New Institute for Clinical and Economic Review (ICER) analysis evaluates potential risks and advantages of reforms to current policies related to white bagging, brown bagging, and site of service policies that aim to address provider markup in the commercial insurance market.
Keywords: brown bagging, commercial insurance, policy reforms, provider markup, site of service, white bagging
The high cost of specialty pharmaceuticals is driving change across the healthcare system, including consequences for life science research and development investments, employer benefit designs, payer approaches to prior authorization and step therapy, and provider priorities for consolidation and expansion. Markups on prescription drugs refer to providers being reimbursed for products at higher amounts than product acquisition costs. Payers have been actively working to reduce prescription drug markups, but such efforts should balance possible savings with the need for thoughtful consumer protections and transparency. Policies must also be structured to promote health equity by keeping the risks to patients with lower incomes and fewer social supports front and center as they may have the greatest challenges navigating these policies.
New ICER policy analysis evaluates potential risks and advantages of reforms of current policies related to white bagging, brown bagging and site of service policies that aim to address provider markup in the commercial insurance market.
For people with conditions like autoimmune disease, cancer and multiple sclerosis, clinician-administered specialty drugs represent positive, sometimes lifesaving, innovation. Payers and policymakers recognize these advances but also see these products as leading drivers of increased drug spending. While use of specialty drugs is concentrated in less than 5% of the population, they now account for about half of total drug spend [1].
In response to these pressures, employers, other plan sponsors and the commercial health plans and pharmacy benefit managers (PBMs) who manage health benefits and create formularies, have all deployed strategies intended to control drug spending while maintaining appropriate access for patients. To complement formulary tiering and prior authorization, payers have recently moved to aggressively manage the ‘markup’ over drug acquisition costs that is charged by providers through the traditional ‘buy and bill’ reimbursement mechanism for clinician-administered drugs. Policies that address markup by providing the drug through a separate entity can take different forms that are often called white bagging, brown bagging or clear bagging. In addition, payers are increasing their use of policies requiring patients to receive drugs from a site with lower or no markup in comparison to more expensive hospital-affiliated locations, an approach known as site-of-service policies.
Large payers report significant cost savings with bagging policies and with site of service policies [2]. Internal data and independent reports also have shown stable or improved patient satisfaction with the care process [3]. However, the data to perform independent evaluations of these policies are not publicly available, and while payers have touted their positive effects, hospitals and provider groups have argued that there are important risks and underappreciated negative consequences for both patients and providers [4].
The goal of this paper is to summarize the arguments and scant data for and against different bagging policies and site-of-service policies. We then present an analysis of potential policy reform options that may help improve the design and implementation of these policies and other efforts to control costs for clinician-administered drugs. Of note, publicly available evidence on the impact of white bagging, brown bagging and site of service policies is very limited. Many of the purported benefits and drawbacks of these policies are supported solely by anecdote or internal analyses not subject to public examination or peer review. We therefore acknowledge the potential for bias within the views of different stakeholders whose experience and views are reported in this paper and are sensible that our own analyses and conclusions are vulnerable to the selective information provided to us by sources with varying conflicts of interest.
To inform this work, we performed a literature review and stakeholder interviews focusing on the challenges around the shifts in drug delivery and site of service for clinician-administered drugs. The literature review was also used to understand the impact of changes that drug delivery and site of service has on patients, providers and payers. We interviewed 19 experts from large and small pharmaceutical manufacturers, health plans, PBMs, specialty pharmacies, comprehensive care centers and physicians. We also tracked current legislation regarding these issues that were introduced to inform our understanding of how legislation may impact the drug delivery and site of service models used to date.
From this background work, we developed a set of potential policy reforms reflecting different themes and challenges discovered throughout our research. These potential policy reforms were the basis of formal discussion and further revision during a 2-day policy summit in December 2022 with representatives from 33 payers, life science companies and provider groups. A final white paper based on this work was posted in April 2023.
Traditional management of drug spending by health plans and PBMs has emphasized price negotiation linked to formulary placement and evidence-based utilization management, including prior authorization and step therapy when equivalent or more effective treatment options are available at lower cost. However, 45% of specialty spend is on drugs that are clinician-administered and reimbursed through the medical benefit. For these specialty drugs, formulary tiering is not usually feasible and payers often have more limited data with which to track and manage utilization in real time through prior authorization and step therapy [5].
Given the high costs of specialty drugs and the limitations of traditional utilization management, many commercial payers are increasing efforts to reduce the markup on specialty drug acquisition and administration that is charged by providers who buy drugs directly from drug wholesalers and then bill payers for the drug at a higher price. The intent of markup is to cover the operational and infrastructure costs to the provider associated with storing and managing a large number of specialty drugs so that the right drug at the right dose can be selected at the time the patient is seen by the provider. Under this buy and bill approach, however, markups can be more than the price of the drug itself. For example, markups charged to payers by hospitals when clinicians administer drugs in the hospital setting have been found to be as high as 200–300% of the base price of the drug [6]. These added costs create real pressure on insurance premiums and are viewed by payers and plan sponsors as an outgrowth of an outdated contracting approach that was more suited to an environment when very few patients required specialty drugs and the cost of specialty drugs was far lower. The goal of reducing these substantial costs, without adversely affecting patient access to appropriate treatment, has spurred many payers to make important changes in their coverage policies in recent years.
