A rheumatology practice asked us to look at why its infusion suite was busy and its drug margin was close to zero. The physicians had been told, correctly, that Medicare pays for office-administered drugs at the average sales price plus 6 percent. They had not been told about the four things that eat that 6 percent: the sequestration cut, the quarter-to-quarter price changes on inventory already on the shelf, the coinsurance nobody collected, and the vial that was two-thirds used.
Buy and bill is the arrangement where the practice purchases a drug, stores it, administers it and bills the payer for both the drug and the administration. It is how most injectable and infused drugs reach patients in rheumatology, oncology, ophthalmology, gastroenterology and neurology. Done well, it is a service patients value and a modest, legitimate margin. Done without arithmetic, it is a way to lend money to a drug wholesaler at a loss.
This article works through the economics with real formulas and a fictional worked example, then gives the break-even check we run for each drug a practice stocks. A glossary line to start: ASP is the average sales price, a figure manufacturers report to CMS each quarter that reflects actual prices paid net of most discounts. CMS publishes a payment limit for each drug code, and Medicare Part B pays from that file.
Key takeaways
- Medicare's statutory rate for most Part B drugs is ASP plus 6 percent, but the 2 percent sequestration reduction applies to Medicare's share, so the effective rate is about ASP plus 4.3 percent.
- The payment limit changes every quarter and lags the market by about two quarters, so inventory bought at last quarter's price can be paid at this quarter's lower limit.
- The 20 percent coinsurance is part of the drug's reimbursement; every dollar of it that goes uncollected comes straight out of the margin.
- Discarded amounts from single-dose vials are payable with the JW modifier, and the JZ modifier is required when nothing was discarded; missing either loses money or invites a denial.
- A per-drug break-even check that includes acquisition, carrying cost, wastage and expected collections tells you which drugs to keep, which to reprice with the wholesaler and which to send to a specialty pharmacy.
What Medicare actually pays: buy and bill drug economics in one line
For a drug that has an ASP, the Medicare allowed amount per billing unit is ASP plus 6 percent, taken from the quarterly Part B drug payment limit file. Medicare pays 80 percent of the allowed amount and the patient (or the patient's secondary insurer) owes 20 percent. Since 2013 the Budget Control Act sequestration has reduced Medicare's payment by 2 percent, applied to the 80 percent share after the deductible. The arithmetic works out to roughly ASP plus 4.3 percent if the coinsurance is collected in full.
Two more rules matter. A new drug without an ASP yet is paid at wholesale acquisition cost plus 3 percent during its first quarters on the market. And drugs administered from a single-dose container have a wastage rule: the discarded portion is billed on a separate line with modifier JW and is paid, while a claim for a single-dose drug with no waste must carry modifier JZ, a requirement Medicare has enforced since July 2023.
The payment limit file is published quarterly and reflects sales data from two quarters earlier. That lag is the source of a problem practices call being underwater: when a drug's market price falls, the payment limit falls with it a quarter or two later, but a manufacturer price increase shows up in your invoice immediately and in the payment limit only later. Stock bought just before a price cut in the ASP file is paid at the new, lower limit.
A worked example with a $1,000 drug
Take a fictional biologic with an ASP of $1,000 per dose, administered monthly to a Medicare patient with no secondary coverage, deductible already met.
| Item | Amount | How it is calculated |
|---|---|---|
| Medicare allowed amount | $1,060.00 | ASP plus 6 percent |
| Medicare payment | $831.04 | 80 percent of $1,060, less 2 percent sequestration |
| Patient coinsurance | $212.00 | 20 percent of $1,060 |
| Total if coinsurance fully collected | $1,043.04 | Effective rate: ASP plus 4.3 percent |
| Acquisition cost | $985.00 | Purchased through a group purchasing contract at 1.5 percent below ASP |
| Carrying cost | $7.29 | $985 held 45 days at a 6 percent annual cost of money |
| Uncollected coinsurance | $21.20 | Practice collects 90 percent of patient balances |
| Net margin per dose | $29.55 | $1,043.04 less $985.00, $7.29 and $21.20 |
So the headline 6 percent, $60 on paper, is about $29 in practice, before the cost of the nurse's time to order, receive, log and reconcile the drug. The administration code (96372 for a therapeutic injection, 96365 for the first hour of an infusion, 96413 for chemotherapy infusion) is paid separately and covers the clinical work, but it does not cover pharmacy management. If the practice buys the drug at ASP instead of below it, the margin drops to about $14. If the payer is a Medicare Advantage plan that pays at 100 percent of the Medicare rate but holds claims for 45 days longer, the carrying cost roughly doubles.
Now the underwater case. The practice bought ten doses at $985 in March. In April the new quarterly file shows the ASP fell 4 percent to $960, so the allowed amount is $1,017.60 and the effective reimbursement with full coinsurance is $1,001.32. Each of those ten doses now loses about $11 after carrying cost and collections. The fix is inventory discipline, not a billing change.
Where the leakage hides
When we audit a buy-and-bill practice, the losses are rarely in the fee schedule. They are in five operational places.
