White Bagging Update 2024: Providers’ Pushback Preserves Buy-and-Bill (rerun)

This week, I’m rerunning some popular posts while I prepare for tomorrow’s Drug Channels Outlook 2025 live video webinar. During the webinar, I'll share some thoughts on how vertical integration will affect the buy-and-bill channel.

Click here to see the original post from September 2024.

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Time for DCI’s annual update on the channels for provider-administered drugs. Below, I review the latest data on 2024 trends and compare them to the pre-pandemic figures.

For 2024, payers report that specialty pharmacies—via white and clear bagging—have displaced buy-and-bill for a meaningful share of commercial covered lives utilizing provider-administered oncology drugs. However, provider pushback has limited specialty pharmacies' share gains, so that buy-and-bill remains the most common channel for these products.

Payers’ adoption of white bagging—and provider’s push back—reflect the ongoing battle for oncology margin in U.S. drug channels. Let’s hope that patients don’t get caught in the crossfire.

P.S. Today’s article is adapted from Chapter 3 of DCI’s forthcoming 2024-25 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors, which will be available to preorder next week at special introductory pricing.

B&B

Most provider-administered outpatient drugs are governed by the buy-and-bill process, which is illustrated in the chart below.

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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. The provider is responsible for collecting the patient’s share of drug reimbursement—the copayment or coinsurance.

Note that the chart above shows a rebate payment from manufacturers to third-party payers. For 2023, one-third of employers and two-thirds of commercial health plans reported receiving rebates for provider-administered injectable and infused drugs billed under the medical benefit. (See PSG’s 2024 Trends in Specialty Drug Benefit Design.)

The prevalence and value of medical benefit rebates have grown as innovator products have begun competing with biosimilar products. Historically, Medicare Part B has had no statutorily mandated rebates, but the Inflation Reduction Act now requires manufacturers to pay rebates on single-source Part B drugs whose prices rise faster than inflation.

IN THE BAG

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. For example, drug prices paid to 340B-eligible hospitals by Blue Cross Blue Shield health plans were more than three times greater than acquisition costs for 57 provider-administered specialty drugs. Hospitals that were not eligible for 340B discounts received payments that were 2.4 times greater than acquisition costs. (source)

Third-party 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 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. Clear bagging has emerged due to the presence of practice- and hospital-owned specialty pharmacies, which account for one out of four accredited specialty pharmacies.

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. Exhibit 47 in our forthcoming report illustrates the white bagging process, as a contrast to the buy-and-bill process shown above.

Many major health plans now have white bagging programs. For instance, UnitedHealthcare’s specialty pharmacy white bagging requirements for commercial plan members apply to more than 100 specialty and oncology supportive drugs as well as to certain gene therapy products.

THAT’S THE FACT, JACK

MMIT has again graciously provided us with multiple years of data from its MMIT Oncology Index. For more information about this valuable resource, please contact Jessica Smith jsmith@mmitnetwork.com). These data have some notable limitations. See the Notes for Nerds material below.

As you can see below, commercial payers reported that pharmacy channels have displaced buy-and-bill for a meaningful share of covered lives in commercial health plans. Pharmacy channels are represented by the orange and grey bars. Pharmacy dispensing typically corresponds with pharmacy benefit coverage rather than medical benefit coverage.

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Observations:

• For 2024, health plans reported that buy-and-bill remained the most common method of product sourcing for people who received provider-administered drugs in physician offices and hospital outpatient departments. Compared with the pre-pandemic period (2019), payers report limited shift in the usage of white bagging.

• At physician offices, the share of covered lives for which payers reported white bagging to be the most common method of product sourcing has been 15% to 20% throughout the past five years.

• At hospitals, commercial plans reported that buy-and-bill was hospital outpatient departments’ most common method for sourcing provider-administered oncology drugs. The 2024 figure is consistent with the figures from previous years.

• Brown bagging has effectively been eliminated as an option for provider-administered drug sourcing. Many providers and payers consider brown bagging to be a problematic method of product sourcing, because patients may mishandle products that they acquired via brown bagging.

Other data sources report lower levels of white bagging for some oncology products. For example, IQVIA reported that 98.5% of medical oncology products flowed through the buy-and-bill system..

WHO WINS?

A health plan’s savings from white and brown bagging strategies often come from the lost profits and incremental costs incurred by providers, patients, and manufacturers.

Obviously, providers cannot earn a profit margin on the drug that an external specialty pharmacy delivers. Consequently, only 49% of hospitals have policies that permit white bagging, while 94% have policies that permit clear bagging. It's not surprising that providers favor clear bagging.

Providers’ opposition has led to legislative efforts to prohibit white bagging. Arkansas, Louisiana, Rhode Island, Texas, and Virginia have also passed laws that prohibit state-regulated insurers from implementing white bagging policies.

Patients also lose out from white bagging. One study found that white bagging lowered payers’ costs, but raised patients’ out-of-pocket obligations. That’s because white bagged products are typically billed under pharmacy benefit plans, where patients face coinsurance and deductibles for specialty drugs. By contrast, many commercial plans require no or minimal patient cost sharing for drugs administered in a hospital outpatient setting and billed to the medical benefit.

For a deep dive into all things buy-and-bill, check out Chapters 3 and 6 in our forthcoming our 2024-25 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors. Full details coming next week!

NOTES FOR NERDS

• The MMIT data are based on health plan survey responses to the following question: “What is the most common acquisition method for oncology specialty products professionally administered by infusion or injection to patients in the following settings?”

• Figures for 2019 based on 48 commercial plans representing 126.6 million covered lives. Figures for 2024 based on 35 commercial plans representing 115.8 million covered lives.

• The MMIT data measure health plans’ self-reported “most common” sourcing method for provider-administered drugs. The results shown above are weighted by health plans’ covered lives. However, these data do not measure the unit quantities or dollar volumes of providers’ purchases by sourcing channel. Consequently, a large plan’s switch in its reported “most common” method could swing the measured figures disproportionate to the actual changes in underlying volume.

• The results shown above do not reveal whether practices and hospitals are utilizing an in-house specialty pharmacy to source these products. Thus, the data are labeled “White/clear bagging” to reflect the unobserved combination of white bagging and clear bagging.

• As far as I know, there are no public data on actual purchase volumes. If you have such data, please email me so I can share the information with the Drug Channels community.