With the stroke of a pen, some commercial payers are now denying payments for specialty drugs unless hospitals buy them from certain pharmacies, a development that’s not sitting well with hospitals for financial and patient-care reasons, attorneys say. The so-called white-bagging policies are positioned as “amendments” or “expansions” to contracts, but attorneys said they are unilateral changes to terms in the middle of a contract, and hospitals have grounds to fight them.
Commercial payers are carving out high-cost drugs midway through negotiated contracts and requiring hospitals to buy them from nonhospital suppliers on lists approved by the payers, said attorney Jim Boswell, with King & Spalding in Atlanta, Georgia, at a Nov. 11 webinar sponsored by the firm. “For some providers, it’s millions of dollars a year because it’s taking a category of items that had been under the contract and that were going to be paid at the negotiated price above cost and moving it out of the contract entirely,” he said.
A few examples:
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In August, Cigna announced[1] that “Per our Specialty Medical Injectables with Reimbursement Restriction guidelines, certain specialty medical injectables administered in the outpatient setting must be dispensed and their claims must be submitted by a specialty pharmacy with which Cigna has a reimbursement arrangement. We will not reimburse facilities that purchase these injectables directly from specialty pharmacies, manufacturers, or wholesalers. The Specialty Medical Injectables with Reimbursement Restriction list only applies to providers who bill Cigna using a hospital fee schedule; it does not apply to those who bill Cigna using their own physician fee schedules.”
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Effective Oct. 1 (delayed from April 1), UnitedHealthcare[2] said, “We are expanding our existing specialty pharmacy requirements such that hospitals will be required to obtain certain specialty medications from the specialty pharmacies listed in the table below, unless otherwise authorized by us.…In the event a hospital does not obtain the specialty medication through the specialty pharmacy listed below, UnitedHealthcare will issue a denial of payment for the medication for failure to follow the protocol. Hospitals may not bill members for medication that is denied for failure to follow the protocol.”
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Anthem Blue Cross in California said, “Providers will be required to obtain specialty pharmacy medications administered in the office or outpatient hospital setting through CVS Specialty effective July 1, 2020.”[3]
‘This Is a Widespread Problem’
Although specialty drugs are the latest focus, some payers also have amended contracts unilaterally to deny payment unless hospitals use certain facilities for imaging or outpatient surgery, Boswell said. “This is a widespread problem that memos are being issued in the middle of a contract term that are basically moving whole areas of the contract out,” he contended.
Specialty drugs and biologicals are used to manage highly complex, often chronic diseases, such as cancer, rheumatoid arthritis and multiple sclerosis. The expensive drugs typically aren’t stocked at retail pharmacies and come from hospital pharmacies, or at least they did before the policies were implemented, Boswell noted.
In addition to the effect of white-bagging policies on their finances, hospitals are concerned about the ramifications for patient care and the supply chain, said attorney Jennifer Lewin, with King & Spalding in Atlanta. Hospitals want to be sure specialty pharmacies maintain the same patient safety standards and quality control as their in-house pharmacies, Lewin explained. There are other concerns around getting the drugs in time for the patient’s appointment “and the potential to increase medical waste” if delivery is delayed.
Lewin said payers explain white-bagging policies in a few ways. Payers are still covering the drugs and don’t interfere with how physicians administer them. “Payers say the policies save money, and employers want to find a way to control specialty pharmacy costs,” Lewin explained. The policies aren’t new, payers contend; they’re just being expanded.
Keep an Eye Out for Protocols, Amendments
Provisions in some health plan contracts can open the door to white-bagging policies, said attorney Daron Tooch, with King & Spalding in Los Angeles. Hospitals may agree to be bound by protocols, manuals and policies. He recommends hospitals resist these terms. Instead, contracts could say that “hospitals will use reasonable efforts to comply with protocols” or that protocols are for administrative purposes (e.g., utilization review, peer review), not for reimbursement or clinical issues, Tooch said. “There are ways to mitigate language so hospitals are not bound by every new protocol or manual change.”
Payers also may drop notice amendments on hospitals. They send letters informing hospitals of an amendment to the contract that will take effect unless they object. “I know of no industry where this is accepted—where one party can amend the contract with notice,” Tooch said. “It’s language we have been fighting. It’s not easy to get rid of the language, but there are ways to soften it.”
Hospitals also may be successful in arbitration in “attacking changes to policies and manuals,” he said. For example, amendments must be agreed to in writing by both sides.
Extracting specialty drug payments from contracts with hospitals also upsets the delicate balance of pricing they agree to during negotiations with payers, Boswell said. Specialty drugs were included at the time hospitals negotiated the contracts and figure into the prices they accepted for a variety of services based on historical utilization and rates, he said. “Ultimately dollars were moved around in the contract so the hospital agreed to lower emergency department rates because of what it would receive for outpatient high-cost drugs,” for example, he explained. “If the hospital had known the plan would enact a new policy of carving out high-cost drugs, it would have negotiated differently. It changes basic negotiation assumptions.” He alleged this could be the basis for a breach of contract argument that the hospital has been deprived the value of the contract it negotiated. “If someone merely sends a letter and objects, it’s not likely to produce any change,” Boswell said.
There are other possible responses to white-bagging policies. The first step is for hospitals to object. “That’s a given. Is it enough? Often it’s not,” Boswell noted. Another option is for hospitals to terminate their agreement due to a material change if the agreement allows that, although providers often are loathe to do that. They also could decline to service patients from payers with white-bagging policies, but it’s not a great idea in terms of continuity of care and liability. Litigation also is an option to reverse white-bagging policies.
“The best solution is to address it in contracting,” he said. Contracting language can “prospectively and preemptively address them.”
Contact Boswell at jboswell@kslaw.com, Tooch at dtooch@kslaw.com and Lewin at jlewin@kslaw.com.