Tuesday, October 26, 2021

Follow the Vial: The Buy-and-Bill System for Distributing and Reimbursing Provider-Administered Outpatient Drugs

By reader request, we present below a channel flow chart illustrating the buy-and-bill process for provider-administered drugs. This chart complements Follow the Dollar: The U.S. Pharmacy Distribution and Reimbursement System for Patient-Administered, Outpatient Brand-name Drugs.

To further help you understand this channel, I have also included a brief video to explain the buy-and-bill system. The video is excerpted from my recent Drug Channels Update: Buy-and-Bill Trends video webinar.

This post is adapted from Chapter 3 of our new 2021–22 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.


Separately paid, provider-administered drugs include biologicals, injectables, IVIG, immunoglobulins, and other products. These medications are typically covered under a patient’s medical benefit. all but the least expensive drugs are paid separately by both Medicare Part B and commercial health plans Oncology drugs and related products constitute the largest share of separately paid drug spending for both types of payers.

Physician offices and hospital outpatient clinics are the primary sites of administration for separately paid, provider-administered drugs. At these sites of care, spending shares differ between payers:
  • Commercial plans. About half of outpatient commercial medical benefit drug spending occurs in hospital outpatient locations. More than one-third of drug spending occurs in a physician’s office. The remaining commercial medical benefit spending comes from such other locations as patients’ homes, dialysis centers, emergency departments, and ambulatory surgical centers. This category also includes products dispensed by a specialty pharmacy.
  • Medicare Part B. Physician offices constitute more than half of part B spending, and hospital outpatient locations constitute nearly 40% of spending. The remaining Part B spending comes from such other locations as retail pharmacies that supply classes of oral drugs covered under Part B; suppliers of inhalation drugs; and pharmacies that supply home infusion drugs.

    If CMS's 340B payment reduction had not occurred, then Part B drug spending in hospitals would have been $2.2 billion higher. Hospitals would have accounted for 42% of the overall higher spending figure. For more details, see Part B Update: Hospitals Keep Displacing Physicians—And More Practice Acquisitions Loom.

Most provider-administered outpatient drugs are governed by the buy-and-bill process, which we illustrate in the chart below.

[Click to Enlarge]

In the buy-and-bill process, 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 (billed) after the provider purchases (buys) and administers 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 coinsurance or copayment for all services
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 receive rebates for provider-administered injectable and infused drugs billed under the medical benefit for commercial members.
  • For more on Medicare Part B and the wonderful world of Average Sales Price (ASP) and J-codes, see Sections 3.2.1. of our 2021-22 wholesaler report.
  • The reimbursement approaches that commercial payers use permit hospitals to get paid two or more times as much as physician offices—and thereby inflate commercial drug spending by thousands of dollars per claim. See Section 3.2.2. of our new 2021-22 report for a review of this issue.

In the video below, I provide a brief explanation of the buy-and-bill distribution and reimbursement system. Click here if you can’t see the video.

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