What Is Pass-Through?

Pass-through is a billing approach in the healthcare revenue cycle where providers get extra reimbursement for certain items, like new devices, drugs, or biologics, that aren’t fully covered by standard bundled payments.

These temporary payments, often through Medicare, help keep high-cost or novel treatments available to patients while they’re new to the market and before they’re built into regular payment rates.

What Are Some Key Mechanisms in the Pass-Through Process?

-Purpose of pass-through payments:

• These temporary add-on payments help cover the higher costs of new drugs, biologics, or devices so providers can use them without taking a financial hit, while CMS collects data to set fair long-term rates.
• The goal is to keep patient access to new, high-cost technologies viable during their early rollout, before they’re folded into standard payment bundles.

-Eligibility and duration

• Applies to certain FDA‑approved devices, drugs, or biologics that weren’t already paid under OPPS as of December 31, 1996.
• Coverage lasts for a transitional window, typically about two to three years, during which data are gathered to support future inclusion in baseline reimbursement.

-Regulatory basis

• Pass-through payments are authorized under section 1833(t)(6) of the Social Security Act, aligning payment policy with innovation and actual cost patterns.

What Is The Importance of Pass-Through in RCM?

• Preserves use of innovation: Helps providers adopt new therapies that would be hard to afford under standard bundled payments.
• Protects provider margins: Without pass-through support, hospitals and clinics may have to eat the extra cost, which can limit access to advanced treatments.
• Bridges the reimbursement gap: Offers a temporary funding path until enough cost data exist to fold these items into regular package rates.

What Is The CMS Process and Applications for Pass-Through?

• Application pathway: Providers submit requests for pass-through status through Medicare’s electronic application system, using it to document eligibility for the device, drug, or biologic.
• Approval cycle: Applications are reviewed on a quarterly schedule. If approved, the item gains pass-through status the following quarter and may later be addressed in the annual OPPS rulemaking.
• Payment formulation: CMS sets a baseline reimbursement approach. For drugs and biologics, payment is often tied to the Average Sales Price (ASP) plus an additional percentage to cover costs.

What Are The RCM Implications and Considerations?

What Is Pass-Through’s Impact on Stakeholders?

Pass-through payments affect each part of the healthcare system differently. They open doors for some and create tradeoffs for others.

Providers and hospitals

• Pass-through status helps hospitals recover costs that would otherwise go unpaid, especially for new, high-priced drugs and devices. 
• It can speed the use of advanced therapies by reducing the financial risk of early adoption. 
• The flip side is operational: hospitals need tight documentation and billing controls to stay compliant and avoid audit findings.

Patients

• Positive impact: better access to cutting-edge treatments that might not be available if costs had to be absorbed under bundled rates. 
• Possible downside: depending on benefit design, patients may see higher coinsurance or out-of-pocket costs when pass-through items are expensive.

Payers

• Medicare offers defined reimbursement for approved pass-through items within OPPS, which supports access during the launch period. 
• Commercial plans often take cues from Medicare but may add tighter utilization management or prior authorization. 
• Overall spend can rise during the two to three years when products are paid separately before being folded into standard rates.

Manufacturers

• Pass-through can speed market uptake by making it financially feasible for providers to use new products. 
• It creates a clearer incentive for adoption in the early phase, supporting launch momentum. 
• That, in turn, encourages continued investment in high-cost innovations that need time and data before they can be priced into regular payment systems.

What Are The Common Challenges in Pass-Through Billing?

Pass-through adds complexity for revenue cycle teams, even as it expands access to new therapies.

Incorrect coding of drugs and devices

• Misapplied HCPCS or CPT codes can trigger denials, underpayments, or compliance findings. 
• Closely matching the code to the exact product, dose, and route is essential to avoid rework.

Documentation gaps

• Missing or thin clinical notes can block payment, even when the item is eligible. 
• Hospitals need to show medical necessity clearly and be ready to support it during audits.

Short coverage window

• Pass-through status typically lasts two to three years before items are folded into bundled rates. 
• The short runway makes budgeting difficult and can force mid-cycle adjustments when separate payment ends.

Shift to bundled payments

• When pass-through expires, costs move into broader payment packages. 
• If bundles don’t fully account for product costs, hospitals may see margin pressure and need to revisit pricing, contracts, or utilization.

Pass-Through vs. Non-Pass-Through Reimbursement

In Summary  

Pass-through payments are a temporary way to reimburse new, high-cost devices, drugs, and biologics under Medicare’s OPPS so hospitals can use them without taking a financial hit. They help keep access open to innovative treatments, and they give CMS the data it needs to fold those items into fair bundled rates later on. For revenue cycle teams, the keys are knowing what qualifies, timing the application, using the right billing codes, and tracking when pass-through status ends so revenue is optimized and compliance stays tight.