The ICORE payer data confirms that the specialty pharmacy channel is displacing buy-and-bill in the physician office market. As I discuss below, this shift is occurring via white bagging of specialty drugs.
Buy-and-bill will not end for all physician-infused drugs, but there are substantial pressures for certain therapies. White bagging has important implications for specialty distributors, pharmacy benefit managers (PBMs), and providers.
And if you're a manufacturer planning for a new specialty drug's commercial launch, then you need to be the "channel steward" and design a strategy to ensure patient access supported by appropriately motivated partners.
The 2011 ICORE Medical Pharmacy and Oncology Trend Report is based on self-reported survey responses from medical, pharmacy, and clinical directors at 60 health plans representing 153.2 million covered lives. The survey was conducted in mid-2011. The data are weighted by covered lives, making the results more representative than surveys that weight all responses equally.
BTW, I commend the authors for an unusually clear description of the survey’s sample, methodology, and limitations.
THE CHALLENGE TO BUY-AND-BILL
As I discuss in The Battle for Control of Specialty Drugs, third-party payers are increasingly dissatisfied with the buy-and-bill process for specialty pharmaceuticals covered under a patient’s medical benefit. White bagging is the most common way that payers are increasing the role of specialty pharmacy providers in the distribution and management of specialty drugs administered in a medical setting.
In the white bagging process, a specialty drug is dispensed to the patient by a specialty pharmacy but drop-shipped directly to the provider, such as a hospital pharmacy or a 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.
Figure 37 from the ICORE report (reproduced below) documents the scale of white bagging. According to ICORE’s payer survey, specialty pharmacies provide 25% of the chemotherapeutic drugs infused in the provider’s office and 44% of non-infused chemotherapeutic drugs. Unfortunately, the data from last year’s ICORE report are not comparable because the wording of the question changed.
FYI, these results are consistent with the Zitter Group’s survey of oncology practice managers, summarized in The Future of Buy-and-Bill According to Payers and Oncology Practices.
Naturally, not all products are equally suitable for white bagging, as evidenced by the different penetration rates in the ICORE data. Michael Waterbury, president of ICORE Healthcare, put it this way to me:
“There are some therapies and conditions where plans continue to see value in pushing the coverage to the pharmacy benefit like Hemophilia and growth hormone to gain better control and management tools. However, in areas like cancer and auto immune, the experienced health plan continues to understand the importance of buy and bill … ICORE continues to see buy and bill as the most effective channel for chemotherapy and autoimmune moving forward within the current system.”For more on white bagging and the future of buy-and-bill, see the section titled “The Medical Spend Opportunity” in the new 2011-12 Economic Report on Retail and Specialty Pharmacies.
WHY WHITE BAGGING MATTERS
Specialty Distributors. White bagging corresponds to the substitution of the specialty distributor-to-provider distribution channel for a specialty pharmacy-to-provider distribution channel. There is no buy-and-bill and no transaction with a specialty distributor for the product. The largest specialty pharmacies bypass distributors, so product volume would leave the wholesale distribution channel and move to the pharmacy channel. Suffice to say, this trend is bad news for companies such as AmerisourceBergen (NYSE:ABC) and McKesson (NYSE:MCK), both of which are trying to protect the conventional channel. See the 2011-12 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors for more details on this part of the market.
Pharmacy Benefit Managers (PBMs). PBMs, which own the three largest specialty pharmacies, are promoting services to accelerate the shift from medical to pharmacy management of specialty drugs. For example, Express Scripts (NASDAQ:ESRX) launched Specialty Benefit Services to combine PBM and specialty pharmacy services with the management of specialty drugs covered under the medical benefit. See Express Scripts' Disruptive Specialty Strategy.
Providers. Many healthcare providers, particularly hospitals, strongly oppose white bagging. The provider loses the ability to earn any profit margin on the drug, and must absorb any additional costs of handling and storage. For example, 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. Some hospitals have risk management strategies that forbid the administration of medications not purchased through the hospital supply chain. On the other hand, the Zitter Group survey found that almost half of oncology practice managers want buy-and-bill to end for infused cancer therapies.
Manufacturers. Commercial strategies for specialty drugs are one of the most complex parts of the pharmaceutical industry because every new specialty product requires a customized go-to-market strategy. As the data above show, providers and physicians are directly affected by channel strategy decisions for specialty drugs. The manufacturer must take the lead in designing the commercial strategy—service, logistics, reimbursement, and financial options—that will best support patient needs and market access. I like Kash Rangan's "channel steward" term to describe how a pharmaceutical manufacturer should support a specialty drug.