Wednesday, September 24, 2014

Buy-and-Bill’s Still Alive: The Surprising Uptick in Part B Spending

The Medicare Payment Advisory Commission (MedPAC), an independent agency that advises Congress on the Medicare program, recently released Health Care Spending and the Medicare Program, its latest, 200+ page wonktastic data dump. Chapter 10 focuses on prescription drugs.

The latest MedPAC Part B spending data show a surprising increase in Medicare buy-and-bill spending for provider-administered drugs. (See chart below.) After a post-2005 slowdown, spending growth accelerated from 2009 through 2012.

Do these data of prove buy-and-bill’s resilience, or are they a pre-sequestration fluke driven by new therapies and a growing Medicare population? My speculations are below. If you feel brave, make a yummy sound with a comment of your own.


Medicare is the largest payer of provider-administered specialty drugs, and therefore a key player in the buy-and-bill system. For buy-and-bill background (BBB), see Chapter 3 (starting on page 36) and Chapter 6 (starting on page 98) in our just-released 2014-15 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.

Medicare’s Part B program covers provider-administered injectable drugs and certain other medications. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) mandates that Medicare use a drug’s Average Sales Price (ASP) for reimbursing provider-administered injectable drugs. ASP is based upon the manufacturer’s actual selling price, i.e., a drug’s list price minus all price concessions. As of 2005, Medicare Part B switched from an Average Wholesale Price (AWP) base to Average Sales Price (ASP).


As the chart below shows, Medicare’s switch to ASP initially slowed the growth of Medicare Part B spending on outpatient drugs. After the 2005 change, total spending on provider-administered drugs declined by $800 million (-7.3%) compared with 2004 spending. Spending increased at a compound average growth rate (CAGR) of only 1.9% from 2005 through 2009, compared with an average annual growth rate of 21.4% from 1997 through 2004.

[Click to Enlarge]

But since 2009, spending has trended upwards. Based on the newly-released data, the CAGR was 5.3% from 2009 through 2012. While that’s much lower than the pre-2005 era, it’s almost three times as fast as the early ASP days.


Many new specialty drugs are provider-administered, which should increase Part B spending. Here are some countervailing forces that could slow Part B growth:
  • The MedPAC data do not extend far enough to include the federal government’s 2013 sequestration budget cuts, which reduced Medicare drug payments to providers, from ASP+6% to ASP+4.3%. See Sequestration Mania Hits Physician-Administered Drugs. So far, Congress not responded to the industry’s request to put... the candle... back.
  • Health systems are acquiring oncology practices and shifting care to hospital outpatient departments. Over time, this site-of-care shift will reduce Part B spending. In its report, MedPAC notes that Medicare drug spending in HOPD grew from $3.5 billion in 2009 to $6.0 billion in 2012 (+ 71%). Part B spending grew more slowly, from $11.3 billion in 2009 to $13.2 billion in 2012 (+17%).
  • Hospitals can generate more Medicare revenue from drug administration. In a March report, MedPAC recommended that Medicare align payment rates for certain outpatient hospital services with rates the paid in physician offices. In the meantime, HOPD spending may continue to grow more quickly than Part B.
Despite these obstacles, Part B’s growth demonstrates the ongoing relevance of the buy-and-bill channel, even as it is under pressure from commercial third-party payers. (See chapter 6 in the new 2014-15 wholesale report.) Medicare Part B still favors buy-and-bill, but don’t expect the government to be putting on the Ritz. I suspect the 2013 spending will not be as much fun as a roll in ze hay.

P.S. The Young Frankenstein: 40th Anniversary blu-ray was released on September 9, 2014!

40 years?!? Wow, I'm old.


  1. Hi Adam - just one observation. I don't believe this is true: "Over time, this site-of-care shift will reduce Part B spending." The shift to hospitals actually raise costs for CMS, hence the agency now starting to evaluate the impact using HCPCS modifier per the recent PFS and OPPS proposed rules. The shift-of-care might show a decrease in PFS spending, but since the same practices get paid at OPPS rates after acquisition, the spending in Part B, overall, would increase.

  2. 2009 forward. Changes to CMS Part D in 2008 to time to be implemented.

    Medicare Retirees = 25% diabetics. This population on Employer Plan, RDS, not reimbursements for Diabetic supplies paid by employer Pharmacy Plan. Diabetic supplies are DME's.Not eligible for RDS payment. More employers started to shift Medicare retirees to EGWP's insured or self insured and Medicare Part D. Part B primary for DME's.

  3. Anti-angiogenic drugs used to treat Macular Degeneration.

    Adam - I have not followed this closely, but data released from Medicare earlier in the year pointed to Opthalmologists as the highest paid specialists. I think this is in part because they are using Lucentis and a couple of other specialty drugs to treat Macular Degeneration - which is pretty much a Medicare disease. I think Lucentis is about $2000 per injection. I don’t know the price of the others. There may be other things going on here, but if the eye docs are suddenly making money in Medicare, there must be a reason.

    Of course, it could be something else entirely.

    Best regards, Nancy

  4. Thank you for adding information on new content.

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  5. Our group practice (multi-specialty) walked away from this several years ago and subleased the space to one of our hospital partners who does infusion on-site and also runs the pharmacy. We looked at the economics, and the hospital's rent of the space is more valuable to us.

    Surprised on that one.