Medicare Part B payment for a drug is based on an ASP from two quarters earlier, so in a rising price environment the payment basis can trail the price an office pays. For a buy and bill practice, that gap can narrow the amount left to support the costs of providing the infusion.
Why the payment basis can trail current prices
In Part B buy and bill, clinics purchase drugs and Medicare pays when they deliver them. The authors of a study of Medicare Part B describe payment as based on an average cost from two quarters earlier, plus a percentage markup. A U.S. Department of Health and Human Services study likewise says the payment rate in a quarter uses ASP from two quarters before.
In a rising price environment, that earlier ASP can be below the ASP realized in the market during the payment quarter. For an office buying a drug now, the payment basis may therefore reflect a lower price period. The spread between the payment and the office's acquisition cost can shrink before the practice accounts for its other expenses.
The drug spread has to support office costs
The Infusion Providers Alliance says buy and bill reimbursement must cover the drug's acquisition cost as well as overhead such as intake and storage, equipment and preparation, nursing staff, facilities, and spoilage insurance. A drug payment that covers the invoice price can still leave little contribution toward those other costs.
The alliance also says the 6 percent add on to ASP is a significant part of reimbursement for Part B drug infusions because the administration fee covers only a small fraction of providers' costs. The payment basis matters to the drug's contribution toward overhead, especially when current acquisition prices have risen since the ASP period used for payment.
Why the 6 percent add on does not track each invoice
An HHS ASPE brief says Medicare pays providers 106 percent of a drug's ASP regardless of the acquisition costs they actually incur. The percentage is applied to ASP, not recalculated for each office's current invoice. If the office's acquisition cost is higher than the payment basis, the difference reduces the amount available for overhead.
The lag can move in either direction as prices change. When prices are rising, the older ASP can be below current market prices. Owners can therefore avoid treating the 6 percent add on as a fixed margin on their purchase cost.
A practical way to review exposure
For each infused drug and treatment period, compare the office's acquisition cost with the applicable Part B drug payment. Then account for the costs the practice incurs to store, prepare, and administer the infusion, along with the separate Medicare administration payment where it applies. This keeps the drug payment's contribution distinct from the treatment's overall margin.
NICA says buy and bill margins help offices cover administration and overhead. Owners can track the drug contribution and overall treatment margin by drug and period to see how changes in ASP and acquisition costs affect the practice.
This page is general education only. It is not medical advice. Talk with your own doctor about your health.
Frequently asked questions
Does Medicare pay separately for administering a Part B drug?
Yes. MedPAC says that, in addition to ASP plus 6 percent for a Part B covered drug, Medicare makes a separate administration payment under the physician fee schedule or hospital outpatient system. The amount depends on the applicable payment system.
How did IVIG administration payments compare across settings?
CMS attributed lower IVIG administration payments in physician offices to lower office payment rates, while infusions averaged about three hours in both settings. In 2023, average payments were $93 in physician offices and $227 in outpatient hospitals.
What happens to Part B drug payments when ASP falls?
A Health Affairs Scholar study says that when negotiations, most favored nation policies, and biosimilar competition lower acquisition prices, Medicare payments fall accordingly. That describes the payment response to lower ASP.
Sources
- Lagged-price reimbursement contracts: The impact of medicare Part B on pharmaceutical price growth (Journal of Public Economics)
- EXECUTIVE SUMMARY FINAL (U.S. Department of Health and Human Services, Office of the Assistant Secretary )
- Underwater Biosimilars - Infusion Providers Alliance (Infusion Providers Alliance)
- Protecting Patient Access to Treatment in Part B - Infusion Providers Alliance (Infusion Providers Alliance)
- MEDICARE PART B DRUGS: PRICING AND INCENTIVES (U.S. Department of Health and Human Services, Office of the Assistant Secretary )
- NICA letter to Oregon House Behavioral Health and Health Care Committee: Support for Oregon HB2715 (Oregon State Legislature)
- Chapter 5: Medicare Part B drug and oncology payment policy issues (June 2016 Report) (Medicare Payment Advisory Commission (MedPAC))
- Medicare Intravenous Immune Globulin (IVIG) Demonstration Evaluation Final Report to Congress (Centers for Medicare & Medicaid Services)
- Impact on hospitals of price reductions for physician-administered biologics (Health Affairs Scholar)
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