The Buy-and-Bill Model

CMS added a short section to the drug chapter of its claims-processing manual in 2025 that states the principle more plainly than anything else in the corpus of Medicare instruction. If a provider does not purchase a drug but provides the administration service, the physician cannot bill Medicare for the drug. The manual grounds that in the statutory definition of reasonable cost — the cost actually incurred — and the logic is the same one that governs any expense a practice did not have.

The second half of the same instruction is the part practices miss, and it is the more useful one. Administering the drug is an expense to the physician regardless of the source of the drug. So the administration service remains payable even where the drug itself is not billable — provided the drug would have been covered had the practice purchased it. The billing question and the acquisition question come apart at exactly that seam, and the model is what the seam looks like when the practice is on the purchasing side of it.

Buying inventory ties up capital, and that much is obvious. The rule that turns a cash-flow question into a risk question is less well known: payment for any drug or biological covered under Part B may be made only on an assignment-related basis. Every entity that bills Medicare for drugs and biologicals — physicians, non-physician practitioners, pharmacies and suppliers alike — must take assignment on those claims, for any beneficiary enrolled in Part B.

Three consequences follow, and none of them is optional. No bill may be rendered to anyone for a Part B drug for any amount beyond an unmet deductible and coinsurance, so the practice has no route to recover a shortfall from the patient. A practice's participation status does not change this, because the drug rule is not a participation rule. And a contractor that receives an unassigned claim containing only drugs converts it to assigned and processes it, rather than returning it — the arrangement is not something a practice can decline by how it files.

The model puts the practice's own money inside the claim, which changes the character of ordinary revenue-cycle failures rather than only their size.

A denial is a loss of product

An ordinary denial defers revenue for work already done. A drug denial does that and also strands an asset the practice paid for and cannot return to the shelf, because it is already in the patient. That is why drug lines do not belong at the back of a general denial queue — the working order should reflect what is at stake per line, not the age of the claim.

A units error is amplified by the price

Drug lines price per unit, so a quantity mistake scales with the cost of the product rather than with the size of the mistake. Both directions are damaging and only one announces itself — the other arrives as money and closes the account.

An overpayment is a refund obligation

Money received in error on a high-cost drug line is not a windfall; it is an overpayment with its own rules and its own clock. In a model where the practice bought the product, the temptation to treat a favorable variance as a margin is real and is the wrong reading.

Timely filing has a purchase behind it

A claim that ages out on an ordinary service costs the fee. A claim that ages out on a drug the practice bought costs the fee and the acquisition cost together, with no route to the patient because assignment is mandatory.

It is worth knowing that buy-and-bill is a policy setting rather than a fact of nature, because it explains why payers keep proposing to change it. Legislation in 2003 required a competitive acquisition program for Part B drugs not paid on a cost or prospective basis, and the manual describes the effect in the language of a choice: physicians would be given a choice between buying and billing these drugs under the average sales price system, or obtaining them from vendors selected through competitive bidding.

Under that program a participating physician placed a patient-specific order with an approved vendor; the vendor supplied the drug in unopened manufacturer packaging, billed the program itself and collected the beneficiary's cost sharing. The physician did not buy or take title. Because payment ran to the vendor only on administration, discarded drug was not payable to it — a different answer to the waste question than the one a purchasing practice gets.

A practice can find itself administering a drug it never purchased, and the claim then has to say something unusual. The manual's instruction is specific: to avoid a denial of the administration code, a drug code must be present on the same or a prior claim, carrying a zero billed amount. The line is there to identify what was given, not to ask for payment for it — the practice is paid for the administration and for nothing else.

How a practice ends up in that position is a separate question, with its own vocabulary and its own operational consequences, and it is covered in white bagging versus brown bagging. The billing rule above does not change with the route the drug took; what changes is who took custody of the product, and therefore what the practice has to be able to verify about storage, handling and identity before anything is administered.

1. 01

   Tie every administered dose back to a purchase

   Because the right to bill for the drug rests on having bought it, the acquisition record is part of the claim's support even though it never appears on the claim. A practice that cannot reconstruct which purchase a given administration came from has a documentation gap, not a bookkeeping preference.
2. 02

   Reconcile the drug line against the drug cost, per line

   The check that matters is not whether the claim paid but whether it paid what the applicable amount says it should, on the specific product and quantity given. The contractual variance calculator does that comparison line by line — remembering that plan payment plus patient responsibility is the allowed amount, so leaving the patient share out makes every coinsurance look like a shortfall.
3. 03

   Work drug denials ahead of the queue

   Sort the denial worklist by what is at stake rather than by age. A drug line that denies has already consumed inventory, and the window to correct and resubmit runs against a filing limit that does not care what the product cost.
4. 04

   Treat a favorable variance as a question, not a result

   A drug line that pays more than expected is more likely a units or code error than a good outcome, and in that direction it is a refund obligation. The review that catches it is a periodic sample of high-cost lines checked back to the administration record, because nothing about it appears on a denial report.
5. 05

   Know which arrangement each product is under before it is given

   The billing consequence is decided before the encounter, by who acquired the drug. A practice that discovers at charge entry that this particular product was not one of its own purchases has already built the wrong claim, and the correction is a different claim rather than an edit.