Medicare Part B

Key facts

Also called

Supplementary Medical Insurance (SMI)

Enrollment

Voluntary; late enrollment penalty if delayed without other qualifying coverage

Financing

Federal general revenue plus premiums set to cover about 25% of costs

Typical cost sharing

Annual deductible, then generally 20% coinsurance

Drug payment basis

Average sales price (ASP) plus 6%, under Section 1847A

What is Medicare Part B?

Medicare Part B covers medically necessary services and supplies outside an inpatient stay, plus preventive care. Together with Part A it makes up Original Medicare, the fee-for-service program run directly by the federal government.

Part B is voluntary. Beneficiaries pay a standard monthly premium, and higher-income beneficiaries pay an income-related monthly adjustment amount (IRMAA). People who delay enrollment without qualifying coverage, such as current employer group coverage, can face a permanent premium penalty of 10% for each full 12-month period they could have enrolled.

What Part B covers

Part B pays for a wide range of services, each under its own payment system:

• Physician and other clinician services, paid under the Medicare Physician Fee Schedule using CPT and HCPCS codes.
• Hospital outpatient services, including observation stays, paid under the Outpatient Prospective Payment System (OPPS).
• Clinical laboratory tests, paid under the Clinical Laboratory Fee Schedule.
• Durable medical equipment, prosthetics, orthotics and supplies (DMEPOS).
• Drugs usually not self-administered, such as infusions and injections given in a clinic, plus certain oral cancer drugs, immunosuppressants and some vaccines such as influenza and pneumococcal vaccines.

Why Part B matters

Part B pays for most drugs administered by physicians, which makes it central to oncology, rheumatology, ophthalmology and other buy-and-bill markets. Because payment is tied to average sales price, a manufacturer's prices and discounts feed into what Medicare pays providers about two quarters later.

The Inflation Reduction Act of 2022 added Part B inflation rebates, which can lower patient coinsurance for drugs whose prices rise faster than inflation, and extends Medicare drug price negotiation to Part B drugs starting in 2028.

CMS publishes Part B utilization and payment data by NPI and HCPCS code, a common public source for estimating procedure volumes and identifying high-volume physicians.

Part B vs Part D drugs

Whether a drug is paid under Part B or Part D depends mainly on how and where it is given, not on the molecule. An injectable given by a clinician in an office is usually a Part B claim, while a product the patient self-administers at home and fills at a pharmacy is usually covered under Part D. Some drugs appear in both, so analysts should check both data sources.