Buy-and-bill is the standard way physician-administered drugs reach patients in specialty care: the practice buys the drug, stores it, administers it in the office, and bills the payor for the drug and for giving it. Medicare pays for most of these drugs at the average sales price plus a percentage add-on. [3] That structure sits underneath a conflict that runs through specialty value-based care, and what follows looks at it from inside a practice.
The financial conflict inside specialty care
A retina specialist may have two reasonable treatment options for a patient, with very different costs to the health plan. Choosing the less expensive drug can also reduce the contribution margin that helps the practice cover its overhead. The physician still has to make the right clinical choice. But a plan that asks the practice to change treatment patterns without addressing that economic consequence is asking one party to fund another party’s savings.
Specialty value-based care needs to account for both sides of that decision. A practice should be able to deliver appropriate care without a payment structure that makes the choice economically unattractive. The purchaser must also retain meaningful savings after paying the practice and the cost of running the program. An arrangement that works for only one side will have trouble lasting.
Medicare is moving toward more direct specialist accountability. CMS has tested specialty payment models for years and is developing more condition-specific measures of cost and quality. Starting in 2027, its mandatory Ambulatory Specialty Model will include eligible cardiologists treating heart failure and selected specialists treating low back pain in designated areas. It will assess quality, cost, improvement activities, and interoperability, with positive or negative adjustments to future Medicare professional payments. This two-sided model differs from an upside-only contract, but it reinforces the need for specialists to understand how their care will be measured. [1, 2]
Why the incentives deserve attention
Fee-for-service payment and buy-and-bill drug reimbursement can make a practice’s economics diverge from the purchaser’s. Medicare’s payment for many physician-administered drugs includes a percentage add-on to average sales price. MedPAC has observed that the add-on may favor a higher-priced drug when a lower-priced alternative is available, while emphasizing that clinical factors remain central to prescribing. The incentive says nothing about an individual physician’s motives, but it matters when designing a program meant to change care. [3]
A reduction in contribution margin is not necessarily a financial loss. A practice’s acquisition price, administration and inventory costs, payor contracts, and volume determine what it earns from a treatment. A sound arrangement uses those real economics rather than treating billed revenue or a standard markup as the practice’s profit.
What the purchaser needs to see
Employers and health plans are scrutinizing specialty drugs, procedures, and sites of care as premiums continue to rise. KFF’s employer survey documents that broader cost pressure, although premium growth should not be mistaken for a measure of specialty spending alone. Purchasers need savings that persist without compromising access or clinical results. [4]
Negotiating a better drug price, using a formulary, or choosing a lower-cost site of care can produce legitimate savings. Aligning practice economics adds the treating physician’s judgment about which alternatives suit a particular patient. Prior authorization and step therapy may still help, but neither necessarily changes the underlying practice-level incentive. Purchasing and clinical strategies work best when they reinforce each other.
The purchaser also needs to know what remains after the program is paid for. Spending for a defined patient group should be compared with a credible estimate of what would have happened without the program, taking account of case mix, price changes, and treatment intensity. Practice payments, performance distributions, OMI fees, and other program costs then reduce the purchaser’s net savings. A favorable comparison with historical spending is informative, but it does not by itself establish that the program caused the change.
How an aligned payment could work
Consider a patient for whom a lower-cost anti-VEGF option is clinically appropriate. The plan’s drug spending falls, but the practice’s contribution margin may fall too. An aligned contract can provide a predictable payment when the practice makes that qualifying choice, so it does not have to wait months for a contingent share of savings. A later performance payment can depend on measured results and quality. The plan counts only the savings left after practice payments, OMI fees, and other program costs, while also checking for shifts in other care and in patient costs.
Timing and accountability matter. The early payment addresses the immediate margin reduction; later reconciliation tests whether the arrangement delivered value. The contract is with the practice, which must decide how to support its physicians and manage the workflow. Compensation need not preserve every historical margin. It must make participation workable for the practice while leaving enough value for the purchaser after all payments and expenses.
Before the first patient enters the program, the parties should understand which patients qualify, which costs enter the comparison, and when each payment will be made. A practice that purchases drugs and staffs visits throughout the year cannot treat a possible payment far in the future as equivalent to dependable revenue today. Nor should a purchaser pay for apparent savings that vanish when other care costs are counted. Clear terms turn the shared objective into an arrangement both sides can operate.
Protect the patient when incentives change
Sharing savings creates a new incentive, including the risk of undertreatment or avoidance of complex patients. A clinically justified higher-cost treatment must remain accessible without unreasonable delay. Eligibility rules should discourage selective enrollment, and savings payments should depend on defined quality and access standards.
Those standards must fit the specialty. A retina program might follow visual acuity, treatment intervals, switching after inadequate response, and adverse events. A rheumatoid arthritis program needs disease activity, function, flares, and appropriate escalation. Claims show what was billed, but clinical information and a practical way to document justified exceptions are needed to understand the patient’s response.
Monitoring must lead to action. When results raise concern, the program should distinguish data problems and differences in patient need from a harmful change in care, then correct the issue. That might mean revising a pathway, helping a practice improve, or suspending a payment tied to unacceptable quality. The rules should be clear to both payor and practice before care begins.
