EP369: What’s Up With Specialty Pharmacy Bagging? With Keith Hartman, RPh

Last week’s show was an encore episode with Dr. Aaron Mitchell (Encore! EP282), and we talked about buy and bill. To continue our exploration of specialty pharmacy intrigue, let’s talk about so-called “bagging.” I wanted to get an overview of all of the different kinds of specialty pharmacy bagging. Bagging is a big deal. If you have anything to do with trying to control pharmacy costs or the clinical outcomes of specialty pharmacy patients, you too are going to want to understand what’s going on here with bagging.

I was thrilled to have a chance to chat with Keith Hartman, who is my guest in this healthcare podcast. He is the CEO of ContinuumRx. He’s a pharmacist by education and has been in the pharmacy space for over 25 years now, touching just about every aspect of pharmacy from retail operations to long-term care and now, most recently, home infusion. This makes him an ideal person to chat with about this topic. And FYI, it was not easy to find someone to do so to clearly see the actions and reactions going on here because that’s what this is all about: actions and reactions—how any self-respecting market distortion is going to cause a cascade of equal and opposite market distortions.

So, let’s cruise through the whole infused/injected specialty pharmacy historical play-by-play, shall we? It’s like a “Who’s on First?” routine—except very, very not funny. So, here we go. This is, of course, the semi-reductive abridged version; but let’s do this thing.

Once upon a time, the bagging story starts in ye olden days, meaning more than ten years ago, before specialty pharmacy drugs really became the massive profit centers for any party who can manage to get their fingers in the specialty pharmacy cookie jar. In these ancient and halcyon times, brown bagging was kind of a modus operandi. Don’t forget, we’re talking about infused or injectable drugs here, especially ones that need to be infused or injected in the provider’s office.

So, brown bagging means and meant when a specialty pharmacy drug is shipped directly to a patient, or a patient goes and picks up the specialty pharmacy drug at the pharmacy. Doc takes out prescription pad (this is in ye olden days, remember) and writes out the Rx. Patient picks up the drug from the pharmacy, which may be handed to them in a brown bag. Get it? But then they take that “brown bag,” as it were, to their doctor’s office. The doctor takes the drug out of the brown bag and infuses or injects it. I say doctor’s office because many times, in the olden days, that’s where this went down.

And this brown bagging had some issues, for sure; but specialty pharmacy drugs really weren’t all that big of a thing either dollar-wise or frequency-wise.

At some point in our story here, pharma manufacturers start seeing just exactly how much money the market will bear for specialty pharmacy drugs, and the prices of these specialty drugs go through the roof. At the same time, for a bunch of reasons I actually discussed with Dr. Bruce Rector (EP300), a whole bunch of these specialty pharmacy drugs start hitting the market all at once. So, these drugs have skyrocketing prices—and there’s lots of them.  

At that point, some (certainly not all, but enough) CFOs at provider organizations were like—wowza, epiphany, light bulb moment—there’s a lot of money that can be made here because buy and bill. In buy and bill, which I talked about last week with Dr. Aaron Mitchell, provider organizations get reimbursed the cost of the drug plus some percentage when they administer it—meaning the more expensive the drug, the more money a provider can make because a percentage of a bigger number is, of course, a bigger number.

Add to that a party-sized container of other provider shenanigans to maximize revenue on specialty pharmacy patients—and that revenue got bigger every single year. A recent report just came out that, on average, for oncology drugs, some providers are making six times the cost of the drug. Six times the cost of a drug that can cost lots of zeros! Just wow—6x! That’s real money. This is winning the lottery every single time a patient needing a specialty drug shows up on your doorstep.  

Continuing the tale here, this buy and bill health system extreme greed hits employers in their pocketbooks. And, of course, plan sponsors start desperately seeking relief. Who rides up on a white horse? PBMs (pharmacy benefit managers), of course.

