Provider, Supply Chain and Payer Negotiations

There was a time when healthcare providers could choose drugs and biologics, acquire them in a variety of ways depending on their practice site and submit claims to payers for reimbursement. In today’s fast-paced healthcare industry, that’s no longer the case, and naiveté about payers’ requirements coupled with their supply chain stipulations can lead to reimbursement shock! 

For many years, Medicare relied on local and national coverage determinations to provide facilities guidance about requirements for using designated products. But now, there’s been a  shift to the prior authorization mode of controlling costs for some products and procedures. And, with commercial payers also strengthening their prior authorization/medical necessity provisions, a heavy burden is placed on providers. Essentially, providers must identify patients’ payers prior to prescribing drugs and biologicals, and they must fulfill their requirements before submitting claims for payment.

Payers have entered the supply chain space as well. Now, they no longer leave product acquisition to the discretion of the practice site, thereby strengthening their armamentarium of drug-spending control tools. Consequently, it is paramount providers know who is in their supply chain, what actions they need to take and the reimbursement potential. 

Traditionally, almost all providers used the “buy and bill” model in which they purchased and/or stocked products though the normal supply chain such as a drug wholesaler or distributor, and then billed the payer/insurer for the products and injectable drug administration fees, which included preparation of the drugs.

For years, financial assistance came in the form of zero-priced patient assistance drugs. Providers acquired zero- or nominally priced products for specific qualifying patients from the manufacturer or a foundation. And, while billing for these products was not an option, often a drug administration fee might have been available from payers.

Now, payer-mandated distributors are being used as a cost-containment measure. Providers must purchase products for specific patients from a payer-chosen distributor/supplier at their negotiated cost, which is outside any group purchasing organization (GPO) or other relationship providers use. As such, reimbursement is payer-dependent for products and IV drug administration fees. 

Negotiating the “Bagging Trio”

The so-called bagging trio consists of white, brown and clear bagging models. White bagging refers to the distribution of patient-specific medications from a pharmacy, typically a specialty pharmacy, to the physician’s office, hospital or clinic for administration. This often is used in specialty practices to obtain costly injectable or infusible medications distributed by specialty pharmacies and may not be available in all nonspecialty pharmacies. Brown bagging refers to the dispensing of medications from a pharmacy (typically a specialty pharmacy) directly to patients, who then transport the medications to the clinic or physician’s office for preparation and administration. Clear bagging, the newest concept, refers to a health system’s own specialty pharmacy delivering/shipping medication to its own clinics for preparation and administration.

In all three models, providers must acquire the designated patient-specific products from the designated specialty pharmacy at no cost since the payer reimburses the specialty pharmacy rather than providers. If negotiated, providers can bill payers/insurers for administrative drug handling fees and infusible drug administration fees. If the use of these bagging methods is widespread in an area, mandates may impact practices either positively or negatively. In any case, practices need to be aware of and track any white, brown or clear bagging mandates for patients, as well as any state acts or regulations that define these policies.  

In addition, keeping up with the latest version of the self-administered drug exclusion list is vital to the accuracy of billing and reimbursement since these products are not reimbursable in a clinic or office setting effective April 1, 2021.¹ 

Many hospital pharmacists are disgruntled about white/brown bagging and mandated restricted drug distribution models, causing them to prohibit white bagging at their facilities, while diligently trying to avoid restricted drug distribution, and perhaps even closing formularies to those affected products. 

Inevitably, payer requirements will continue to increase, and it will be financially worthwhile to negotiate with payers for anything that brings in revenue and recognizes pharmacies for their extra work. Negotiations could include anything from handling fees for white-bagged drugs to outpatient and ambulatory clinical services. This  assumes there is a desire at the facility for a workable solution that provides some remuneration for their handling, administrating and administering the affected zero-priced drugs, albeit not the billed revenue from the markup on drugs that was lost. Negotiations are also dependent on hospital pharmacists’ willingness to continue to advocate for patient assistance programs and work with their in-house financial navigators and other supporting agencies, as well as with negotiations with pharmaceutical companies. There is a possibility to negotiate handling fees for patient-specific zero-priced drugs since there is no billed revenue from them.

Many of the frustrations and concerns hospital pharmacists have about zero-priced drugs involve supply chain, storage, security and vetting of the products, functions that are very similar to those for zero-priced white/brown bagged drugs. In a March 8 white paper titled “Health Insurer Specialty Pharmacy Policies Threaten Patient Quality of Care,” the American Hospital Association (AHA) urged regulators to prohibit certain health insurance pharmacy policies stating: “These policies limit the ability of hospital staff to have line of sight into the origin and handling of a drug prior to receipt by the hospital, raising significant concerns and creating substantial challenges. These actions pose significant risks to quality of care as providers have inadequate control in ensuring patient access to high-quality drugs, as well as the appropriate storage and handling of those drugs. These policies simply serve to drive more revenue to health insurers through their pharmacy benefit management and specialty pharmacy lines of business.”²

 In March, the American Society of Health-System Pharmacists and AHA, joined by more than 60 health systems and GPOs, took extensive action to address payer-mandated white bagging, stating these same concerns. They then sent a joint letter to the U.S. Food and Drug Administration commissioner requesting a meeting to discuss concerns regarding payer-mandated distribution models and the Drug Supply Chain Security Act. 

Consider the Patients

Before deciding on a course of action regarding the bagging trio, providers should examine their business contracting relationships with commercial payers, including Medicare Advantage. These annual contracts provide covered beneficiaries (patients) with services hospitals offer such as emergency room visits; inpatient and outpatient care, including infusion clinics; ambulatory, laboratory, radiology and occupational services; etc., depending on contract terms. These patients signed up with their carriers’ plans for a substantial sum. So, they may be shocked to find a facility’s pharmacy has denied the use of their expensive drugs their insurance carriers are willing to provide as zero-priced (white bagged) drugs. These patients may very well have chosen their plans because of drug coverage a facility now blocks.

Such a scenario illustrates the conundrum providers face when banning or refusing to work with white/brown bagging. It isn’t a decision pharmacies should make unilaterally without the endorsement of the C-suite and disclosure to health insurance carriers. If that decision is made and facilities will provide all services with the exclusion of white/brown bagged drugs, that means the affected patients will need to seek services elsewhere or pay out of pocket for those products. Therefore, for the benefit of all, facilities need to work with payers to negotiate the trickle-down effects of decisions that have significant implications.