Payer Negotiations Regarding Specialty Pharmacy: Implications for Oncology Practices

Health plans and oncology practices alike are evaluating the use of specialty pharmacy as a resource for the delivery of cancer drugs. Specialty pharmacy organizations are creating large divisions to manage oncology spending and to provide not only oral drugs but injectable and infused drugs as well.

Negotiations between oncology centers and health plans regarding the use of specialty pharmacy are not always easy. A practice may choose to use a local specialty pharmacy company for select situations, but a health plan or a major employer may wish to use a different, perhaps national, company for other reasons. Both groups have been limited in the negotiation process by missing information about the complexity of the treatment of patients with cancer, and the impact that knowledge may have on the costs of cancer treatment.

One main negotiation issue for oncology practices and for health plans is whether the drugs used in the treatment of patients with cancer in the practice will be purchased by the practice (ie, stored internally and used at the time of treatment), which is often referred to as “buy and bill” or “direct acquisition,” or whether an external entity, such as a specialty pharmacy, will be used to supply the drugs to the practice before the patient arrives for treatment, which is referred to as “scrip for ship” or “external delivered” drug. Both models result in the drug designated in the original treatment plan supposedly sitting in the practice ready for the patient on the day of treatment, but these models are billed and paid through different mechanisms and entities.

Changes in Treatment Plans and Drug Costs

A recent national study shed light on these treatment complexity issues, and provided oncology practices and health plans better information for use in the negotiation process.1 The National Association of Managed Care Physicians (NAMCP) developed this study after facing questions from their membership (which is composed of medical directors of health plans, employers, and larger provider groups) about the costs and implications of different delivery models for oncology drugs.

The purpose of the study was to analyze the rate and volume of drug changes for patients with cancer during treatment.1 Despite some variations in payment structure and other drug delivery models in use across the country, the direct acquisition model and the external delivered model are, by far, the most common currently in use.

Although an oncologist determines a treatment regimen for a particular patient in advance, every patient is evaluated on the day of treatment to determine the health status and whether that planned treatment remains appropriate. If changes are indicated, the physician will approve them, and the treatment can continue.

When cancer drugs are acquired only by the provider, under buy and bill, any specific drug changes are accommodated from within the practice inventory, and the drugs actually used are billed to the health plan after treatment. Historically, these changes were noted in the patient’s paper chart, but the health plan was unaware of the changes, because the plan was billed only for the drugs actually used on the day of treatment.

With the rise in health plan and specialty pharmacy interest in cancer management, oncology practices began to realize that there may be an added cost to the health system if drugs were delivered before the day of treatment based on the original treatment plan. It was difficult to quantify the impact of the treatment changes that happened on the actual day of treatment when the only tracking of those changes was in the paper chart. One early ad hoc review did quantify that changes were happening, and that the possible costs to health plans would be significant if a mandate to shift all oncology drugs to the external delivered model occurred,2 but further documentation was needed on a national scale.

The national study commissioned by the NAMCP examined the incidence of changes in the original treatment plan versus the actual treatment regimen, as well as the potential cost of such changes to health plans under the direct acquisition model and the external delivered model, through access to deidentified data from national oncology electronic medical records.1 The modification in the actual treatment delivered and the associated cost implications were found to be significant.1

The cost implications were determined by comparing any changes from the original treatment plan to the regimen delivered to the patient on the day of the treatment. Most cancer drugs continue to be acquired by oncology practices and not delivered from external entities.

However, the purpose of this study was to evaluate the cost implications from existing clinical situations if the drugs were provided to the practice before the day of treatment by the direct acquisition or the external delivered model.1 The NAMCP study quantified the amount of drug doses that differed from the original treatment plan and the actual treatment, and then applied a market value generally equivalent to the amount that health plans may conceivably pay for a cancer drug when paying a specialty pharmacy to deliver that drug to the oncology practice—average wholesale price minus 17%.

The findings of the study showed what a health plan could be paying to an external entity that would ship the drug upon receiving a physician order, and then bill the health plan for drugs that were shipped but not used for treatment as planned.

When prescribed cancer drugs are shipped for a patient but are not used, this creates a costly situation for the patient, the practice, and the health plan. The cost for the drug is incurred at the point of shipment, not at the point of use (as it is under the direct acquisition model).

Most state pharmacy regulations prohibit the reuse or return of complex drugs, such as oncology drugs, which have tight handling parameters. Therefore, if a drug is issued under a prescription but is not actually used, it must be discarded appropriately according to biohazardous waste regulations; it cannot be returned or used for another patient. Consequently, the costs for an unused drug could include the patient’s copay, the specialty pharmacy claim paid by the health plan, and the staff and physical resource costs of the practice for ordering, receiving, storing, and disposing of any drugs not used for treatment.

