Addressing High Drug Costs for Patient Access and Affordability

Policymakers at the federal and state levels continue to pay significant attention to the impact of high prescription drug costs on patients’ ability to afford their drugs. And, while much of the discussion has been on the role of drug manufacturers and pharmacy benefit managers, a recent Oliver Wyman study commissioned by AHIP shows healthcare providers like doctors and hospitals also contribute to high drug prices.

“White Bagging” vs. “Buy and Bill”

Before looking at the data, it is important to understand site of service policies and how they contribute to the prices consumers pay for prescription drugs. Many health insurers require certain prescription drugs to be delivered through a specialty pharmacy directly to a provider’s office, hospital, or other facility so they can be administered to the patient, typically through injection or infusion. Common examples of drugs in this category include Stelara, Remicade and HIV injectables. This practice, known as “white bagging”, helps control prescription drug costs while ensuring access to clinically appropriate medications. White bagging is one mechanism available to insurers to control costs in addition to network strategy, provider contracting, and benefit design. Insurance companies must consider all mechanisms to control costs and provide access, including white bagging, when determining coverage of specialty drugs and the impact on affordability.

By requiring a specialty pharmacy to dispense certain drugs directly to a provider, insurance companies can avoid the traditional “buy and bill” system hospitals and other providers use. Under “buy and bill”, hospitals buy the drug and typically charge commercial insurers more than their acquisition costs and retain the additional revenue. In fact, a recent study using claims data from Blue Cross Blue Shield companies showed hospitals impose large markups for oncology medications and other physician-administered drugs. Researchers from the University of California at Berkeley School of Public Health noted these markups increased for hospitals eligible for the 340B Drug Pricing Program and decreased for community-based physician practices. More specifically, hospitals eligible for federally mandated discounts under the 340B Program charge insurers approximately 300% higher for infusion medications while only charging Medicare 6% higher due to greater restrictions on allowed markups in the federal health insurance program. In addition to having to reimburse higher rates, the real dollar value of provider markups can vary greatly, which can lead to unpredictable spending for commercial insurers.

Markups Translate Into Higher Premiums for Everyone

Oliver Wyman’s study used 2021 commercial data from MarketScan and analyzed markups for 21 drugs that are typically sourced through specialty pharmacies and providers. On average, their analysis shows providers charge 42% more than a specialty pharmacy for the same drug. In looking at the top 10 drugs by total dollars, hospitals charge 50–103% more versus provider offices who charge 2–33% more than acquisition costs. Using estimated 2023 enrollment data, buy and bill policies translate to $13.1 billion in additional insurance premium costs across the individual, small group, and large group markets in 2024. More specifically, premiums increased by an average of $48 for individual coverage and $175 for large group family coverage. In looking at CareFirst’s specific jurisdictions, Washington, D.C. has the highest provider markups with an average of $49 for individual coverage and $193 for large group family coverage.

Policy Solutions Are Needed

The data clearly demonstrates the need for commercial insurers to utilize innovative programs and strategies to promote prescription drug affordability while maintaining access. Insurers need flexibility to deploy tools to control premium increases and ensure real value for consumers. When patients are administered a lower-priced drug, premiums are generally lower for everyone. This is critical given nearly $1 in every $3 CareFirst BlueCross BlueShield (CareFirst) spends on members’ claims is for a prescription drug. To promote healthcare affordability, CareFirst encourages policymakers to support common-sense solutions that advance price competition and limit provider markups so everyone has access to the medications they need at a price they can afford.