Medical Reimbursement System in the US, J-Code, and the Potential Impact on 505(b)(2) Applications with Recent Changes

US Medical Reimbursment System

The medical reimbursement system in the United States is very complex. I am not aware of any such system existing at the national level in India, so I cannot draw any parallels. In India, health insurance is primarily for hospitalisations, and, based on my information (which is mainly based on my health insurance), other reimbursements are generally not covered. However, I could be wrong.

In the United States, there is HCPCS. Healthcare Common Procedure Coding System (HCPCS).  HCPCS is a standardised coding system used mainly for billing and processing health insurance claims, especially for Medicare and Medicaid. 

The Centers for Medicare & Medicaid Services (CMS) maintains it. HCPCS is divided into two levels: Level I, which uses Current Procedural Terminology (CPT) codes, and Level II, which provides codes for products, supplies, and services not included in CPT. 

You will notice that in the United States, almost everything is covered under health insurance and reimbursements, not limited to hospitalisation as in India. 

There are different codes in HCPCS.

1. ICD-10 codes handle medical diagnoses and HCPCS Level I 
2. J-codes serve a specific purpose. As part of HCPCS Level II, they are alphanumeric codes created for non-oral medications. J-codes for drugs provide a standardised way for healthcare professionals to report non-oral medications and services that do not fit easily into HCPCS Level I codes. This helps ensure accurate and consistent coding for billing and reimbursement in the healthcare industry. 

This J-Code system was established in 2003. Before the J-code system, reimbursement was based on the National Drug Code number.

How does this impact 505 (b) (2) applicants? 

Let us clarify the impact on 505(b)(2) filers based on a recent article in Pharmacy Times. It states that, historically, CMS would group all multisource generic 505(b)(2) drugs under the same J-code. The aim was for these drugs to be generic copies and therapeutically equivalent.

In 2022, CMS reevaluated 505(b)(2) drugs under section 1847A of the Social Security Act (SSA). Based on this decision, 505(b)(2) drugs that are not therapeutically interchangeable should be classified as sole-source drugs. As of January 1, 2023, CMS has started issuing unique J-codes to 505(b)(2) drugs dating back to 2003.

In 2022, based on a complaint filed by a pharmaceutical company, CMS was asked to reevaluate the SSA section that establishes the J-code.

With these changes, the attached article in this link explains that the 505(b)(2) approval pathway significantly reduces the risk of denial upon submission. Submissions to this pathway already involve approved RLDs with supporting data. Now, the pathway lowers the application’s cost, speeds up drug development, offers potential market exclusivity for up to 7 years, and provides a competitive advantage.

The SSA states that a sole-source product must have its own J-code. Consequently, pharmaceutical companies pushed to classify their 505(b)(2) drugs as sole source. When a drug is designated as sole- source, it receives a unique J-code. This rule took effect in January 2022.

CMS determined that a drug must have unique properties to be considered a sole-source drug. In such cases, the manufacturer can request that the drug be designated as a sole source.

CMS is also deciding whether it will be regarded as a sole-source product if it is not therapeutically equivalent. 

Currently, 505(b)(2) manufacturers can request the FDA to provide therapeutic equivalents, but the FDA does not do so automatically. If no request is made, all 505(b)(2) drugs are considered non-therapeutically equivalent and will be assigned their own J-code.

In summary, earlier 505(b)(2) drugs could be granted market exclusivity, which can protect them from generic competition for a period and potentially make them the sole source during that time.  

A recent change in CMS policy has led to 505(b)(2) drugs that are not therapeutically equivalent to their reference products being assigned unique J-codes, potentially causing different reimbursement rates and effectively making them sole-source for reimbursement purposes.