Payers have developed two primary strategies for managing drug markups. The first involves bypassing the buy and bill approach by providing the drug to the clinician directly through a payer-affiliated specialty pharmacy. With this approach, payers avoid provider markup while also leveraging the negotiation power of specialty pharmacies, which can often obtain a lower price for the drug from drug wholesalers. This practice is widely known as ‘white bagging’ since the drug is envisioned as being delivered in a white bag to the provider. Another approach used to supersede the buy and bill model is ‘brown bagging,’ in which the payer's specialty pharmacy delivers the drug directly to the patient, either to take to the provider at the time of administration or for use at home through a home infusion program. There is a third concept, referred to as ‘clear bagging,’ when a hospital uses its internal specialty pharmacy to fulfill a patient's specialty drug prescription and transports it to the site of administration. The payment for the drug flows through the provider-owned specialty pharmacy, as opposed to the provider themselves (i.e., buy-and-bill).
The common theme across all bagging policies is that the traditional buy and bill approach is replaced by providing the drug to the clinician through another entity and reimbursing the clinician only for drug administration without any markup on the cost of the drug itself.
Claims of the positive impact of bagging policies emphasize the substantial cost reduction that has been realized without negative feedback from patients or plan sponsors. Anecdotes suggest that many employers have asked for more services to be provided at home in an attempt to meet employee requests for greater flexibility in care options, particularly during the years of the COVID-19 pandemic. Payers also argue that white and brown bagging allows them to leverage the expertise of specialty pharmacies to treat complex and rare conditions and that white bagging can improve continuity of care in the face of supply chain shortages and disruptions.
Clinicians and provider organizations tell a different story. They argue that real-world experience has shown the shifting away from buy and bill reimbursement has caused negative outcomes for patient safety, access, clinician burden and drug wastage. Brown bagging has raised the most notable safety concerns from provider groups because not all individuals live in a setting where they can receive private mail deliveries or have someone responsible to receive drug deliveries and store them appropriately. Providers worry that packages containing temperature-sensitive drugs could be left outside in the heat or unpacked and left at room temperature.
White bagging is generally viewed as a safer practice than brown bagging because drugs are delivered by a specialty pharmacy to clinicians. Still, clinicians point to challenges when a change in a patient's condition noted at the office visit means that the patient needs a different dose or an entirely different medication than the one previously delivered. White bagging can make clinicians feel like their hands are tied, leading to unnecessary and potentially dangerous delays before a new dose/medication can be approved and delivered.
Providers also note that white bagging and brown bagging can make patients subject to far higher cost sharing amounts, that white bagging adds multiple new resource-intensive requirements to provider processes and disrupts safety mechanisms already in place for their current care flow, and that white and brown bagging policies may also increase drug wastage for high-priced products [7]. Payers counter each of these points with examples demonstrating that patients can have reduced out-of-pocket spending, that white bagging is implemented in a way that should not create significant new burdens for providers, and that any drug wastage does not undercut the broader picture of lower overall costs.
The second main approach payers are using to avoid the markups associated with buy and bill reimbursement is to require patients to receive treatment at a lower-cost site of care, either at a clinician's office outside of a hospital-based system, a stand-alone infusion center, or home. Requirements for patients to have their drug administered in specific locations are called ‘site of service’ policies. The most significant concern regarding site of service policies voiced by providers is that these policies can create a disconnect between the treating clinician and the patient, potentially resulting in substantial logistical burdens for patients and increasing the risk that their treatment will be incorrectly dosed or delivered. Just the hassle of sorting out additional time and transportation can lead to missing or delaying of treatment. Interviewed providers suggest that patients with lower financial and social resources are at higher risk for this negative outcome, adding to the disparities of care experienced by many patients from communities of color. Conversely, home infusion may reduce the burden on patients, but not all patients live in settings conducive to home infusion, with the same patients with lower financial and social resources being less likely to be able to benefit.
Providers also suggest that site of service policies result in considerable unpaid administrative burden for individual physician offices, since patients often call their clinicians to ask questions about medication administration. Patients may also call clinicians' offices to ask questions about the scheduling of home infusions. While most payers have case managers to assist with logistical issues, there have been reports from providers that monitoring patient treatment at home can be difficult.
In the sections below we explore potential best practices among the different variants of bagging and site of service policies currently in the marketplace. We also analyze the potential advantages and disadvantages of broader policy options that could support the right balance between controlling unnecessary costs and maintaining adequate flexibility in coverage to ensure that patients and clinicians can make appropriate, patient-centered care decisions. A summary of these best practices and broader policy options are shown in Table 1 . For white and brown bagging and site of service policies, we suggest a broad goal in the first column with specific potential policy options to accomplish each goal in the second column.
| White and brown bagging | |
|---|---|
| Promote patient-centered care and health equity | • Prohibit brown bagging outside of selected treatments suitable for home infusion • Establish criteria for clinical appropriateness • Facilitate rapid exceptions inclusive of clinical and social factors • Share cost savings with patients |
| Address same-day medication changes | • Devise emergency reimbursement mechanisms for same-day treatment changes |
| Increase specialty pharmacy oversite | • Increase transparency of the chain of custody for white-bagged drugs |
| Create balance with existing physician incentives under buy-and-bill | • Require payment parity between specialty pharmacy and buy-and-bill • Replace white bagging with a fee schedule, eliminating buy-and-bill incentives • Target white bagging to high-cost settings • Cap markup through legislation |
| Improve transparency for providers and patients | • Provide advance notice of new coverage policies |