What’s in the Bag? Revealing hospitals' excessive markups on specialty drugs

prescription drugs
8 min read
Nolan Jekich,
Adam Furman
November 10th, 2022

 Everyone should be able to access their prescription drugs at an affordable rate. With the cost of prescription drugs continuing to rise, drugs that treat the most severe conditions and illnesses are no exception.  

According to the National Association of Specialty Pharmacy, specialty drugs are medications generally used to treat complex, chronic or rare conditions. Drugs used to treat cancer, asthma, multiple sclerosis, and other serious conditions. Because the drugs require special handling, storing and/or administering, they are not accessible via traditional pharmacies like Walgreens or CVS.  

Not only do these drugs require special management, but they cost significantly more than most medications. According to a recent study published by the Journal of the American Medical Association, launch prices for brand name prescription drugs have increased 20% per year between 2008 to 2021. The study also found that the share of drugs priced at $150,000 per year or more rose from 9% in 2008 – 2013 to 47% in 2020 – 2021.  

While some stakeholders seek to promote and encourage drug affordability, other stakeholders are taking advantage of the system by marking up the price of the drugs to increase their profits. The trend of these excessive markups is pushing the boundaries of drug affordability for patients and hard-working families.  

Now more than ever, we need to explore and promote comprehensive strategies that promote drug affordability.  

The Regence Health Policy center spoke with Adam Furman, Pharmacy Clinical Program Director for Regence BlueCross BlueShield to address the different strategies that promote drug affordability, reveal the hidden incentives of opposing cost control strategies like white bagging, and what policymakers and stakeholders can do to advance accessible and affordable prescription drug policies. 

Adam Furman is a pharmacy clinical program director who joined Regence in March of 2018. He has a background in various areas of pharmacy, including specialty, long term care, and the community setting. His primary responsibilities include implementing and managing specialty drug initiatives, with key areas of focus including the management of rare diseases and work within the quickly expanding gene therapy space. Prior to joining Regence, he was the Supervisor of Clinical Services at a regional specialty pharmacy. He is a graduate of the Oregon State University College of Pharmacy and is based in Portland, OR.

Exploring the world of specialty drugs  


White bagging:
when a specialty pharmacy ships a patient specific medication to the office of the health care provider (hospital or clinic). The health care provider holds the medication and administers it to the patient. * 

Brown bagging:
when a patient obtains their medication from a pharmacy (either in-person or by mail) and takes the medication to a health care provider to be administered. * 

Clear bagging:
when a medication that is ordered by a health care provider from a pharmacy associated with the provider’s office or health system. The medication is delivered to the provider’s office for administration to the patient in the clinical setting. * 

*In clear, brown and white bagging scenarios, the pharmacy, not the provider, bills for the drug.

A method in which hospitals, health systems and clinics purchase specialty drugs directly from a distributor for their provider to administer.  

Can you give us a 101 on the different methods of obtaining specialty drugs and why some methods would be preferred over others?  

There are numerous channels that providers can utilize to obtain specialty drugs, each with unique challenges and benefits. I will review a couple important acquisition channels, that play a key role in the management of specialty medication costs. 

The most common channel used by healthcare providers is drug acquisition from a wholesaler or specialty distributor.  When buying directly from a wholesaler or distributor, health care providers will typically leverage their buying power to negotiate lower price points or utilize drug discount programs for the acquisition of specialty drugs. This allows providers to purchase drugs at low prices.

Once acquired, drugs are stored at the provider’s office until the medication is administered in an infusion center, hospital, or alternate provider-administered setting. This practice is typically referred to as “buy and bill,” because the provider is responsible for both the acquisition and billing of the therapy. Through this channel, the provider retains control of the drug at all times, which means the drug, or the dose of the drug can be changed quickly, with limited lag time. The challenges to this method come in several ways:  

List prices for commercially available specialty drugs has continued to rise at an unsustainable pace. Current drug pricing dynamics are outpacing the ability to appropriately manage historical reimbursement rates. This has led to the allowance of excessive margin in many treatment settings. Because of these excessive markups, there is a lack of transparency between what the drug costs and how much the patient is actually paying for it across different provider settings.  

In a recently published AHIP study
, it was shown that provider drug mark-ups in the outpatient hospital setting results in significant pricing variability, with therapies costing twice as much on average, compared to if a therapy was acquired from a specialty pharmacy. These significant pricing distortions are becoming more noticeable to patients and employers, that are looking for strategies to control specialty drug costs.  

To promote safe and effective drug affordability, drive transparency, and encourage competition, health plans, employers and unions began exploring alternative drug acquisition strategies. One key strategy involves the use of specialty pharmacies for the dispensing of these costly medications.  

What is a specialty pharmacy? How do the processes differ for providers to order drugs from a distributor than if they were ordered from a specialty pharmacy?  

Unlike regular brick and mortar pharmacies, you can’t walk up and pick up your prescription from a specialty pharmacy. Specialty pharmacies house a select number of drugs that treat the most serious conditions and illnesses. These pharmacies require pharmacists with extensive clinical expertise and education to safely administer, store and handle the specialty drugs.  

Specialty pharmacies must adhere to strict guidelines that require sophisticated storing conditions, specialized dispensing, and is designed to provide a comprehensive and coordinated model of care for patients with chronic illnesses and complex medical conditions.  

Specialty pharmacies lower a patient’s health care costs, can quickly ship out new medications if there is a change in treatment and prevent health care providers from charging outrageous fees to buy and store the medication themselves. White bagging is the process in which a specialty pharmacy will ship a patient-specific medication to the hospital or clinic for administration. Unfortunately, this strategy removes the provider from the dispensing of the specialty medication but allows for more predictable and market-aligned reimbursement.  