A justified exception is part of good care, not a failure of the program. The physician may have evidence that the lower-cost option did not work for a particular patient or would impose an unacceptable treatment burden. Reviewing those cases can improve the pathway for everyone. It also helps distinguish appropriate variation from a pattern that needs intervention.
Make performance information usable
At the treatment decision, physicians need patient characteristics, relevant evidence, payor-specific cost information, and a straightforward way to record an exception. Retrospective reports remain useful for seeing patterns and checking outcomes, but timely information can help while a choice is still open.
A review of specialist participation in population-based total-cost-of-care models identified unclear attribution and accountability, insufficient incentives, operating costs, and delayed data as barriers. A specialty arrangement should define which patients and services are included, how results are reconciled, and who resolves disputes. Clinical outcomes also need a practical collection method; claims alone cannot show why a treatment was selected or whether it helped. [5]
The measurement period should follow the patient long enough to detect important consequences. A cheaper drug that leads to more visits, an avoidable complication, or a delayed switch may not lower total spending or improve the patient’s experience. A program needs to watch those outcomes alongside the immediate cost of treatment, without requiring physicians to enter the same clinical facts into another cumbersome system.
Start with a defined opportunity and expand carefully
A practice can begin with a clinical decision it can influence, a reliable baseline, clear quality expectations, and an upside-only arrangement. That offers experience with performance data before it faces broader risk. The arrangement still needs adequate payment and manageable implementation costs; the absence of downside risk alone does not protect staffing or cash flow.
The design can extend beyond retina, but its clinical rules cannot simply be copied. In rheumatoid arthritis, the 2021 American College of Rheumatology guideline conditionally recommends considering subcutaneous methotrexate before adding or switching drugs when oral treatment has not reached the target. Evidence for that recommendation is of very low certainty, and patient response and preferences matter. It identifies a clinical choice to evaluate, not necessarily a viable financial opportunity. [6]
Expansion requires a consequential clinical decision, a sound treatment strategy, an incentive problem worth addressing, and enough data to judge results. Each specialty needs its own clinical and economic case.
That discipline also gives physicians a useful starting point. They can examine where current payment makes a clinically sound choice hard to sustain, ask what evidence and data are available, and help shape the measures before an outside policy defines the choice for them.
Where OMI fits
OMI is a multispecialty value-based care company. Its retina, oncology, and rheumatology programs are live today, with payor and provider partners in place and additional specialties on the roadmap. Across these areas, OMI identifies consequential clinical decisions, aligns practice economics with appropriate care, supports physicians with relevant data, and measures results. Each specialty has its own pathway, quality measures, and financial terms.
Retina shows how those principles work in one setting. When an eligible lower-cost anti-VEGF choice would reduce a practice’s margin, the program can provide upfront financial support as well as a share of measured savings. OMI PULSE supplies clinical and financial information for treatment decisions and performance review. Rheumatology and oncology require different clinical choices and payment designs, but the same test applies: appropriate care for the patient, workable economics for the practice, and net savings for the purchaser. If patients’ outcomes or access suffer, neither side should call it value.
Common questions about buy-and-bill
What is buy-and-bill?
Buy-and-bill is the reimbursement process for drugs a physician administers, such as infusions and injections. The practice buys the drug from a manufacturer or distributor, stores it, gives it to the patient during a visit, and then bills the payor for the drug and the administration.
How does Medicare pay for buy-and-bill drugs?
Under Medicare Part B, most physician-administered drugs are paid at the average sales price plus a 6 percent add-on (less the federal sequester), with a separate payment for administration. A higher-priced drug earns a larger add-on, which MedPAC has noted can favor the costlier drug when a cheaper alternative exists. [3, 7]
What is the difference between buy-and-bill and white bagging?
Under white bagging, a payor’s specialty pharmacy dispenses the drug for a specific patient and ships it to the practice, which stores it until the visit and bills only for administering it. The practice neither buys the drug nor earns anything on it. Under buy-and-bill, it does both. [8]
Does value-based care replace buy-and-bill?
Not on its own. In an upside-only program, the practice keeps buying and billing for drugs as it does today. What changes is the payment on top: a predictable payment when the practice makes a qualifying lower-cost choice, and a later performance payment tied to measured results.
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Sources
- CMS Innovation Center. Strategy to Support Person-Centered, Value-Based Specialty Care. Read source
- CMS Innovation Center. Ambulatory Specialty Model. Read source
- Medicare Payment Advisory Commission. Addressing the High Prices of Drugs Covered Under Medicare Part B, March 2023. Read source
- KFF. 2025 Employer Health Benefits Survey. Read source
- Wiler JL et al. Where Are All the Specialists? Annals of Internal Medicine, 2024. Read source
- Fraenkel L et al. 2021 American College of Rheumatology Guideline for the Treatment of Rheumatoid Arthritis. Read source
- Medicare Payment Advisory Commission. Improving Payment for Part B Drugs, April 2023 (presentation). Read source
- Texas Senate Research Center. Bill Analysis, S.B. 1138, 88th Legislature, 2023 (definition of white bagging). Read source