Specialty Pharmacies Keep Gaining on Buy-and-Bill

Hey there, fans of specialty drugs billed through the medical benefit. Magellan Pharmacy Solution/ICORE just released its latest 2012 Medical Pharmacy & Oncology Trend Report. (Free download with registration.) The report’s third edition provides a wealth of interesting data on the ever-evolving specialty channel.

For infused drugs administered in physician offices, the latest data clearly show buy-and-bill is being displaced by specialty pharmacy providers (SPPs). For non-chemotherapeutic drugs, SPPs already have a greater share of billing volume than buy-and-bill. See the data below if you are not convinced.

Magellan highlights some clear negatives for SPP in the medical benefit, yet I believe buy-and-bill will continue to lose share. As I explain below, hospital acquisitions of oncology practices encourages payers to choose SPPs instead of permitting buy-and-bill. When compared with the aggressive profit-seeking behavior of so-called “non-profit” hospitals, white bagging may be the lesser of two evils for payers.

THE DATA

The 2011 ICORE Medical Pharmacy and Oncology Trend Report is based on self-reported survey responses from medical, pharmacy, and clinical directors at 50 health plans representing 157.2 million covered lives. The survey was conducted in mid-2012. Data wonks will enjoy the unusually clear description of the survey’s sample, methodology, and limitations.

The data are weighted by covered lives, making the results more representative than surveys that weight all responses equally. (The EMD Serono survey suffers from this limitation.) Almost two-thirds of the respondents also participated in last year’s survey, so the time trends should be reasonably accurate.

BYE BYE, BUY-AND-BILL?

The Magellan survey data clearly show specialty pharmacy providers (SPP) increasing their role in managing and distributing specialty pharmaceuticals covered under a patient’s medical benefit.

Here is my summary of the report’s Figure 39 (page 27).

Observations:

• The SPP category refers to “white bagging,” in which a drug is dispensed to the patient by a specialty pharmacy but drop-shipped directly to the physician office. The provider holds the patient-specific product until the patient arrives for treatment. The specialty pharmacy adjudicates the claim and collects any copayment from the patient prior to treatment. The provider does not purchase or seek reimbursement for the drug.

• For chemotherapeutic drugs, buy-and-bill remains the primary channel even though its volume declined from 2011 to 2012. The SPP volume grew by 1100 basis points, from 25% in 2011 to 36% in 2012. The extra SPP volume came partly from a decline in brown bagging, in which a patient takes drug to the provider's office for administration.

• For non-chemo drugs, SPPs have already displaced buy-and-bill. There was a sharp decline in brown bagging of non-chemo drugs, from 11% of volume in 2011 to 1% in 2012.

• Note that the chemo data are consistent with the Zitter Group’s survey of oncology practice managers, per The Future of Buy-and-Bill According to Payers and Oncology Practices. The Zitter survey also found that 53% of payers and 45% of oncology practice managers would prefer to get oncologists out of the business of buy-and-bill!

• Don’t forget that pharmacy benefit managers (PBMs) tell plan sponsors that PBM/SPP management of the specialty drugs will benefit medical providers. See Decoding the Clues to Express Scripts' Strategy. 

• This trend will impact the specialty distribution business of McKesson (NYSE: MCK) and AmerisourceBergen (NYSE:ABC). See The Battle for Control of Specialty Drugs. 

Math geeks who read the report will see that the 2011 totals don’t add to 100%. Apparently, respondents were permitted to provide responses that did not sum to 100%. Maybe next year?

OR NOT?

Magellan discusses three challenges to white bagging:

• Cost—For chemotherapeutic drugs, Magellan claims that specialty pharmacy acquisition costs are 17 percent higher on a weighted average basis than in the provider’s office.

• Product waste—According to Magellan: “Approximately 20 percent of drugs shipped to a provider’s office fail to be used due to, for example, changes in dose, therapy, duration of therapy, benefit changes or enrollment in palliative care programs.”

• Billing waste—“[H]igher claim cost can occur as partial-vial use is not possible when billing the 11-digit National Drug Codes (NDCs) used by specialty pharmacies.”

I’ll add another downside, which is the financial pressure on physicians. The office-based physician loses the ability to earn any profit margin on the drug, and must absorb any additional costs of handling and storage. For example, the office must maintain separate, patient-specific inventory of product and ensure that a patient’s designated product is in stock when the patient arrives for treatment.

An unanswered question: Are there significant patient access issues if physicians drop out of payer networks that insist on SPP white bagging?

DOES PRACTICE CONSOLIDATION ENCOURAGE WHITE BAGGING?

Despite SPP’s potential negatives, payers are moving away from buy-and-bill. One reason may be the financial risk when a physician practice gets acquired by a hospital system.

As I highlight in How Hospitals Inflate Specialty Drug Prices, payers face much higher costs from hospital systems. After a hospital buys an independent oncology practice, it can generate more revenue for the same chemotherapy in the same office, due to differences in payment methods. Instead of buy-and-bill, hospitals get reimbursed by commercial payers based on a negotiated percentage of charges—the hospital's self-defined list price for a drug. Basically, a hospital marks-up a drug to create a stratospheric "charge," and then discount the charge to merely outrageous.

One-third of Magellan survey respondents report that oncology practices are being purchased by hospital systems. Here’s an interesting cross-tab for the Magellan analysts: Is white-bagging more common in plans that are seeing more acquisitions of oncology practices?

Buy-and-bill won’t end for all physician-infused drugs, but expect its share to keep shrinking.