WolfePack Wisdom

Specialty pharmacy drugs are high-cost oral or injectable medications used to treat complex chronic conditions.  They typically require high-touch patient care management and patient education to ensure patient compliance and to reduce the risk of severe adverse side effects.  Further, specialty pharmacy drugs require specialized handling (e.g., temperature control) and distribution to ensure appropriate medication administration.  

Many hospitals have their own specialty pharmacies located on-site. Traditionally, hospitals provide specialty pharmacy drugs through the “Buy and Bill Model” (“BBM”), under which the hospital purchases the drug, the provider administers it to the patient, and the hospital bills the third-party payor for both the drug itself and drug administration. The hospital is then typically reimbursed in an amount equal to the cost of the drug, plus a fixed percentage.  The BBM model gives hospitals control over the preparation, handling, and administration of these potentially dangerous and complex drugs. 

There is a more recent trend by payors away from the BBM model  to “White Bagging.” White Bagging refers to a situation where the payor, rather than the hospital, purchases the specialty pharmacy drug, which is then shipped to the provider for drug administration. Payors have adopted payment policies stating hospitals must buy drugs from the payors’ “preferred specialty pharmacy” (which, in many instances is owned by the payor), or the payor will deny payment or drastically reduce reimbursement to the hospital. 

Payors’ adoption of White Bagging policies is driven solely by financial gain. The largest payors in the country have acquired pharmacy benefit managers (“PBMs”), and specialty pharmacies, meaning payors are not only reducing costs by purchasing the drugs from “preferred” pharmacies but are also profiting off of these expensive drugs. 

Although White Bagging may help payors’ bottom line, these policies have serious negative implications for both hospitals and the payor’s members. 

First, White Bagging likely violates the payor’s in-network agreements with hospitals.  Through their White Bagging policies, the payors attempt to unilaterally modify the rate structures mutually agreed upon by the parties at the time of execution.  Hospitals are deprived of reimbursement for the drug itself and are only paid for administering the drug, which was not contemplated by the parties upon entering the agreement.

Second, White Bagging results in poorer patient health outcomes.  For example, pharmacies dispense specialty medication as close to the point of service as possible, allowing providers greater flexibility to accommodate necessary dosage changes. Additionally, because the medications are now transported to the facility, there is a significant risk the drugs will be ruined and deemed unusable due to delayed transport and exposure to hot temperatures for long periods of time.  Further, White Bagging may result in an unnecessary delay to patient care, as it may take weeks for the provider to obtain authorization from the payor, order the drugs, coordinate member responsibility, and deliver the specialty drugs..  These delays, even if minor, can have a detrimental impact on the health of these very ill patients.  

Third, hospitals may be exposed to greater liability.  Although the hospital is responsible for their patients’ care, they lose control over the quality, transport, and handling of the drugs through White Bagging, exposing them to greater risk of malpractice claims when a patient is harmed as a result of this practice. 

Hospitals throughout the country are pushing back on payors’ White Bagging policies.  Our healthcare team suggests looking to the terms of your payor contracts for language supporting a breach of contract claim. Alternatively, if the payor’s White Bagging policy is to reduce, rather than deny, the hospital’s specialty pharmacy claim for failing to use the preferred provider, hospitals can use this as an opportunity to reopen reimbursement negotiations.  The hospital can seek increased reimbursement for other services in return for a reimbursement reduction for specialty pharmacy, allowing the hospital to retain control over the specialty pharmacy and minimize patient harm while mitigating financial loss resulting from these policies.