Tuesday, September 17, 2013

Payers Want Specialty Drug Distribution to Change

Guess what? Third-party payers want the distribution of provider-administered specialty drugs to change. In particular, most would prefer that buy-and-bill fade away and be replaced by specialty pharmacy fulfillment.

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.
AmerisourceBergen Corporation’s Specialty Group and McKesson Specialty Health (a business unit of McKesson Corporation) generate more than 75% of total specialty product distribution revenues to physician office and clinics. This trend therefore has a big impact on their business.

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 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.
FYI, Drug Channels Institute, our e-learning affiliate, has developed an awesome course on The Economics of Provider-Administered Specialty Drugs. It explains all the fundamentals, including: benefit coverage, administration location, buy-and-bill, and more. Click here to view a sample. Or, email Paula Fein (, VP of Business Development, to learn more.


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!


  1. I'm sure that wouldn't add any additional burden on an already strained community cancer care provider office...

  2. There is also evidence that some healthcare providers might prefer the specialty pharmacy model to buy-and-bill. According to the Genentech Oncology Trend Report, benefits of white bagging cited by oncologists include:
    (1) reducing oncology practice costs through management of drug inventory;
    (2) providing cost savings; and
    (3) reducing patient cost via patient assistance program coordination.

  3. No, I'm not pro or con. I'm merely highlighting a crucial trend, which shows that payers are dissatisfied with buy-and-bill.

  4. This comment has been removed by the author.

  5. As a Medicaid pharmacy director, I have a concern about whitebagging non self-injected products. With buy and bill, the product can be used for any patient or presumably returned for a no-show patient. With whitebagging, the drug is dispensed for a particular patient and can't be returned to the pharmacy or used on another patient. We are concerned that this represents a huge potential liability to us in wasted money and medication as I am told that Medicaid patients have a higher than normal tendency to miss appointments. And please don't get me started on 340B. What a nightmare that is for us.