Friday, December 18, 2020

Specialty Pharmacy Keeps Disrupting Buy-and-Bill—and COVID-19 Will Accelerate It (rerun)

This week, I’m rerunning some popular posts while I prepare for today's video webinar: Drug Channels Outlook 2021.

Click here to see the original post and comments from September 2020.

Will COVID-19 trigger long-term share gains for specialty pharmacies as suppliers to hospitals and physician offices?

Before the pandemic, specialty pharmacies—via white, brown, and clear bagging—had already displaced buy-and-bill distribution channels for a substantial chunk of provider-administered specialty drugs. See below for detailed data on oncology and non-oncology products.

We estimate that in the first half of 2020, the coronavirus pandemic accelerated this shift. Some of the changes will likely be transitory, as patients return to their healthcare providers. But payers will try to retain some of these gains—especially if they also own a specialty pharmacy.

Read on and see if you agree.

The material in today’s article is adapted from our forthcoming 2020–21 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors, now available for preorder at special discount pricing.


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.

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. 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.

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.


MMIT has graciously provided us with data from its 2019 survey of 48 commercial health plans, which account for 127 million covered lives. MMIT offers a wide range of products related to market access.

As you can see in the chart below, commercial payers now routinely rely on specialty pharmacies instead of buy-and-bill for a meaningful share of provider-administered specialty drugs. Pharmacy channels are represented by the orange and green bars.

[Click to Enlarge]

The disruption to the buy-and-bill channel varies by practice and therapy type:

  • White bagging has a significant share of buy-and-bill sourcing, particularly for non-oncology products. For oncology products, white bagging accounted for 11% of sourcing by physician-affiliated clinics and 28% by hospital outpatient departments. For non-oncology products, white bagging increases to 43% of sourcing by physician-affiliated clinics and 31% by hospital outpatient departments.

    The results above do not reveal whether practices are utilizing an in-house specialty pharmacy to source these products. Thus, the data labeled “white bagging” may actually represent a combination of white bagging and clear bagging.
  • Brown bagging constitutes a small share of provider-administered drug sourcing. Patients may mishandle products that they acquired via brown bagging. American Medical Association (AMA) policy states that brown-bagged pharmaceuticals may be accepted for in-office or hospital administration only after the physician responsible for administering these medications determines that the individual patient, or his or her agent, is fully capable of safely handling and transporting the medication. In 2019, the Massachusetts Health Policy Commission formally recommended that payers should not require brown bagging for any drug.
  • Specialty pharmacy dominates home infusion. Home infusion providers, which account for a minority of medical benefit spending, rely primarily on specialty pharmacy for both oncology and non-oncology products.

Some healthcare providers prefer the specialty pharmacy white bagging model. Others have pushed back against payers and successfully slowed the growth of white bagging at their facilities. These debates are beyond the scope of today’s article. I delve into the pros and cons of buy-and-bill alternatives in Section 3.1.5. of our forthcoming 2020–21 wholesale industry report .


For the first half of 2020, we estimate that white-bagging from specialty pharmacies gained significant share of volume vs. buy-and-bill channels. Key reasons include:

  • A decline in buy-and-bill utilization. Due to the COVD-19 pandemic, provider-administered drug activity dropped sharply. Patients were reluctant to visit healthcare facilities. At the same time, many hospitals tried to keep facilities free for COVID-19 patients and discouraged immunocompromised patients from visiting healthcare facilities. Consequently, there was a significant drop in utilization of provider-administered drugs. For the first five months of 2020, utilization of key autoimmune, oncology, and osteoporosis drugs was respectively 44%, 50%, and 53% below comparable levels in 2019. (See these Avalere Health data.) Demand is recovering in the second half of 2020.
  • The growth of home infusion. As I predicted in April, the coronavirus pandemic is triggering new growth in home infusion for buy-and-bill products, as patients reduce their in-person visits to healthcare providers. COVID-19 has also increased patients’ willingness to opt for infusion at home instead of at a hospital—especially for patients whose immune system are compromised from treatment for cancer or other conditions. As the chart above shows, this shift benefits the specialty pharmacies that supply home infusion providers.
  • A shift to patient-administered formulations. During the pandemic, some physicians increased the prescribing of patient-administered drugs in place of provider-administered formulations. Demand for oral oncology drugs reached 115% of pre-pandemic levels in the first half 2020, even as demand for IV oncology products declined sharply. IQVIA data also show that utilization of subcutaneous, patient-injectable versions of IV products increased during the first half of 2020. (See page 19 of IQVIA’s September 14, 2020, update on COVID-19 trends.)

The MMIT survey data show a leap in white bagging as of mid-2020. Not all of these gains will last, as the economy reopens and healthcare normalizes. However, MMIT has found that 40% of provider-administered infused therapies now have a mandatory pharmacy fulfillment. A further 37% have benefit designs that prefer specialty pharmacy over buy-and-bill. (source)

Payers have long sought to disrupt the buy-and-bill channel—and they now may be able to exert long-lasting change. The largest insurers, PBMs, and specialty pharmacies have now combined into vertically integrated organizations. These companies have also been rapidly integrating with healthcare providers.

As I noted before the pandemic, these organizations are poised to exert greater control over patient access, sites of care/dispensing, and pricing.

At least they have that going for them, which is nice.

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