Buy-and-Bill vs. Specialty Pharmacy: What’s the Difference?

Just like the healthcare system itself, pharmaceutical supply chains evolve, changing year over year. The buy-and-bill process of acquiring and administering drugs is no exception, as we’ve seen more challenges from this methodology than benefits as of late.

According to a 2016 Milliman report, the pharmaceutical supply chain of buy-and-bill decreased from approximately 90 percent to 50 percent from 2004 to 2014. This shift accelerated, according to some experts, with the onset of COVID-19. The Drug Channels Institute claims that the global pandemic may “trigger long-term gains for specialty pharmacies as suppliers to hospitals and physician offices,” as patients became wary about visiting hospitals or outpatient facilities in person.

As pharmaceutical supply chains have evolved, specialty drugs have seen tremendous growth in the past several years.  In a 2021 study, the AARP found that the price of specialty drugs is now increasing at 3x that of the inflation rate. Specifically, for example, [i]n 2020,  “prices for 180 widely used specialty prescription drugs increased by 4.8 percent, more than three and a half times faster than general inflation in 2020 (1.3 percent).”

The study also found that “[p]rices for 11 chronic-use specialty drugs that have been on the market since the beginning of the study (i.e., between January 2006 and December 2020) increased cumulatively by an average of 234.2 percent over 15 years. In contrast, general inflation in the US economy rose 32.0 percent during the same 15-year period.”

Further, with the rise of specialty drugs, accredited specialty pharmacies have become more popular, bringing their own take on pharmaceutical supply chains.  The Drug Channels Institute found that in 2020, “retail, mail, long-term care, and specialty pharmacies dispensed about $176 billion in specialty pharmaceuticals prescriptions,” representing a 9.1 percent increase over 2019. Further, in 2020, the top four specialty pharmacies “accounted for 75% of total prescription revenues from pharmacy-dispensed specialty drugs.”

Often owned by providers, wholesalers, or PBMs, these pharmacies have redefined healthcare’s inventory and supply strategies, disrupting traditional supply chain methods, such as buy-and-bill. Read on to learn more about the differences between buy-and-bill vs. specialty pharmacies as well as why buy-and-bill is falling out of favor while specialty pharmacies are proliferating.

What does buy-and-bill mean in pharmaceuticals?

Hospitals and physicians’ offices historically prescribed and administered specialty drugs on-site by purchasing the drugs from a specialty distributor or wholesaler. As such, they embraced the buy-and-bill process of procuring and paying for these drugs under which:

·       the provider acquires, stores, and pays for the drugs,

·       the doctor or nurse administers the medicine, and

·       then the hospital or doctors’ office bills a third party for reimbursement of both the drug and its administration.

The buy-and-bill process gets its name because the medical claim for the specialty drug is submitted (or billed) after the provider purchases (or buys) and administers the medication. This process allows the hospital or the doctors’ office to control the procurement, administration, and billing of complex specialty drugs, all under one umbrella.

However, for many, the uniformed control of the buy-and-bill methodology does not outweigh the negatives of such an approach. For example, the upfront financial risk and the administrative burdens of managing drug inventories under the buy-and-bill process outweigh the control positives.

Additionally, smaller healthcare providers simply don’t have the time, staff, or money to support buy-and-bill. It’s just not good business sense.

With any industry pushback comes new options. Enter specialty pharmacies.

Before we get to the details of specialty pharmacies’ supply chain models, let’s recap what a specialty pharmacy is.  Specialty pharmacies dispense medications that require special handling for complex and chronic conditions, such as oncology, multiple sclerosis, hemophilia, and Hepatitis C.

With the continued push for lowering drug costs, new supply chain models have emerged, such as white, brown, and clear bagging, continually challenging the more traditional buy-and-bill approach. With approximately one-third of all specialty medicines filled by specialty pharmacies or patient brown bagging, it pays (literally) to understand this shift in pharmaceutical distribution channels.

What is the difference between white, brown, and clear bagging?

With healthcare stakeholders, such as third-party payers, becoming dissatisfied with the traditional buy-and-bill specialty medicine approach, “they have permitted and encouraged a role for pharmacies in managing and distributing provider-administered specialty pharmaceuticals.”

Two methods for doing so are white bagging and brown bagging.  White bagging occurs when “a specialty pharmacy ships a patient’s prescription directly to the provider, such as a physicians’ office or an outpatient clinic. The provider holds the product until the patient arrives for treatment.”

In brown bagging, the “patient picks up a prescription at a pharmacy and then takes the drug to the provider’s office for administration.”  The name “brown bagging” most likely comes from the method of transportation of these drugs. 