Units. Every HCPCS drug code has a billing unit in its descriptor, and it is often not the vial. J3301 (triamcinolone acetonide) is 10 mg per unit, so a 40 mg injection is 4 units. J1745 (infliximab) is 10 mg per unit, so a 400 mg dose is 40 units. Charge entry that bills one unit per vial for a 10 mg code leaves 90 percent of the drug unbilled. Cross-check the units on the claim against the dose in the medication administration record for your top ten drugs once a quarter.
Wastage. A 100 mg single-dose vial used for a 70 mg dose should produce two lines: 7 units of the drug code, and 3 units with modifier JW. Skip the JW line and the 30 mg is a gift. Bill a single-dose drug without JW or JZ and Medicare returns the claim. Multi-dose vials never get a JW line; the leftover is expected to be used on another patient.
Coinsurance. Twenty percent of a $1,060 drug is $212 a month, and many practices treat drug coinsurance the way they treat a $30 copay, which is to say they send statements and hope. Verify secondary coverage before the first dose, estimate the patient share, and have the financial conversation before the infusion chair, not after three statements. Manufacturer copay assistance programs exist for many commercial patients (not for Medicare patients, where they are generally prohibited), and enrolling the patient is part of the intake.
Authorization. Medicare Advantage plans may require prior authorization and may apply step therapy to Part B drugs. A dose given without the authorization the plan required is a full write-off of a $1,000 item, which wipes out the margin on thirty other doses. The authorization log needs the drug, the dose, the number of doses approved and the expiration date, checked before each administration.
Inventory. Drug that expires on the shelf, drug counted twice, drug administered but never charged because the nurse pulled it from stock without a charge ticket. A monthly count that reconciles doses purchased, doses administered per the medication record, doses billed and doses on hand catches all three. If purchased minus administered does not equal on hand, something walked; if administered does not equal billed, something was given away.
The break-even check for every drug
For each drug the practice stocks, once a quarter when the new payment limit file arrives, fill in six numbers: the new allowed amount per dose; the acquisition cost per dose on the most recent invoice; expected days from purchase to payment for the payer mix that uses the drug; the historical collection rate on coinsurance for that drug; the average wastage per dose as a percentage; and the time the practice spends on inventory and authorization per dose, priced at staff cost.
Net margin per dose equals the allowed amount multiplied by the blended collection rate, minus acquisition cost, minus acquisition cost multiplied by the cost of money and the days outstanding divided by 365, minus unbillable wastage, minus staff time. A positive number under $10 is a warning: one authorization miss or one quarter of falling ASP turns it negative. A negative number is a decision. The options are to renegotiate the acquisition price with the wholesaler or GPO, ask the manufacturer about contract pricing, shift the drug to specialty pharmacy dispensing (where the pharmacy bills the drug and the practice bills only administration), or stop offering the drug in the office. Which one is right depends on the payer mix and the clinical need, and honestly, for a drug the practice gives twice a year, the answer is nearly always the specialty pharmacy.
Commercial payers complicate the check because each contract states its own drug reimbursement method: ASP plus a percentage, average wholesale price minus a percentage, or a fixed fee schedule. Read the drug pricing exhibit in each major contract and note whether the payer mandates white bagging (specialty pharmacy ships the drug to you) for any drug class. An RCM audit that covers drugs should pull the contract rate for the top ten drugs by spend and compare it to what actually posted.
What is changing in 2026
Two federal developments touch buy and bill this year without changing the core formula. The Inflation Reduction Act's Part B inflation rebate provisions have, since April 2023, lowered beneficiary coinsurance on drugs whose prices rose faster than inflation, so the patient share on some drugs is below 20 percent for a given quarter; the CMS payment limit file flags these. And the drug price negotiation program, whose first negotiated prices took effect January 1, 2026 for Part D drugs, reached Part B for the first time in the selection CMS announced in January 2026, with those prices effective in 2028. For now the daily arithmetic is unchanged.
Questions we hear
Is buy and bill worth it for a primary care practice?
For low-cost injectables that the practice gives often (vitamin B12, ceftriaxone, ketorolac, medroxyprogesterone), yes, with the same units and wastage discipline, because the acquisition cost is small and the administration code carries most of the value. For expensive biologics given rarely, the break-even check almost always says specialty pharmacy. Run the numbers rather than deciding by specialty.
Can we bill the patient for the discarded portion?
The JW line is billed to Medicare like the administered units, and the patient's coinsurance applies to it in the same way. You do not bill the patient separately for waste, and you cannot bill waste at all from a multi-dose vial or when the drug was drawn up for a patient who then did not receive it.
The wholesaler offers a discount for paying in ten days. Should we take it?
Usually. A 2 percent discount for paying 20 days early is worth far more than the carrying cost of that cash for 20 days, and on a $1,000 drug it is a larger number than the whole net margin in our example. Record the net price, not the invoice price, in your break-even sheet.
What to do this week
- Download the current quarterly Part B drug payment limit file and list the allowed amount for every drug you stock.
- Pull last quarter's invoices and record the actual acquisition cost per dose next to each allowed amount.
- Check the billing unit in the HCPCS descriptor for your top ten drugs against the units on ten recent claims each.
- Run a report of single-dose drug claims from the last 90 days and confirm each carries JW or JZ.
- Calculate the coinsurance collection rate on drug claims and, if it is under 90 percent, move the financial conversation to before the first dose.
- Compute net margin per dose for each drug and flag anything under $10.