The Cost of Cancer Drug Waste

The data set used in this study represents one of the most complete sources available to track the differences between planned and actual treatment. The study tracked differences for the eligible (deidentified) database, and the analysis—based on actual data for a specific 12-month period between April 1, 2011, and March 31, 2012—was noted to be conservative.1

About 1 in 10 cancer treatments were found to have variations be­­tween the originally planned regimen and the actual treatment used for breast, lung, colon, and prostate cancer. More than 90% of the variations involved the planned dose not being given. The remaining variations in treatment regimens involved increases or decreases in the dose.

The impact of this “waste” in drug variation amounted to an average of $5000 per treating physician, a total of $1,154,304 for the patients in the database, and an average of $62.14 of “waste” per patient per month for the 12 months tracked in the study.1 Potential high-impact “waste” dollars in drug use also resulted from low (<10%) variations in same-day treatment changes for chemotherapy drugs and for ancillary drugs that are delivered to the provider or practice.

The NAMCP study looked at costs that would be incurred solely for a drug that was ordered but not ultimately used for treating a patient, assigning a traditional rate found for specialty pharmacies to this “waste,” because the waste would only occur for the drugs ordered through, shipped by, and billed from a specialty pharmacy.

The drugs acquired and used by physician groups for treatment are billed only for the exact amount of the drug used for the treatment, regardless of the original prescription; therefore, there is no waste generated. The net amount paid for the drugs actually administered in the treatment regimen, whether through the direct acquisition model or external delivered model, would still be incurred by the health plan outside of any potential waste for drugs shipped but not administered.

Oncology Practices–Health Plan Negotiations

Much can happen between the original treatment plan and the day of treatment for a patient with cancer. Once a prescription is written, whether for cancer drugs or for supportive care drugs to be used during treatment, the drug must be used within its limited shelf life for the prescribed patient, or it must be discarded. It usually may not be returned to the distributor, and it definitely may not be used for another patient according to safe-handling pharmacy regulations. Even a small percentage of variation from planned treatment can lead to high costs for a cancer drug.

A recent report from the IMS Institute for Healthcare Informatics showed that the drug spending for oncology (both traditional and specialty drugs) was more than $23.2 billion in 2011.3

As noted before, the NAMCP study found that potentially 1 in 10 oncology drug doses changed between the original treatment plan and the actual treatment.1 If the impact of such changes led to potential waste of 10% of the 2011 oncology drug spending of $23.2 billion, that would amount to almost 50% of all the dollars spent in the United States on antiviral drugs (excluding anti-HIV), immunostimulating agents, erythropoietins, or hormonal agents.3
For the most part, the potential waste indicated in the NAMCP study does not yet exist, because the direct acquisition model is still the predominant model used across the country.1

There will likely always be a role for specialty pharmacy in oncology. In some states, pharmacy regulations mandate that oral oncology drugs be provided through an entity such as a specialty pharmacy. Many oncology practices have recently developed close relationships with local specialty pharmacies for the delivery of oncology drugs.

The new reality is that a balance will be required between the appropriate use of external delivered drugs and direct acquisition drugs, so that unnecessary costs are not incurred for drugs that are shipped but are not used on the day of treatment.

That may mean the development of a closer relationship between the treating practice and a local specialty pharmacy that can deliver on a just-in-time basis. It may mean health plan recognition of in-office or hospital-based pharmacies with closer physical proximity to the patient for just-in-time delivery for reimbursement policies.
It may also mean transformation of the specialty pharmacy model to accommodate the growing body of understanding of the complexity of the patient with cancer and the changes that can result in adjusted treatment regimens on the day of service.

Individual oncology practices can use this information, and can even conduct an internal review of the impact a change in drug delivery models may have for individual health plans, as a way of preparing for negotiations with health plans on the role of specialty pharmacy for cancer drugs in their market.

Questions to consider include:

  1. What relationships and experience do we have with local and health plan–suggested specialty pharmacies to date?
  2. Based on the volume of patients with cancer seen for this health plan, what cost implications are suggested by a potential change in policy from direct acquisition to external delivered drug models?
  3. What model or solutions would you recommend to avoid incurring “waste” for unused external delivered drugs?

In 2013, the proactive oncology practice is reviewing all of the alternatives and options for cost-effective care, and many are choosing to integrate specialty pharmacy drugs, but under carefully crafted situations and policies. Additional information, such as the NAMCP study, can provide useful, tangible data that can be used by health plans and by oncology practices in choosing effective solutions and avoiding unintended additional costs and consequences.

1. Holcombe D, Force W, Bradley K, et al. Impact on health plan cancer drug costs in different delivery models. J Manag Care Med. 2012;15:69-80.
2. Holcombe D. Is oncology compatible with specialty pharmacy? Community Oncol. 2005;2:173-181.
3. IMS Institute for Healthcare Informatics. The use of medicines in the United States: review of 2011. Revised May 30, 2012. Accessed January 10, 2013.

Related Items

Urology Practice Management logo
Subscribe to Urology Practice Management

Stay up to date with urology news & updates by subscribing to receive the free UPM print publications or e‑Newsletters.

UPM e-Newsletter
UPM print publication