With this strategy, there is significantly less markup on the drug, which may result in thousands of dollars of savings for members, employers, and health plans every time a specialty medication is dispensed. Using this method ensures more competitive rates are paid for the drug without sacrificing clinical value or effectiveness. Although health care providers have made patient safety and liability arguments; which will be discussed below, as the foundation for their opposition to white bagging and alternate drug acquisition programs, studies have shown an underlying incentive for health care providers to oppose certain drug acquisition practices, unrelated to patient safety.  

Accredited specialty pharmacies require strict controls for handling, storing, and shipping specialty medications to patients and providers. This includes processes and procedures which ensure medication temperatures are monitored and integrity is maintained during the shipping process. In addition, specialty pharmacies efficiently work with providers to address medication and dosing changes. Although unexpected shipping delays can occur, health plans, providers and specialty pharmacies can work together to solve this challenge, to ensure the member is able to get their treatment as scheduled. Therefore, arguments made by parties that are opposed to alternative drug acquisition that point to how specialty drugs are shipped, stored, and handled prior to reaching the provider, are misguided.  

Lastly, a hybrid approach to provider “buy and bill” and white bagging, is clear bagging. This pathway uses the health care provider’s own internal specialty pharmacy to dispense the specialty medication to the provider, prior to administration.

This pathway allows the medication to be kept under the health system’s control at all times. Using pharmacy infrastructure for credentialing health system pharmacies and billing for these therapies, reduces drug markups and addresses any clinical concerns health systems may point to, as opposition to alternate drug acquisition. Since distribution is handled by the provider’s associated specialty pharmacy, medications are even more likely to be readily available to patients.

As such, clear bagging is a strategy that has been introduced that removes any clinical pushback and promotes drug affordability, for those health systems with internal specialty pharmacies. 

Due to the ever-changing market dynamics of specialty drug management, it is imperative that we continue to use all available strategies to promote affordable, high quality and more convenient drug distribution and administration.   

Stakeholders oppose white-bagging practices claiming patient safety is at risk. Is that the case? Are there any underlying incentives to oppose white bagging? Why are the costs of these drugs often more than double the price than if they were purchased from a specialty pharmacy?  

There are many reasons why stakeholders (i.e. providers and hospitals) may publicly oppose white-bagging and other alternative drug acquisition strategies. While these stakeholders may point to clinical impacts of having a specialty pharmacy as part of the dispensing process, these talking points were addressed above and can be solved for. At the end of the day, the main oppositional drivers are business and operational impacts, such as a change in workflow or loss of revenue. On average, hospitals have charged more than double the price for the same specialty drugs than specialty pharmacies. From 2018-2020, the cost of a single drug treatment from a hospital costs an average of $7,000 more than if the same therapy was purchased through a specialty pharmacy.  

Unfortunately, specialty drugs are expensive. Egregious markups by hospitals and physician offices have hurt employers, unions and health plans aiming to advance affordable prescription drugs. Providers have claimed patient safety is at risk and advocate for the removal of white bagging practices but fail to recognize not all drugs are white bagged and most health plans have exception processes in place to prevent the disruption of timely, safe patient care.  

What should policymakers consider if anti-white bagging bills are introduced within their state? 

Policymakers need to understand the importance that alternate acquisition programs play in keeping costs down for the citizens of the state. Drug pricing dynamics are quickly changing and the cost of medications are rapidly increasing. Patients and employers need access to affordable medications. Limiting the markup of medications is a key area to focus on, that will lead to significant healthcare savings, without requiring the patient to change the therapy they are on, or the dose they are receiving.  

Providers that are willing to accept reimbursement rates that are similar to the cost of therapies from a specialty pharmacy should not be excluded from dispensing these medications. However, for providers and health systems unwilling to do so, white and clear bagging offer viable and safe solutions to keep medication costs down, which will allow for greater medication access, as healthcare dollars can be spread further. 

Anti-white bagging bills may claim to maintain safe patient access to necessary medications, however, the upcharge from the provider ultimately hurts affordable access to medications and becomes another factor in rising drug costs and financial barriers to patient’s life-saving medications. A balance is struck by permitting alternate acquisition programs, especially with the rising popularity of clear bagging, that ensure safe medication use while preserving affordability.  

The path forward  

Alternative drug acquisition strategies are mere symptoms of unsustainable, high drug costs. Although providers cannot control the list price of drugs, it is unreasonable to be charged $7,000 or more for lifesaving medications than if they were received through specialty pharmacies. No one solution will fix the current system of rising drug costs, but limiting the types of solutions available hinders our opportunities to advance accessible and affordable health care for everyone.  



Nolan Jekich is a Public Policy Specialist for the RHPC. He manages all communication channels, copy and communication strategies. Additionally, he supports public affairs and stakeholder engagement across Utah and Idaho. Prior to joining Regence, Jekich brings 4+ years' experience working in the advertising industry specializing in copywriting, digital and email marketing to help businesses advance their marketing and sales goals.
Adam Furman is a pharmacy clinical program director who joined Regence in March of 2018. He has a background in various areas of pharmacy, including specialty, long term care, and the community setting. His primary responsibilities include implementing and managing specialty drug initiatives, with key areas of focus including the management of rare diseases and work within the quickly expanding gene therapy space. Prior to joining Regence, he was the Supervisor of Clinical Services at a regional specialty pharmacy. He is a graduate of the Oregon State University College of Pharmacy and is based in Portland, OR.