Specialty drugs and color bagging: pros and cons

The world of specialty drugs (and how to pay for them) seems to grow more complex and nuanced with each passing day. However, the acquisition of specialty medications may soon benefit from a little more order and structure, courtesy of a color-coding system introduced by payers looking to lower costs for plan members and themselves.

According to this system, there are different ways to “bag” certain specialty prescriptions. “Brown bagging” applies to drugs purchased through a specialty pharmacy and shipped directly to a patient, who takes it to a provider’s office for administration, similar to the concept of a brown-bagged lunch. “White bagging” means a drug is purchased through a specialty pharmacy and shipped to a doctor’s office for administration by a provider, i.e. a “white coat.” “Clear bagging” is when a patient’s in-network pharmacy obtains direct access to payers and manufacturers to dispense a patient’s specialty drugs from their own internal pharmacy. These programs are typically run by hospitals, so they avoid some of the safety and logistical issues that may arise due to transport in white and brown bagging. The “clear bag” is a nod to this option being the most transparent and direct route. 

Buy-and-bill took a toll

In the past, the “buy-and-bill” method worked for most hospitals and providers administering specialty medications. The approach puts a significant portion of the financial risk on health systems, who must properly purchase, store, manage and bill the drugs. Errors or missteps in the process could result in an organization not being reimbursed. Managing inventory, reducing waste, and the liability for administering medication are also health system responsibilities. For most organizations, these tasks are reasonable and easily handled. However, as specialty spending increased, organizations noticed the buy-and-bill method began to tie up more money and resources, and inventory management can be particularly difficult when patients discontinue use of medication, miss appointments, or switch to a new prescription.

In addition, the practice of providers buying the drugs directly from wholesalers and then billing payers at a higher price has begun to take a toll. Initially done to help offset the administrative infrastructure costs associated with providers having to store and manage specialty drugs, the markups have risen substantially with the surge of specialty drugs’ popularity.

In search of a solution, payers and insurance companies devised “color bagging” as a cost-savings strategy to benefit plan sponsors, plan members and themselves. 

Color bagging has both fans and critics

The practice of color bagging specialty drugs is gaining popularity and, in many opinions, it is producing favorable results. At doctors’ offices, white bagging’s usage rose from 15% in 2019 to 27% in 2022 among insured patients, for whom the practice has become the most frequently utilized product sourcing option. 

A JAMA Network Open study found that white bagging lowered payers’ costs. Overall, on average, payer reimbursements were over $2,000 lower when pharmacies white-bagged oncology drugs as compared to buy-and-bill provider payments.

Brown bagging is used less often and typically only with certain drugs, though it does serve a valuable purpose. For example, for patients receiving home infusion therapies, the convenience of brown bagging provides important advantages, according to payers. During the COVID-19 pandemic, brown-bagging became a critical tool, and some payers relayed requests from employers who appreciated the enhanced flexibility in care options and asked for more in-home service options to meet plan members’ needs. Some larger payers have reported increased cost savings generated by both white- and brown-bagging tactics, as well as site of service policies. Patients’ satisfaction rates with the care process have also improved or are stable.

But not all health care system stakeholders are fans of specialty bagging. Hospitals argue that the addition of an intermediary can cause preventable safety risks and delays, and they claim some insurers have their own or affiliated pharmacy companies, creating financial motives for overseeing medication sourcing. There has been legislation introduced in many states to cut down on the practice and the bills are being advanced by hospital associations who are losing revenue. The bills are opposed by employer groups who say the practice reduces healthcare premiums.

Striking a fair balance

Like so many things in the health care industry, buy-and-bill practices and specialty color-bagging strategies all have their advantages and disadvantages. In certain cases, it makes sense to go with one option over the other. The key in this instance is to have a middle-of-the road policy in place containing guidelines for the utilization of each approach. Insurer mandates requiring patient adherence to color bagging shouldn’t be allowed any more than the complete restriction of all color-bagging policies should be. 

The concern for patient safety, medication availability and treatment delays is certainly laudable, as is the desire to lower costs for payers and plan sponsors. In the end, a balanced approach and flexible options are what is needed to meet the needs of the stakeholders who matter most in this situation – patients and their families. Putting them first and prioritizing the administration of their care when and where they most need will lead to the development of policies and solutions that benefit and satisfy all involved parties. 

Mark Campbell is Senior Vice President of Clinical Solutions at RxBenefits.