This conclusion comes from the Zitter Health Insight's Managed Care Oncology Index, a survey of payers. The chart below highlights two significant findings:
- About one-quarter of provider-administered specialty pharmaceuticals are now fulfilled by specialty pharmacies, via the white bagging process.
- Payers would prefer that providers acquire most (57%) infused drugs from specialty pharmacies, instead of specialty distributors.
Manufacturers should pay attention to this channel shift, because a bigger specialty pharmacy presence for infused drugs increases 340B liabilities and raises diversion risks.
The Zitter Health Insight’s Managed Care Oncology Index is a semi-annual, multi-client, oncology trends study. The data below, which come from the Winter 2013 edition, are based on responses from 103 managed care decision-makers representing 127.6 million total covered lives.
The good folks at Zitter provided me with the data below, but the report is not readily available for purchase or download. For more information about the report, email Lee Goldberg at email@example.com. Tell him that Drug Channels sent you!
There are two primary channels by which oncology drugs reach the physician office/clinic market:
- Buy-and-Bill: After purchasing a drug from a specialty distributor, the provider will store the product at its location. The provider will then administer the specialty drug to a patient. After the patient receives the drug and any other medical care, the provider will submit a claim for reimbursement to a third-party payer. The process is called buy-and-bill, because the medical claim is submitted after the provider has purchased and administered the drug.
- White Bagging: A specialty pharmacy ships a patient’s prescription to the provider, such as a physician office or an outpatient clinic. The provider holds the product until the patient arrives for treatment. The specialty pharmacy adjudicates the claim and collects any copayment from the patient before treatment. With white bagging, there is no buy-and-bill, because the provider does not purchase the drug from a specialty distributor or seek drug reimbursement from a third-party payer. However, the provider will still be paid for professional services associated with drug administration.
In the chart below, the portion marked “Current Channels” shows the answer the following question: “What percentage of your organization’s office-administered / infusible oncology therapy volume goes through each of the following distribution channels?”
The portion marked “Payers’ Preferred Channels” asks a more intriguing question: “What is your organization’s preferred method of office-administered / infusible oncology therapy distribution?”
According to the Zitter data, specialty pharmacies now white-bag 24% of infused cancer therapy volume, while 69% of the volume remains within the traditional buy-and-bill model. These figures are comparable to the ICORE Medical Pharmacy and Oncology Trend Report, discussed in Specialty Pharmacies Keep Gaining on Buy-and-Bill.
However, payers want white bagging eventually to account for more than half, or 57%, of oncology practice sourcing, and want buy-and-bill to shrink to 39% of drug sourcing. Yikes!
For specialty distributors, white bagging is a direct competitive challenge, because it diminishes the channel role of specialty distributors. For specialty pharmacies that buy directly from manufacturers, product volume leaves the wholesale distribution channel and moves to the pharmacy channel. If the specialty pharmacy purchases drugs from a full-line wholesaler or specialty distributor, the volume would remain in the channel. However, the distributor would earn less profit from supplying a pharmacy than from supplying a physician office/clinic.
I suspect white bagging is partly responsible for AmerisourceBergen’s Oncology Supply struggles. See What’s Behind AmerisourceBergen’s Disappointing Oncology Results?
For manufacturers, white bagging growth adds to 340B rebate liabilities and increases diversion risk. There are numerous specialty pharmacies acting as 340B contract pharmacies, enabling hospitals to generate 340B rebates from self-administered specialty drugs. (So far, the big PBM-owned specialty pharmacies are not 340B contract pharmacies.) By using the white bagging channel, hospitals also have a new way to capture 340B profits at independent physician offices and clinics. Stay tuned for more controversy on this point.
Regardless of payer preferences, there are many barriers to white bagging’s continued growth. But before you dismiss its prospects, remember the golden rule of the supply chain: Whoever has the gold gets to make the rules.
For more on the specialty market, stay tuned for the new 2013-14 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors—available next week!