The Latest Data on Specialty Pharmacy Reimbursement

Let’s take a look the just-released 2013 edition of the EMD Serono Specialty Digest, a great report on payer and managed care strategies for specialty drugs. The report is free, but has a bizarre site registration process. Why do I need a super-secret password (plus a password hint) to download a free report? Anyway...

As far as I know, the EMD Serono reports provide the only public specialty drug reimbursement data for pharmacy and medical settings. Some highlights:

• Health plans pay 82.9% of Average Wholesale Price (AWP) to specialty pharmacies. Retail pharmacies receive slightly more.
• Physician offices are still being compensated using a mix of reimbursement methodologies: Average Sales price (ASP), AWP, or provider capitation.
• When using Average Sales Price (ASP), health plans pay mark-ups that are twice the (pre-sequester) Medicare Part B rate.
• With a little math, the survey results show when white-bagging is cheaper than buy-and-bill.

Thanks again to EMD Serono for again sponsoring this valuable research. Read on for the wonkeriffic reimbursement details.

THE DATA

This year’s report is based on responses from 102 health plans representing 107 million covered lives across the following spectrum of plan types:

• 65.2 million commercial lives (healthcare maintenance organization or preferred provider organization)
• 10.9 million Medicare Advantage prescription drug plan lives
• 17.0 million Medicaid lives
• 13.9 million other (unspecified) lives

Full demographics are on page 10.

Other comments

• The survey has (finally!) addressed a critical flaw in its computations. In previous years, each plan has equal weight in the results. In other words, a national plan with 2 million lives has the same weight in the results as a regional plan with 20,000 lives. This year, whenever it matters, results are presented as “percentage of lives” along with the usual “percentage of plans.” Hooray!
• Be careful with time trends because the sample base continues to shift over time. For example, the percentage of commercial lives in the sample has dropped from 82% (2008 data) to 74% (2009) to 61% (2010), bounced back up to 68% (2011), and fell back to 61% for the 2012 data. Below, I focus only on the commercial health plan results. See the full report for details on other segments.
• Some useful questions on specialty pharmacy network strategies have vanished. Too bad.
• The “What are specialty pharmaceuticals?” discussion (page 12) is worth your time.

Here are links to my previous Drug Channels articles on earlier editions:

• How Health Plans Manage Specialty Drugs (2012)
• More New Data on Specialty Drug Coverage and Strategy (2011)
• Specialty Drugs: The Medical vs. Pharmacy Benefit Muddle (2010)

COVER ME

A patient’s insurance coverage is a complex aspect of specialty pharmaceuticals. Here’s a quick look at how health plans cover treatment with specialty medications in various care settings. See page 14 for the full results.

• Self-administered specialty drugs (oral and injected medications) are typically covered under a patient’s pharmacy benefit. Specialty drugs are dispensed to patients by a pharmacy. According to the latest survey, 86% of commercial health plans cover self-administered specialty drugs exclusively under the pharmacy benefit.

• Provider-administered specialty drugs (infused or healthcare practitioner-administered medications) are typically covered under a patient’s medical benefit. Patients receive specialty drugs in a physician’s office, an outpatient clinic, or during inpatient hospital care. 77% of commercial health plans cover provider-administered specialty drugs exclusively under the medical benefit.

The diversity of coverage can create fragmentation of care and make it difficult to monitor utilization. In response, health plans are developing clinical criteria for entire drug categories to manage specialty drugs across benefits. Some plans cover specialty drugs under both the medical and pharmacy benefit.

SHOW ME THE MONEY

Starting on page 36, the EMD survey summarizes the results on provider reimbursement. These data went missing from last year’s survey. Welcome back!

Specialty and retail pharmacies are primarily reimbursed based on the Average Wholesale Price (AWP) list price benchmark. A pharmacy’s acquisition cost for a brand-name drug can be reasonably approximated using the AWP benchmark. If you don't know why, see Chapter 5 of the 2012-13 Economic Report on Retail, Mail, and Specialty Pharmacies.

Physician offices are reimbursed using a mix of approaches: AWP, Average Sales Price (ASP), and Provider capitation. Surprisingly, only about 40% to 45% of health plans follow Medicare and use ASP for specialty drug reimbursement. Slightly more than one-third use AWP.

The chart below summarizes the average percentage of AWP paid to different sites of care.

Observations

• Commercial health plans pay 82.9% of AWP, i.e., “AWP minus 17.1%,” as the ingredient cost reimbursement for a specialty drug prescription dispensed by a specialty pharmacy.
• Retail pharmacies receive slightly more, at 84.0% of AWP. 
• Physician offices that are reimbursed using AWP get the most generous payments, at about 88% of AWP. Oncology office receive AWP-11.7%.
• For oncology offices, commercial health plans pay an average of ASP+11.6%, which is about twice the Medicare rate of ASP+6%. (It’s a bigger multiple with the sequester.) The survey found a very wide range, from ASP+6.0% to ASP+25.0%!

WHITE BAGGING MATH

So, is ASP+11.6% (the average oncology rate) more or less than AWP-17.1%, the average specialty pharmacy rate?

It depends on the relationship between AWP and ASP. In general, AWP is greater than ASP. When ASP is more than 74% of AWP, AWP-17.1% provides lower reimbursement (and lower payer costs) than ASP+11.6%.

Sorry, I don’t have any current data on the AWP-to-ASP ratio for a broad sample of drugs. But I suspect that proponents of white bagging would argue that the gap favors specialty pharmacy fulfillment.