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 become wary about visiting hospitals or outpatient facilities in person.
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. According to some experts, this shift accelerated with the onset of COVID-19 as the pandemic triggered new opportunities for specialty pharmacies.
As patients became wary about visiting hospitals or outpatient facilities in person, demand increased for medications and specialty drugs. Specialty pharmacies played a critical role in ensuring patients had access to the needed prescriptions, even during lockdowns and other disruptions.
Additionally, the pandemic accelerated the adoption of telehealth and other digital health solutions, providing new avenues for specialty pharmacies to connect with patients and provide remote care. Finally, the pandemic highlighted the importance of personalized, patient-centric care, a key focus for many specialty pharmacies.
Soaring Specialty Drug Prices
As pharmaceutical supply chains have evolved, specialty drugs have grown tremendously in the past several years. A Reuters study showed U.S. drugmakers launched new medicines at record-high prices in 2022, despite Congress’s efforts to reduce the nation’s annual bill for prescription drugs.
The median annual price of 13 novel drugs approved last year by the U.S. Food and Drug Administration for chronic conditions was $257,000, while seven other newly launched drugs were priced above $200,000. Both price ranges were a substantial hike over the median annual price of $180,000 recorded in mid-2021. Meanwhile, general inflation in the U.S. rose 6.5 percent during 2022 and is currently 6.0 percent for Q1 2023.
Moreover, with the rise in specialty drug usage, accredited specialty pharmacies have become more popular, bringing their own take on pharmaceutical supply chains. According to the Drug Channels Institute’s latest report, the total spending on specialty drugs in the United States reached $236 billion in 2021, representing a 7.5 percent increase from the previous year. This growth was driven by the introduction of new specialty drugs, increased utilization, and higher prices. The report also projects that specialty drug spending will continue to grow in the coming years, reaching $400 billion by 2026.
Additionally, in 2021 the top four specialty pharmacies accounted for 60.2 percent 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 and 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 them 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
- The hospital or doctor’s office bills a third party to reimburse 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 doctors’ office to control the procurement, administration, and billing of complex specialty drugs under one umbrella.
However, for many, the strict uniformity of the buy-and-bill method is not worth the disadvantages of this approach. For example, the upfront financial risk and the extra work needed to manage drug inventories under this system outweigh the benefits of the control. Additionally, smaller healthcare providers don’t have the time, staff, or money to support buy-and-bill. It’s just not good business sense for them.
What is Specialty Pharmacy?
With any industry pushback comes new options. Enter specialty pharmacies, which dispense medications that require special handling for complex and chronic conditions such as oncology, multiple sclerosis, hemophilia, and Hepatitis C.
These specialty pharmacies have specific supply chain models, supporting ongoing pressure to lower drug costs. The new models include options such as white, brown, and clear bagging, and continually challenge 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.
The specialty pharmacy environment involves multiple stakeholders, who play various roles in prescribing, dispensing, and administering specialty medications. Each stakeholder has distinct responsibilities and tasks that contribute to the success of the specialty pharmacy process. For example:
Payers are groups or organizations that pay for healthcare services, including prescription drugs. This term includes insurance companies, pharmacy benefit managers, Medicare, Medicaid, and other government programs. Payer responsibilities include:
- Setting coverage policies and deciding how much to reimburse for specialty medications
- Reviewing and approving drugs before patients can receive them
- Monitoring how patients are using medications
- Providing patient education and support programs to help patients adhere to treatment plans
- Evaluating the effectiveness and cost-value of specialty medications to determine coverage decisions.
- Payers often have their own formularies, which are lists of preferred drugs that they will cover. This means they may need to give approval before a patient can get certain medicines covered by their insurance. Specialty pharmacies work closely with payers to ensure patients receive the correct medications and that pharmacies get reimbursed for their services.
In the specialty pharmacy environment, distributors are responsible for managing the movement of specialty medications from the manufacturer to the pharmacy. Their tasks include:
- Handling the logistics of the supply chain, such as ordering, storing, and transporting medications
- Ensuring timely and accurate delivery of drugs to specialty pharmacies and healthcare providers
- Providing support services such as inventory management and tracking to prevent drug shortages and reduce waste
- Offer financial and reimbursement support services to help patients afford their medications.
Distributors are crucial for ensuring specialty medications are available and accessible to patients who need them.
3. Pharmacy Benefits Managers (PBMs)
Pharmacy Benefits Managers play a crucial role in managing prescription drug benefits for health plans, employers, and government programs. PBMs are responsible for:
- Negotiating drug prices and rebates with pharmaceutical manufacturers to ensure patients have access to the medications they need at an affordable cost.
- Developing and managing drug formularies, and working with pharmacies to process claims and dispense medications.
- Encouraging the use of lower-cost generic drugs, which can help reduce the overall cost of healthcare.
- Working with healthcare providers to manage complex medication regimens and ensure patients receive the right medications at the right time.
- Providing financial and reimbursement support services to help patients afford their medications.
- Managing inventory and tracking to prevent drug shortages and reduce waste.
