By Jon Haas, VP, Managed Markets, Palio
Buy-n-bill has not gone away as some had predicted. Specialty drugs are still feeding the growth of specialty distribution.
Specialty distribution is a key supply-chain partner for drug manufacturers in the growing specialty drug segment. Specialty drugs accounted for $77.5 billion or 24% of the total $320 billion prescription drug sales volume in 2011 and grew by 17%, according to Express Scripts’ latest drug trend report.
Specialty distributors serve various customers including hospitals, hospital-owned clinics, specialty pharmacies, and other distributors. But the vast majority, or 73%, of total sales from a specialty distributor are to independent physician-owned clinics* who use the traditional buy-and-bill business model. This is where the doctor buys the drug (oncology drugs represent the largest volume) from the specialty distributor, treats the patient, and bills the patient’s insurance company for reimbursement of the cost of the drug. The majority of claims are covered under the patient’s medical benefit processed through a paper claim submitted by the physician’s practice. After oncology, other physician specialties utilizing buy-and-bill, or “buy-n-bill” as it’s commonly called, include rheumatology, gastroenterology, ophthalmology, and dermatology.
According to a recent Specialty Pharmacy Times article, payers and oncology practice managers have claimed that they would like to see buy-n-bill end in favor of third-party specialty vendors. In reality, buy-n-bill has declined, but ever so slightly. There is some growth in specialty vendor handling of specialty drugs through payer contract policies and mandates. These policies and mandates require specialty drugs to be acquired through a designated entity such as a specialty pharmacy. When a patient acquires a drug from a specialty pharmacy and then brings the drug to his physician for help in administering it, it is called “brown bagging.” While this is not typical for an infused drug, it is becoming more prevalent with injectable drugs. A specialty pharmacy may also drop-ship the drug to the patient’s physician to avoid any risk of mishandling by the patient. It is not uncommon for a physician to charge a fee to the patient for brown bagging.
Other growing trends include on-site pharmacies within large oncology clinics and specialty-at-retail (retail chains utilizing central-fill facilities for specialty drug fulfillment, then delivering the drug labeled for the patient to a retail store for pick-up). A prime example of this is the recent purchase of Axium Specialty Pharmacy by Kroger.
Reimbursement of specialty drugs for buy-n-bill
Reimbursement for specialty drug costs experienced a drastic change in 2005 with Medicare Part B moving to an average selling price (ASP) + 6% model, which was swiftly adopted by most commercial payers as well. ASP is calculated using quarterly data reported by the drug’s manufacturer. (ASP calculation is much more complicated, but this abbreviated explanation will suffice for this blog.)
Prior to this, most payers covered specialty drugs using a cost plus or average wholesale price (AWP) minus method. Both reimbursement methodologies provided reasonable profitability for the physician practice. The ASP+ model has significantly reduced profitability, especially when you factor overhead costs into the model.
In the past, specialty distributors dictated pricing to physicians, allowing physicians to shop around for best pricing, which drove physicians to engage with a GPO (group purchasing organization) to have contracted discount pricing available to them. Over the last few years, some manufacturers (most non-oncology) have developed direct physician purchase contract models to protect a physician, thus taking away the ability for specialty distributors to set pricing and/or terms (length of time to pay). When contract pricing is in place for a drug, the specialty distributor is mandated to sell to the physician at the contracted price, and thus can only attempt to win new business based on service, relationship, and in some cases, terms. Of course, some manufacturers launch new specialty drugs with a closed or limited distribution model allowing the chosen specialty distributor to realize an exclusive or semi-exclusive opportunity for a period of time.
Many or most drugs have a no-return or limited return policy, thus drug waste (mistakes in reconstitution, breakage by staff) can literally cause a practice to be “upside-down” or spend more on specialty drugs than the reimbursement realized. A physician practice can also bill for the actual infusion, injection, as well as infusion nursing care. This can make up some of the overhead costs incurred of storage/inventory, refrigeration, supplies, etc.
The buy-n-bill sector is clearly a complicated, dynamic market. Because of this, many or most specialty pharmaceutical manufacturers have field-based people to help support practices, with particular attention on the practices’ support/nursing staff, focusing on the billing or office manager. These field-based representatives help the physician practice manage the reimbursement landscape and provide assistance and problem solving. Most specialty drugs are also supported by a hub or call center, which provides reimbursement assistance (benefit investigations), support for co-pay card programs, patient assistance program, prior authorization, educational programs, nursing/clinical and other patient- and practice-targeted programs. A customer-focused, highly functional hub service offering can make a tremendous impact on product pull-through.
So what is the future of buy-and-bill?
Specialty drug launches and overall volume will continue to grow into the foreseeable future. Many of the agents in the pipeline are self-administered or oral, but until payers make a wholesale decision to move all specialty drugs under the pharmacy benefit, there will still be a significant buy-and-bill market. Specialty distribution providers will expand their offerings of hub service programs such as call centers, reimbursement/claims support, and patient financial support programs, as well as REMS management. Although clinical differentiation messaging to HCPs and payers are of utmost importance, the right access and channel/distribution strategy can certainly drive success of a new specialty product launch.
*Source: Center for Healthcare Supply Chain research, 2012 Specialty Pharmaceutical Facts, Figures and Trends.
Managed Markets Monday is a weekly series that provides insight into what we think it takes to meaningfully and effectively communicate in the managed markets space. Follow up with Jon Haas at email@example.com.
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