Specialty drugs are sparking the latest battle between Virginia hospitals and health insurers

Some of Virginia’s largest health insurers are taking more control over the supply chain for specialty — and often expensive — drugs used to treat cancer, rheumatoid arthritis and inflammatory bowel diseases such as Crohn’s and ulcerative colitis.

Hospitals aren’t happy about it.

The practice, known as “white bagging,” isn’t new. But Virginia is the latest state where hospitals say they’re seeing a major expansion. United Healthcare, the state’s third-largest insurer, currently has 77 drugs subject to white bagging requirements. The company will add 12 cancer drugs starting June 18, according to spokeswoman Trasee Carr. 

Anthem, which commands more than 40 percent of Virginia’s market share, also announced that multiple additional drugs would be subject to the requirements beginning July 1, said Julian Walker, the vice president of communications for the Virginia Hospital and Healthcare Association.

Anthem would not comment directly for this story, instead referring back to a May 18 letter in support of the practice from the Virginia Association of Health Plans, which lobbies for the industry.

White bagging refers to a new acquisition model for specialty drugs, prescribed to patients with serious health conditions requiring more complex treatment. Normally, hospitals and doctors source drugs from their own vendors, keep their supply onsite, and bill the medical side of insurance for reimbursement, said Dr. Madelaine Feldman, a practicing rheumatologist and expert on pharmaceutical supply channels who’s given presentations to General Assembly members on drug pricing.

But over the last several years, a growing number of insurance companies are handling the sourcing themselves — requiring providers to purchase drugs through designated specialty pharmacies. Those medications are then shipped back to the facility to administer.

“They’re saying, ‘Let’s not pay the provider to buy and bill,’” Feldman said. That’s because hospitals, especially, are often able to source their own drugs at deeply subsidized prices and provide them to patients at a markup. That markup is then passed on to the insurance company when it’s billed for reimbursement.

At the same time, it’s become more and more common for large insurers to own specialty pharmacies and the companies that negotiate the cost of prescription drugs. That consolidation ensures profits and rebates from buying pharmaceuticals flow back to the insurers.

White bagging allows them to bypass providers completely, providing drugs at prices they have more control over while pocketing the savings. Hospitals say the process presents significant patient safety concerns — forcing doctors to administer drugs with no oversight over the supply chain. Insurers, on the other hand, argue it’s a way to lower costs for patients.

“The practice saves consumers and payers — meaning employers — significant amounts of money,” said Doug Gray, executive director of the Virginia Association of Health Plans. “The reason that the hospitals are complaining is because they mark up the drugs and keep the difference.”

How white bagging will affect patients is a core component of the debate in Virginia. The state Board of Pharmacy is currently in the process of finalizing new regulations that would add some guardrails to the practice — mostly by mandating that drugs are handled correctly and there’s clear communication between the specialty pharmacy and receiving facility. 

Hospitals, though, are pushing the board to consider whether the practice is legal under current state law. In addition to complaints that it violates patient choice and imposes unnecessary relationships with third-party pharmacies, they say white bagging is simply inefficient for doctors and patients. 

“Just imagine your drugs going through the mail,” said Matt Jenkins, the director of pharmacy services for UVA Health and president of the Virginia Society of Health-System Pharmacists. “And I don’t mean this to be a shot at the postal system. But you get your infusion scheduled at the doctor’s office, and we just hope the medication will arrive on time.”

Concerns over timing are one of many arguments against the process. In California, where providers are waging their own battle against white bagging, the state Board of Pharmacy received nearly 30 pages of comments opposing the process from hospitals and pharmacists. One hospital pharmacy director said he had to discard thousands of dollars worth of medicine when three vials were delivered to the mailroom of a separate department. 

“Upon receiving and opening the container, pharmacy staff found three vials of medication that were supposed to be stored under refrigeration but had been delivered to an unlicensed area,” he wrote. “The vials totaled close to $10,000 worth of medication and the temperature was out of range.”

Waste is a concern even when medication is delivered correctly. When providers source their own drugs, they can use the same medication for multiple patients — a prescription drug such as Remicade, for example, which can treat multiple autoimmune diseases. But when drugs are white bagged, they’re specifically prescribed and approved for a single person.

“Chemotherapy drugs, for example, have a high efficacy and toxicity margin, meaning there’s a tight window of the right dose for the right patient at the right time,” said Dr. Richard Ingram, the president of a private oncology practice in Winchester. In other words, if a patient develops severe side effects to a medication, or the dose has to be adjusted based on weight or symptoms, it can’t be used to treat someone else.

“The system has shipped a drug that the patient is no longer going to receive,” he said. “And it can’t be repurposed like general inventory. So the practice can be very wasteful.”

Insurers say the real concerns come down to cost. In VAHP’s letter to Virginia’s Bureau of Insurance, Gray wrote that hospitals mark up the cost of some specialty drugs between 200 and 500 percent compared to private clinics. And providers already work with the same shipping companies used by specialty pharmacies, he said, making logistical arguments largely nonsensical.

“It is difficult for VHHA to argue that white bagging creates a breach of contract when their members significantly inflate the cost of specialty drugs year-over-year,” Gray wrote. Some experts say the financial concerns are more valid for independent practices and infusion centers, where prices are more modestly inflated to cover staff time and basic expenses like rent.

Among providers, though, there’s wide skepticism that cost savings on the part of insurance companies will be passed down to patients. Gray said white bagging works by lowering drug prices and the overall cost of premiums. But the same pharmacist in California who complained that drugs were misdelivered said one of his patients was suddenly hit with a much higher copay after the delivery model for her medication switched. 

With drugs procured exclusively through insurers, Ingram said it’s more likely the companies will insist on name-brand medications, which are more likely to come with rebates from the manufacturers. 

“What we’ve seen is that we’ll prescribe a biosimilar or generic version because it’s less costly for the patients — particularly patients that have a copay that’s a percent of cost,” he said. “And the insurance company will reject that and say you have to use the name brand, which is way more expensive.”