PBMs say that they will negotiate with drug companies and buy the drugs on behalf of the plan sponsors for much cheaper. Then they will ship the drugs purchased to the provider organizations. Thus, the plan sponsor only needs to pay providers to administer the drug, not that and some crazy markup on the drug itself.

Ladies and gentlemen, white bagging has entered the building. White bagging is when the drug is not shipped directly to the patient à la brown bagging. It is when the drug is shipped to the provider.

But wait … there’s more to the story than a grand PBM gesture of goodwill. They see how much money the employers are used to paying providers for these drugs and realize that the PBM only needs to come in with a price that’s less than that, at least at the beginning.

So, over the years, weird stuff starts happening with rebates on the specialty drugs. Listen to the show with Scott Haas (EP365) for more on that. But bottom line, white bagging becomes not exactly a mecca of cost savings. PBMs are, as we all know, not known for their ability to moderate their profitability, after all.

At this point in our story, let’s just pause to say that provider organizations are very, very, very not happy with this whole white bagging intervention. Not only did a piece of the provider’s specialty pharmacy cash cow get snatched by the PBMs, but there are also clinical issues with white bagging that we talk about on the show today. And some of these issues are not BS. Do not get me wrong. They are very real, and I do not want to minimize them.

And so, provider organizations start to stand up their own hospital specialty pharmacies because then at least they can get some of the white bagging cha-ching. See what I mean? Plan sponsor, health plan mandates that the drug be filled in a pharmacy, hospital owns the pharmacy or part of the pharmacy … and now they have so-called clear bagging.

Clear bagging is when one organization owns the pharmacy and the provider who will administer the drug. Clear bagging solves some of the clinical issues with white bagging, and the hospital also gets to take a cut. I’d be remiss not to mention here that some hospitals have worked very hard on their clear-bagging programs and definitely have tried to improve the quality of service here.

You’re going to have to listen to the show to hear about gold bagging and also the latest developments in this whole war employers and patients and taxpayers are fighting with PBMs and hospitals who are fighting with each other over who gets the money. Also, the continuing trend of brown bagging, especially as “in the patient’s home” gets tagged on the end of lots of care delivery like “in bed” gets tagged on the end of lots of fortune cookies.

Next week’s show will dig into how exactly some providers are managing to get the up to 6x the cost of specialty pharmacy drugs when Medicare Part B at least says that they’re only supposed to get ASP [average sales price] + 6% (ish). I just could not figure out how they were managing to get 6x just given that Medicare Part B rule, but yeah, they are—and we’ll learn about that next week.

You can learn more at continuumrx.com.  

Keith P. Hartman, RPh, is chief executive officer of ContinuumRx and an experienced operating entrepreneur and pharmacy business owner spanning two decades. Keith founded and grew a chain of retail pharmacies, a compounding pharmacy, and two specialty pharmacies along with a long-term care pharmacy. All were built and grown under the guise of operational excellence and produced great results. Some were sold, while others he still owns and provides limited strategic guidance as a member of the board of directors.

Keith graduated from the University of the Sciences with a degree in pharmacy. Today he is still involved mentoring future pharmacists and pharmacy owners.

08:09 What kinds of patients and/or drugs is the concept of bagging relevant to?
08:53 What is brown bagging, and what are the issues with it?
10:28 What is white bagging, and how is it different from brown bagging?
11:30 Who are the key players in pharma bagging?
12:25 Why does a PBM want a specialty drug to go through them?
12:49 From the physician’s perspective, why is buy and bill ideal?
16:46 How does white bagging impact patient clinical care?
22:12 Encore! EP216 with Chris Sloan.
23:05 What are the two main reasons patients might not continue their therapy?
23:29 “We’ve got to leave some authority with our prescribers to be able to make a clinical decision of what’s best for that … patient.”
24:41 What is clear bagging?
26:51 How does a hospital specialty pharmacy get in network with a PBM?
28:57 What is gold bagging?
30:11 “Outlook really needs to be what’s best for the patient.”
32:10 EP337 with Olivia Webb.  

You can learn more at continuumrx.com.