This post is adapted from Section 3.1.2. of our The 2016–17 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors. Friendly reminder: Discounted pricing for the report ends today!
Physician offices and hospital outpatient clinics are the primary sites of administration for such provider-administered drugs as biologicals, injectables, IVIG, immunoglobulins, and other products. Oncology drugs and related products are the largest share of spend. These medications are typically covered under a patient’s medical benefit.
More than half of outpatient commercial medical benefit drug spending occurred in hospital outpatient locations. Remaining spending occurred primarily in a physician’s office or clinic. Medicare is the primary government payer of provider-administered specialty drugs. Its Part B program covers provider-administered injectable and certain other drugs. In contrast to the commercial payers, about one-third of Part B spending occurred in hospital outpatient locations. For details and pretty charts, see Section 3.1.1. in our 2016-17 wholesaler report .
Most provider-administered outpatient drugs are governed by the buy-and-bill process, which is illustrated in the chart below. Click here to download the chart as a PDF file.
[Click to Enlarge]
In the buy-and-bill process for provider-administered outpatient drugs, a healthcare provider purchases, stores, and then administers the product to a patient. After the patient receives the drug and any other medical care, the provider submits a claim for reimbursement to a third-party payer. The process is called buy-and-bill, because the medical claim is submitted after the provider has purchased and administered the drug.
Thus, in the buy-and-bill system, the provider is responsible for:
- Ordering and purchasing the drug
- Managing drug inventory at the practice
- Prescribing and administering the drug to a patient
- Submitting reimbursement claims for a drug and related professional services
- Collecting a patient’s share of drug reimbursement—the copayment or coinsurance
Community-based physician practices typically purchase drugs from a specialty distributor. Hospital outpatient clinics and hospital-based practices typically receive products from a hospital pharmacy, which purchases drugs from a full-line pharmaceutical wholesaler. The distributor is responsible for:
- Purchasing products from manufacturers
- Negotiating the drug’s cost with the provider
- Delivering the specialty drug to the provider’s location
- Collecting payment from the provider
Some additional comments:
- The chart above shows a rebate payment from manufacturers to third-party payers. This line does not apply to Medicare Part B, which has no statutorily mandated rebates. However, more than half of payers received rebates for provider-administered injectable and infused drugs billed under the medical benefit for commercial members.
- Pharmacies—via white and brown bagging—have displaced buy-and-bill distribution channels for about one-quarter of oncology products. For simplicity, I have omitted these flows from the chart. See How Specialty Pharmacy Is Penetrating Buy-and-Bill Oncology Channels.
- The reimbursement approaches that commercial payers use permit hospitals to get paid two to three times as much as physician offices—and to inflate drug costs by thousands of dollars per claim See New Data: How Outrageous Hospital Markups Hike Drug Spending.
- For more on Medicare Part B and the wonderful world of J-codes, see Sections 3.1.3. and 4.5.2. of our 2016-17 wholesaler report