is not available). Drug manufacturers will be required to provide a rebate to HHS for the total amount of discarded medication recorded, above a 10 percent low-volume threshold. Noncompliance of providing a timely rebate could incur civil monetary penalties under this Act.

The Act applies to the following settings:

1. All providers and suppliers who buy and bill status indicator G and K separately payable drugs under Medicare Part B (These are mostly physician’s office and hospital outpatient settings for beneficiaries who receive drugs incident to physicians’ services.)
2. Critical access hospitals (CAHs), since drugs are separately payable in the CAH setting
3. Non-renal dialysis service drugs and biological products administered in end-stage renal disease

JW and JZ modifiers do not apply to drugs administered in rural health clinics (RHC) or federally qualified health centers (FQHC) because drugs administered are generally not separately payable under Part B. Instead, their payment is included in the RHC’s all-inclusive rate or the FQHC’s prospective payment system rate for the patient’s visit. JW and JZ modifiers are also not intended for use in claims for hospital inpatient admissions billed under the inpatient prospective payment system.

Logistics of Reporting JW and JZ Modifiers

The JW modifier is required to identify discarded billing units of a billing and payment code to calculate the refund amount. The JZ modifier is required when there is no payment under Medicare Part B for the discarded amount from the single-dose vial or package.

As stated, CMS requires providers and suppliers to report the JW modifier on all claims that bill for drugs and biologicals separately payable under Part B with unused and discarded amounts from single-dose containers or single-use packages. If there’s no waste from single-dose containers or single-use packages, the claim must be reported with the JZ modifier.

The goal is to obtain rebates from manufacturers for money (to the tune of millions of dollars) spent on paying facilities for drug waste billed to Medicare with the JW modifier. The payer knows the actual dose that was billed, and CMS is asking for the remaining amount from that single-dose vial/package as a rebate if it was billed as waste. If no waste was billed, or if the product was used for another patient, thrown away, etc., then use of the JZ modifier would indicate there will be no rebate to CMS from the manufacturer.

CMS is not mandating that facilities bill for waste. It is asking facilities to identify when they do by using the JW modifier and when they don’t by using the JZ modifier. So, if facilities don’t bill for any waste, then the JZ modifier would be the only modifier used and only when used for a Medicare patient.

“Automatic” calculation of discarded amounts (e.g., a calculation performed by a software program) is acceptable as long as the facility is attesting the amount actually was waste and documented as such. There must be a match between what the EHR states and what is actually billed for the remainder of the drug in the single-use container.