Prescription drug spending has become a dominant driver of overall healthcare costs, prompting policymakers, payers, providers, and patients to examine how and where high-cost medicines are delivered and billed.

For Medicare plans, one often overlooked dimension of drug spending is the line between the medical benefit (Medicare Part B) and the pharmacy benefit (Medicare Part D). The same therapeutic agent can sometimes be billed under either benefit depending on how it’s administered, where it’s dispensed, and which regulatory exceptions apply.

This distinction matters significantly, as it informs how costs are split across Medicare Advantage plans and standalone PDPs, manufacturers, and beneficiaries themselves. Further, this has meaningful implications for provider reimbursement, as well as the provider cost burden for risk-bearing providers.

For some drugs, utilization is shifting toward Part D due to a rise in home infusion, as well as specialty pharmacies shipping medications directly to a doctor’s office (white bagging) or even directly to the patient’s home (brown-bagging). This article explains the rules that determine Part B versus Part D coverage, highlights how incentives differ across stakeholders, examines the practical effects of recent utilization shifts, and outlines key actions that plans can take as they evaluate determining Part B versus Part D drug classifications.

The financial incentives for Part B versus Part D in Medicare

When it is possible, it’s essential to assess the incentives for all parties involved:

Risk-bearing providers. For providers taking capitation payments, the financial implications surrounding drugs that can be filled under both Part B and D can be significant. Providers involved in capitation arrangements on Medicare Advantage plans, or those in accountable care arrangements on fee-for-service patients, are most often only taking financial risk on the medical benefit, with Part D being carved out. This means that filling a drug under Part D rather than the Part B medical benefit eliminates their liability entirely.

Non-risk providers. For providers who are not taking risk, there may be a meaningful difference between their acquisition costs, and what they’re reimbursed. If the reimbursement is meaningfully higher than the acquisition cost, it would not be advantageous to the provider for a drug to be filled under the Part D benefit over the medical benefit.

Medicare Advantage payers. Government subsidies exist on Part D that do not on Part B. In the catastrophic phase, where many brand and specialty medications are filled, payers receive a 20% federal reinsurance subsidy as well as a 20% manufacturer’s discount program subsidy. In many instances, there can be differences in the gross cost between Part B average sales price versus Part D average wholesale price, which negate the value of these subsidies.

Standalone PDPs. Prescription Drug Plans take risk only on the Part D benefit. Any shift in trends from Part B to Part D negatively impacts PDP financials, regardless of subsidies, because the cost burden for Part D is increased

Medicare Advantage beneficiaries. The Inflation Reduction Act (IRA) changed the financial considerations for members. Prior to the IRA, there was no maximum out-of-pocket on Part D. As such, a beneficiary could be negatively impacted if they had already reached their maximum out of pocket on the medical benefit, but filled a drug on the Part D side rather than Part B. Now that the IRA has implemented a maximum out of pocket in Part D, members are less likely to experience negative financial effects of a drug being filled on Part D over Part B.

Determining coverage under Part B and Part D in Medicare

In Medicare Advantage, the ability to influence the proportion of spending in each category is usually not under the control of payers or providers given the regulations set out by the Center for Medicare and Medicaid Services (CMS). As a general rule, drugs covered primarily under the medical benefit tend to be infusions and intravenous injections, administered by a physician in an outpatient setting. For example, most intravenously infused cancer drugs have long fallen squarely under the medical benefit. Conversely, coverage under the Part D benefit has historically been limited to oral or otherwise self-administered prescription medications.

For many drugs, however, a patchwork of case-specific criteria has developed for determining when coverage is appropriate under the Part B benefit. The guiding question from CMS is whether a drug is “not usually self-administered by the patients who take them.” Drugs delivered intravenously or intramuscularly are typically not self-administered, and therefore tend to be covered under Part B. Coverage for subcutaneous injections is, at times, subject to a more complicated analysis based on the acuity of the disease and the frequency of administration, and as a result, these drugs are sometimes covered under Part B and sometimes covered under Part D.

While most oral and self-administered drugs will typically be covered exclusively under Part D, several established exceptions exist to this rule under which Part B coverage extends to some self-administered medications. For example, oral immunosuppressant drugs prescribed after transplant surgeries have a long history of coverage under Part B. This has been amplified by the Part B Immunosuppressive Drug Benefit, which covers the immunosuppressive drugs costs of post-transplant end-stage renal disease patients. Blood clotting factors for hemophilia patients and some oral cancer medications are among the other notable exceptions.

How Medicare Part B versus Part D utilization can be influenced

Under the framework established by the self-administration rule and the various exceptions, there are two major mechanisms by which coverage for Part B drugs can be simultaneously extended to the pharmacy benefit:

• Part D purchase of drugs administered by a physician at the patient’s residence or in-office
• Part D coverage of oral medications and subcutaneous injections falling under one of the exceptions to the self-administered rule

Recently, both mechanisms have played a role in a non-trivial shift in the utilization of some drugs away from Part B and towards Part D. As of 2023, Part D utilization account for 39% of the total spend on drugs eligible for coverage under either benefit, a 3% increase from 2019. Below, we have summarized utilization for some of the drugs with the most notable shifts from Part B to Part D utilization, using publicly available CMS data on annual drug spend between 2019 and 2023.

For example, Ultomiris, a high-cost infusion therapy for nocturnal hemoglobinuria, saw over 18% of utilization shift from Part B to Part D between 2019 and 2023, ostensibly driven by home infusions. Over that same time period, the self-injectable forms of many biologic asthma therapies (Nucala and Fasenra) saw shifts more than 20% in utilization towards Part D.

Key opportunities for plans and providers in Medicare Part B and Part D

The growing movement of therapies from physician-administered settings to self-administration and home infusion has meaningful implications because Part B and Part D carry different payment rules, liability allocations, and patient protections. To manage system costs and protect beneficiaries, stakeholders must combine better transparency with incentive-aligned contracting and regulatory clarity.

Medicare Advantage plans who are making coverage and operational decisions surrounding drugs that can be determined as both Part B and Part D must conduct detailed analyses of how payments will flow in either benefit. This requires ongoing monitoring of utilization trends, complex actuarial analytics of cost impact (as well as beneficiary cost burden), and designing policies that reward clinically appropriate, cost-effective care regardless of billing pathway.

For both Medicare Advantage plans and risk-bearing providers, they should review Part B vs. Part D drug coverage as they evaluate risk arrangements with each other and even consider this cost burden akin to evaluation of impacts of other benefit changes.

For PDP plans who have less clear coverage influence, clear advocacy and alignment to CMS policies shifts must be a central input into annual pricing strategies – any key changes between Part B and Part D assignment could drive significant drug trend changes (on top of known changes with new drugs introduced every year).

Across all of these changes, it is essential to ensure these shifts continue to serve patients / members effectively, ensure high quality care, and protect access to medications.