A significant shift in Centers for Medicare & Medicaid Services (CMS) policy is reshaping the reimbursement landscape for 505(b)(2) drugs, creating new challenges for oncology infusion centers while fundamentally altering how these medications are coded and billed. The changes, which took effect January 1, 2023, represent the most substantial modification to drug reimbursement practices since the establishment of the J-code system in 2003.
Policy Transformation Affects Nearly 1,000 Drugs
CMS has begun issuing unique Healthcare Common Procedure Coding System codes (J-codes) to 505(b)(2) drugs dating back to 2003, potentially affecting all 943 drugs approved through this pathway during that period. Scott A. Soefje, PharmD, MBA, BCOP, director of pharmacy cancer care services at Mayo Clinic, explained the magnitude of this change during the Hematology/Oncology Pharmacy Association (HOPA) 2025 Annual Conference in Portland, Oregon.
"CMS is evaluating all 943 of these drugs and may give each one its own J-code, so think about this as this is going forward," Soefje said.
The policy shift originated from a 2022 CMS reevaluation of 505(b)(2) drugs in relation to section 1847A of the Social Security Act, triggered by a complaint filed by a pharmaceutical company. Under the new interpretation, 505(b)(2) drugs that are not therapeutically interchangeable are now considered sole-source drugs requiring individual J-codes.
Historical Context and Regulatory Framework
The 505(b)(2) approval pathway was established as part of the 1984 Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Act), originally intended to foster pharmaceutical innovation by allowing manufacturers to make subtle modifications to existing reference drugs. The pathway permits submissions that include new chemical entities, formulation changes, route modifications, fixed combinations, and dosage form alterations.
"The 505(b)(2) pathway is actually an NDA, and it allows the pharmaceutical manufacturer to make subtle changes in the formulation structure or something about the drug," Soefje explained. "Now, some of these changes are getting to be what I would consider slightly ridiculous, in that they change the vial size that it comes in or something like that. However, the FDA allows this process."
Historically, CMS grouped all multisource generic 505(b)(2) drugs under the same J-code, with the expectation that these products would be therapeutically equivalent to their reference drugs. This system incentivized therapeutic equivalence, as healthcare facilities would exclude non-equivalent products from their formularies.
Impact on Oncology Practice
The regulatory changes particularly affect oncology practice, where numerous cancer drugs have been approved through the 505(b)(2) pathway. Examples include albumin-bound paclitaxel, bendamustine, bortezomib, cyclosporin microemulsion, lanreotide, and pemetrexed.
"The hospitals and the payment plans would not use your generic drug if you weren't therapeutically equivalent—we would exclude you," Soefje said. "That has changed based upon the recent CMS ruling."
The new system creates operational complexity for infusion centers, which must now navigate multiple J-codes for what were previously grouped medications. Each unique J-code requires separate billing processes and may have different reimbursement rates, adding administrative burden to pharmacy operations.
Manufacturer Advantages and Market Dynamics
For pharmaceutical manufacturers, the policy changes create significant competitive advantages. The 505(b)(2) pathway now offers reduced regulatory risk, lower application costs, accelerated drug development timelines, and potential market exclusivity for up to seven years.
"If you look at the SSA, it says that if it is a sole-source product, it has to have its own J-code. So, the pharmaceutical companies then pushed to get their 505(b)(2) drugs declared sole source," Soefje explained. "If it's a sole-source drug, it gets its own unique J-code."
The pathway's appeal has grown substantially, with submissions benefiting from existing reference drug data and established safety profiles. This reduces the evidentiary burden compared to traditional new drug applications while maintaining the potential for premium pricing through sole-source designation.
Therapeutic Equivalence Considerations
A critical aspect of the new policy involves therapeutic equivalence determinations. CMS now considers whether 505(b)(2) drugs lacking therapeutic equivalence should automatically receive sole-source status. Manufacturers may request FDA therapeutic equivalence designations, but such requests are not automatically granted.
"CMS is also determining whether—if it is not therapeutically equivalent—it will be a sole-source product," Soefje said. "Now the 505(b)(2) manufacturers may request the FDA to give them therapeutic equivalents, but FDA does not automatically do it. If the request doesn't come in, all 505(b)(2) drugs will be considered non-therapeutically equivalent, and therefore get their own J-code."
Future Implications
The transformation represents a fundamental shift from the original Hatch-Waxman Act's intent to create cheaper generic alternatives. Instead of promoting cost reduction through therapeutic equivalence, the new system potentially enables premium pricing for minimally modified formulations.
"Until a very short time ago, the pharmaceutical industry felt that being therapeutically equivalent was an essential part of being a generic drug, but that attitude has changed recently, and that's what's causing some of the issues that we're talking about," Soefje noted.
The policy changes are being implemented rapidly, with CMS continuing to evaluate the entire catalog of 505(b)(2) drugs approved since 2003. This ongoing review process will likely result in additional J-code assignments, further complicating the reimbursement landscape for healthcare providers while creating new market opportunities for pharmaceutical manufacturers.
