Wednesday, March 23, 2011

Get Your Specialty Strategy Ready for the End of Buy-and-Bill

I counsel my biopharmaceutical manufacturer clients that commercial strategies for specialty drugs are much more complex than strategies for traditional drugs. The options for service, financial, and channel flows are highly varied and must be customized for each product.

A new payer survey—The 2010 ICORE Healthcare Medical Injectables & Oncology Trend Report (free download)—provides intriguing new data about the buy-and-bill physician market to support my assertion.

Insurance coverage for specialty and injectable drugs is migrating from a medical benefit to a pharmacy benefit. As I highlight below, the combination of "brown bagging" and "white bagging" is already making major inroads at the physician office.

Why should you care?

  • Biopharmaceutical manufacturers will need more complex contracting and commercialization strategies to avoid overlapping discount structures, prevent diversion, and manage regulatory risks.
  • Specialty pharmacies that are subsidiaries of the big three PBMs—CVS Caremark (NYSE:CVS), Express Scripts (NASDAQ:ESRX), and Medco Health Solutions (NYSE:MHS)—have a large emerging business opportunity after the generic wave.
  • The specialty distribution businesses of AmerisourceBergen (NYSE:ABC) and McKesson (NYSE:MCK) will lose influence as the traditional physician “buy and bill” channel fades.
Pay close attention. The future has already arrived, whether you are prepared or not. Email me if you are a manufacturer and want to chat privately about how these developments could affect your plans.


The 2010 ICORE Healthcare Medical Injectables & Oncology Trend Report is based on self-reported survey responses from medical and pharmacy directors at 60 distinct health plans representing 146.3 million covered lives. The data were collected in the second quarter of 2010.

The ICORE trend report covers topics similar to The EMD Serono Specialty Digest, which includes 85 health plans representing 120 million members. The ICORE trend report avoids a flaw of the EMD Serono survey by weighting the results by covered lives, which is a more accurate measure of the typical patient experience.


Specialty pharmaceutical utilization is split between the pharmacy benefit and the medical benefit “buy-and-bill” world of physician and provider locations. It's hard for payers either to get full visibility on specialty drug spending or to manage drug utilization effectively. See Specialty Drugs: The Medical vs. Pharmacy Benefit Muddle for data on this phenomenon.

For instance, the ICORE Trend survey shows that most (74%) of patients face different copayments or coinsurance depending on whether a drug is paid under a medical benefit or a pharmacy benefit. (See Figure 24 on page 19.)

Translation: Patients can channel surf based on benefit design. Payers end up buying the same drug at potentially wildly different prices. Traditional benefit management tools are hard to use in the medical practice setting. Spending on specialty drugs is growing by 15% to 20% yearly, so this complexity is a large and growing pain point for payers.

In response, payers have started migrating coverage of specialty drugs from the murky world of medical billing to the comparatively visible management of a pharmacy benefit. As just one example, Blue Cross Blue Shield of Massachusetts transitioned 55 specialty drugs to a pharmacy benefit last year. Click here to view the BCBSMA list, which includes both self-administered and office-administered injectable drugs.


The ICORE Trend report shows that the transition away from buy-and-bill is occurring faster than many people, including me, had expected.

As Figure 33 below shows, 44% of injectables are administered to members in a physician’s office. The combination of outpatient administration and home health infusion represent about the same share (45%). These data are consistent with the estimates made by Express Scripts in its last drug trend report.

But check out Figure 34: Only 50% of the physician office claims were billed under “buy-and-bill.” Alternate channels are already deeply penetrated into the physician office:

  • 11% of injectables got to the physician's office by “brown bagging,” a process by which a patient picks up the product at a pharmacy and then brings it to the physician’s office. IMHO, this is an incredibly dangerous practice, yet 1-out-of-9 injectable drugs are being transported by the patient. So much for supply chain security and pedigree!
  • 29% come from a specialty pharmacy. I presume this refers to “white bagging,” in which the product is dispensed to the patient by a specialty pharmacy but drop-shipped directly to the provider.
(No, I don't know why the percentages in Figure 34 add up to only 94%.)

Both white- and brown-bagging remove any product-related profits from the physician office, which only gets to earn administration fees. Both models also bypass the traditional specialty distributors such as AmerisourceBergen (NYSE:ABC) and McKesson (NYSE:MCK). I highlighted this risk as a “force for change” in The 2010-11 Economic Report on Pharmaceutical Wholesalers.

A I point out in Who Pays For Specialty Drugs? (And Why It Matters), manufacturers need a well-designed channel strategy and careful class-of-trade guidelines for successful commercialization of specialty pharmaceuticals. The ICORE data demonstrate why there is no time to waste.

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