Friday, October 14, 2016

Follow the Vial: The Buy-and-Bill System for Distribution and Reimbursement of Provider-Administered Outpatient Drugs

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Redirecting to 2021 update

Please see the updated article from 2021: Follow the Vial: The Buy-and-Bill System for Distributing and Reimbursing Provider-Administered Outpatient Drugs

By reader request, below is a channel flow chart illustrating the buy-and-bill process for provider-administered drugs. It complements Follow the Dollar: The U.S. Pharmacy Distribution and Reimbursement System, which focuses on patient-administered outpatient drugs.

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.

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