- PBMs may contract with—or have their own—specialty pharmacies. They may also acquire smaller specialty pharmacies to build stronger market power, enabling them to play a more significant role in the pharmacy landscape.
4. Specialty Pharmacies
A specialty pharmacy is a physical or online retail location that caters to patients with complex and chronic medical conditions, such as cancer, HIV/AIDS, multiple sclerosis, rheumatoid arthritis, and other rare diseases. The pharmacy provides the medications to healthcare providers through white bagging or brown bagging. These operations also:
- Process and approve insurance claims and
- Collect copayments or coinsurance
- Handle prior authorization and reimbursement issues on behalf of patients and providers
- Offer 24/7 support services to address patient concerns or adverse effects
- Monitor medication use and outcomes to ensure optimal therapy management
By handling the medication supply and insurance claims, specialty pharmacies help minimize some of the financial risks healthcare providers face.
5. Healthcare Providers
Providers are a primary cog in the healthcare wheel, and they play a significant role in the management of specialty pharmacy operations. Their share of the work burden includes:
- Placing the orders for specialty drugs with the distributor
- Prescribing and administering the medication, and monitoring patient response to therapy
- Working with specialty pharmacies and payers to get prior authorization and reimbursement for medications
- Sending a claim to the payer for the drug and any related administration services, if applicable
- Providing counseling to patients
- Collect coinsurances (when appropriate)
- Coordinate care with other healthcare providers to ensure comprehensive patient care.
Each stakeholder in the specialty pharmacy environment participates in delivering specialty medications to patients with complex medical conditions. By working collaboratively and efficiently, they can improve patient outcomes and reduce healthcare costs.
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.” Methods of doing so include:
- 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.
Meanwhile, a report from the Community Oncology Alliance (COA) shows that, in 2019, 68 percent of oncologists in the United States were using the buy-and-bill model for Medicare patients. However, the use of the buy-and-bill model varied significantly by practice size, with larger practices more likely to use this method. In contrast, smaller practices were likelier to use alternative distribution methods such as white bagging. Despite the popularity of the buy-and-bill model, concerns about the financial risks and administrative burdens associated with this approach have led some practices to explore alternative distribution strategies.
On the other hand, brown bagging constitutes a much smaller share of drug distribution. According to the American Medical Association, it has the potential for increased patient mishandling, making it more challenging to ensure the drug’s integrity. 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 Benefits and Challenges of Buy-and-Bill?
Buy-and-bill delivery methods can streamline steps, save time, increase control, and boost profits. Benefits include:
- Patient Convenience: Buy-and-bill allows patients to receive their treatment in the comfort of their healthcare provider’s office, rather than traveling to a separate location for treatment. This can be especially beneficial for patients with mobility issues or those who live far away from a treatment center.
- Improved Patient Outcomes: The buy-and-bill model allows for more personalized care, leading to improved patient outcomes. Healthcare providers who administer medication themselves can closely monitor patients during treatment, adjust treatment plans if necessary, and provide more immediate care in case of adverse reactions.
- Increased Revenue: Healthcare providers benefit financially from this model because it allows them to generate revenue from both the administration of the medication and the markup on the cost of the drug. This can be especially important for smaller healthcare practices.
- Control over Supply Chain: By purchasing the medication themselves, healthcare providers have more control over the supply chain and can ensure that the drug is readily available when needed. This can help to prevent treatment delays or interruptions.
- Better Communication: By directly administering medication to patients, healthcare providers can communicate more effectively with patients about their treatment plans and answer any questions. This can help improve patient satisfaction and increase trust in the healthcare provider.
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 to offer 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.
Future Changes to Buy-and-Bill
The buy-and-bill model has been a staple in the healthcare industry for years, but there have been discussions about possible changes to this model. According to the Brookings Institution, some policymakers have proposed moving away from the buy-and-bill model and toward a system where drugs are directly supplied by a specialty pharmacy. This method would involve restructuring how drugs are paid for and could potentially reduce the financial burden on healthcare providers who currently have to purchase drugs upfront.
In recent years, the Centers for Medicare and Medicaid Services (CMS) have also proposed changes to the buy-and-bill model. One proposal recommended implementing a bundled payment system for Part B drugs, which would eliminate the markup that healthcare providers can currently charge on the cost of the drug. This proposal aimed to reduce costs for both Medicare and patients.
The current U.S. government has also expressed interest in exploring reforms to the buy-and-bill model. In 2021, the Biden administration released a drug pricing plan that included proposals to reform Medicare Part B drug reimbursement, including changes to the buy-and-bill model. The plan proposed implementing an International Price Index for Medicare Part B drugs and adjusting the reimbursement rate for providers who use the buy-and-bill model.
The future of the buy-and-bill model remains uncertain, with increasing pressure from policymakers and government administrations to make changes to the current system. Healthcare providers using the buy-and-bill model should stay informed of potential changes and be prepared to adapt their practices accordingly.
Is Buy-and-Bill Right for You?
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. What is 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.
 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.