White Bagging Update: PBMs’ Specialty Pharmacies Keep Gaining on Buy-and-Bill Oncology Channels

Payers have long sought to disrupt the buy-and-bill channel.

Coming out of the pandemic (maybe?), specialty pharmacies—via white, brown, and clear bagging—continue to displace buy-and-bill distribution channels for provider-administered oncology drugs. Check out the latest 2021 data below.

The battle for the specialty patient pits hospitals against insurers—and their respective specialty pharmacies. As you will see, UnitedHealthcare has been especially aggressive in accelerating channel change.

White bagging can boost profits and revenues for PBM-owned specialty pharmacies while increasing payers’ control over hard-to-manage medical benefit drugs. Hospitals, however, lose profits and face higher costs. Look for more drama as this squid game plays out.

FYI: The material in today’s article is adapted from Section 3.1. of our new 2021–22 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors, available at special introductory pricing until October 15.

RED LIGHT / GREEN LIGHT

In the buy-and-bill process, a healthcare provider purchases, stores, and then administers the product to a patient. After the patient receives the drug and any other medical care, the provider submits a claim for reimbursement to a third-party payer. The process is called buy-and-bill because the medical claim is submitted (billed) after the provider purchases (buys) and administers the drug.

In recent years, third-party payers have become dissatisfied with the buy-and-bill approach for specialty pharmaceuticals covered under a patient’s medical benefit. Payers have therefore permitted or mandated a role for specialty pharmacies in managing and distributing provider-administered specialty drugs. There are three alternative approaches:

• White bagging: A specialty pharmacy ships a patient’s prescription directly to the provider, such as a physician office or an outpatient clinic. The provider holds the product until the patient arrives for treatment.

• Brown bagging: The patient picks up a prescription at a pharmacy and then takes the drug—as if in a metaphorical brown lunch bag—to the provider's office for administration.

• Clear bagging: A provider’s internal specialty pharmacy dispenses the patient’s prescription and transports the product to the location of drug administration. This term has emerged along with practice- and hospital-owned specialty pharmacies, as I described in Hospitals Continue Their Startling Expansion into Specialty Pharmacy and The Specialty Pharmacy Accreditation Boom Slows: DCI’s Exclusive Update on the U.S. Market. (Next week, I’ll have an update on hospitals’ specialty pharmacy strategies.)

With any of these approaches, the provider neither purchases the drug nor seeks drug reimbursement from a third-party payer. Instead, the specialty pharmacy adjudicates the claim and collects any copayment or coinsurance from the patient before treatment. However, the provider is still paid for professional services associated with the drug’s administration. Providers are not permitted to bill the third-party payer for drugs, because the pharmacy receives the reimbursement for the drugs sent to the provider.

PBMS WALK ACROSS THE GLASS BRIDGE

MMIT has graciously provided us with multiple years of data from its MMIT Oncology Index. The 2019 data include 48 commercial plans representing 126.6 million covered lives. The 2021 data include 51 commercial plans representing 124.9 million covered lives. For more information about this valuable resource, please contact Jill Brown Kettler (jbrown@aishealth.com).

As you can see in the chart below, pharmacy channels have displaced buy-and-bill for a significant share of provider-administered drugs in commercial health plans. Pharmacy channels are represented by the orange and green bars.

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The channel disruption for oncology products varies by practice type:

• For oncology products in 2021, white bagging accounted for 18% of sourcing by physician offices and 35% by hospital outpatient departments. The share of product via white bagging has grown compared with that of the pre-pandemic period of 2019.
  
  The results above do not reveal whether practices are utilizing an in-house specialty pharmacy to source these products. Thus, the data labeled “white bagging” may actually represent a combination of white bagging and clear bagging.

• For 2021, brown bagging had been eliminated for provider-administered drug sourcing at hospitals and physician offices. This development reflects concerns that patients may mishandle products they acquire via brown bagging. American Medical Association (AMA) policy states that brown-bagged pharmaceuticals may be accepted for in-office or hospital administration only after the physician responsible for administering the medications determines that individual patients or their agents are fully capable of safely handling and transporting them. In 2019, the Massachusetts Health Policy Commission formally recommended that payers should not require brown bagging for any drug.

• Home infusion companies, which account for a minority of medical benefit spending on oncology products, rely primarily on specialty pharmacies for oncology products.

UNITEDHEALTHCARE LICKS THE HONEYCOMB

The COVID-19 pandemic appears to have accelerated the shift from buy-and-bill to specialty pharmacy. Some of the changes have been temporary, as patients return to their healthcare providers. But payers are trying to retain some of these gains—especially if they also own a specialty pharmacy.

Consider UnitedHealthcare’s Medication Sourcing Expansion policy. This is the largest and most prominent example of white bagging by a large commercial insurer.

This policy requires certain outpatient hospital providers to obtain specified specialty and oncology supportive care drugs from one of nine companies. (See chart below.) The program involved 53 specialty drugs starting in October 2020. It was expanded in 2021 to include a further 25 specialty and oncology supportive drugs.

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The availability of these 78 drugs varies among the participating pharmacies and differs by therapeutic class. (See Exhibit 41 of our new 2021–22 wholesale report for these data.) Only two of the pharmacies are part of UnitedHealthcare’s Optum business. The network also includes many of the largest, PBM-owned specialty pharmacies.

HOSPITALS: YOU’RE NOT MY GGANBU

Some healthcare providers prefer the specialty pharmacy white bagging model. But most are pushing back against payers to slow white bagging growth at their facilities.

Earlier this year, the American Hospital Association (AHA) asked CMS to prohibit the UnitedHealthcare white bagging policies described above. Hence, the American Hospital Association wrote to CMS to “express deep concerns” about UnitedHealthcare’s white bagging policies for provider-administered specialty drugs.

The American Society of Health-System Pharmacists says it officially “stands opposed to payer-mandated white bagging.” Providers have even successfully lobbied for a Louisiana law (LA SB191) that prohibits insurers from implementing white bagging policies.

There are two general reasons for providers’ opposition:

• Lost revenues and reduced profits. As we know, hospital outpatient departments can place huge markups on provider-administered specialty drugs. (See my September 2021 news roundup for some recent data.) Hospitals want to retain the often-enormous revenues and profits from these products.

• Higher operating costs. Providers incur additional costs for handling and storage with white bagging. The provider 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.
  
  Drugs that arrive from third party specialty pharmacies may not be streamlined for in-house pharmacy systems and can be incompatible with in-house equipment to deliver the infusion. Product waste can be higher.

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At its core, the white bagging phenomenon is about a battle for the revenues and profits that flow from patents taking specialty drugs. Each party argue that their approach—buy-and-bill vs. specialty pharmacy fulfillment—saves money and improves patient care.

Unfortunately, there’s a dearth of evidence about which approach is truly better. Until we can tell how to define a fair world, the clash of the vertically integrated titans will rage on.

P.S. If you are confused by the pop culture references in this article, then do not call the phone number on the back of this card.