A third distribution method has also emerged called “clear bagging.” With this method, “[a] provider’s internal specialty pharmacy dispenses the patient’s prescription and transports the product to the location of drug administration.”

As Drug Channels Institute notes,

[w]ith 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.

How are specialty pharmacies disrupting buy-and-bill?

As increased use of specialty pharmacies continues to grow, white, brown, and clear bagging distribution methods will persist in disrupting traditional processes, such as buy-and-bill.

A recent study by MMIT, an organization offering PBM and specialty pharmacy solutions, and further analyzed by Drug Channels Institute, showed that white bagging occupied 11 percent of oncology drugs prescribed by physician-related clinics and 28 percent by hospital outpatient departments. However, for non-oncology medicines, these percentages increase to 43 percent and 31 percent, respectively.[1]

On the other hand, brown bagging constitutes a much smaller share of drug distribution, as it has the potential for increased patient mishandling, making it more challenging to ensure the drug’s integrity, according to the American Medical Association. Although brown bagging has its benefits, such as giving patients access to more affordable medications without the administrative costs for providers, additional liability issues associated with these medications may occur, caused by improper handling, comprising potency or efficacy.

What are the challenges with buy-and-bill?

Buy-and-bill delivery methods can streamline steps, save time, increase control, and boost profits. However, this method is not without its challenges. The main issue with buy-and-bill is that the provider is fronting the cost of procuring, storing, and administering the medication. Add to that inventory, tracking, and management issues, and the challenges associated with buy-and-bill may outweigh the benefits in today’s healthcare industry.

For smaller healthcare organizations, buy-and-bill may cause a significant amount of cash to be tied up, creating up-front risk if a medication changes or a patient doesn’t show up for their drug administration. On the other hand, for larger healthcare organizations (with larger patient populations), staff can be tied up on procuring, storing, and administering medications by engaging in buy-and-bill, creating tension in scheduling and providing other needed healthcare services.

Add to that increased competition. Specialty drugs are a profitable business, and many stakeholders want a piece of the pie. By offering buy-and-bill, smaller healthcare organizations will more than likely find themselves competing with large doctor or hospital groups.

And with insurers, PBMs, and specialty pharmacies merging and combining, offering numerous verticals in the process, competition and administration headaches will surely increase, making it difficult if not impossible for smaller healthcare organizations to provide buy-and-bill pharmaceutical distribution services.

Moving Forward

When deciding whether buy-and-bill is right for you, be sure to understand both the challenges and benefits as they relate to your needs and goals. One way to get a grasp on underlying issues, deliverables, level of care, and costs? Actionable data.

According to Pharmacy Times, the specialty pharmacy “is uniquely positioned to capture and deliver data to drive value in the care of patients who need specialty medications.” For example, through data analysis, healthcare stakeholders can manage the effectiveness of any specialty medication strategy by analyzing pharmaceutical utilization trends in real-time by using tools such as those offered by Xevant. Additionally, stakeholders can improve performance and outcomes as well as the patient journey itself through in-depth visibility into processes and operations.

So, whether you’re a PBM, a specialty pharmacy, or a benefits manager, Xevant provides you with data you need before you need it.

[1] According to the data found in this study, some white bagging distribution methods may have actually qualified as clear bagging, as the data does not reflect if an in-house specialty pharmacy was used for sourcing.


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Gerrit Lemmen

VP, Rebates

Gerrit is an experienced leader in the PBM, Specialty and Formulary rebate markets. As VP of Rebates at Xevant, Gerrit is responsible for managing drug rebates through Xevant’s revolutionary pharmacy benefits platform. In his previous roles at Magellan Rx Management, Gerrit led highly respected commercial rebate operations teams and focused on increasing efficiency that enabled scalability and growth.

Mike Simmons

VP, Product Management

Mike is a true product champion & ambassador with 18+ years of experience in critical product launch, strategic branding, and delivering profitable campaigns that capture market share and create growth. His vision and skills for implementing integrated, high-impact, go-to-market strategies have proven to drive increased sales and an overall improvement of marketing programs. Mike’s ability to leverage business savvy in order to align management, data intelligence, and content management generate more informed business decisions resulting in enhanced revenue for progressive, enterprise organizations.

Laura Phillipson

VP, Client Experience

Laura Phillipson is a client management expert with experience managing client services teams. Her past roles include Sr. Client Services Executive for Navitus and over a decade of experience as a Certified Pharmacy Technician. Laura’s career in client relations spans nearly two decades. An avid sports fan, Laura excels in helping clients create a strong strategy with a competitive edge. Laura’s extensive background in both customer service and the medical field provides an ideal blend to lead client management for Xevant.

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