The power struggle in infusion centers

(Vertically integrated insurers are winning)

I’m back to talking about specialty pharmacy. That’s because I recently recorded something about specialty pharmacy (stay tuned!) and always have more to say.

I’ve previously written about specialty pharmacy:

BUT I haven’t really written about infusion care, which is an important aspect of specialty pharmacy. 

One of the things I love/hate about specialty pharmacy is that it’s so blatantly driven by reimbursement. It makes it a fascinating window into the cutthroat strategies that hospitals and insurers are employing against each other (meanwhile the patients just get tossed around, but who cares about cancer patients when there’s a power struggle to be had!).

This newsletter is about two of the fronts on which hospitals and insurers are battling over reimbursement vis a vis infusion care: site-of-care and drug distribution strategy. There’s always more to be said, though, so reply to this email or comment below if you have additional information.

Specialty drugs

ICYMI: Specialty pharmacies are a subset of the overall pharmacy market. They fulfill and deliver more complex drugs than the typical antibiotic. Many specialty drugs have to be infused into the patient using an IV, and many of them have special storage requirements, like refrigeration. Because specialty drugs tend to be quite a bit more expensive than non-specialty drugs, and because delivering the drug into a patient requires a more hands-on approach from providers, there’s a lot of money sloshing around in specialty pharmacy.

Insurers recognized this quickly and locked up the top specialty pharmacies within vertically integrated entities that include the pharmacy as well as a PBM and an insurer arm.

This vertical integration means that it’s very challenging to build anything new. I wrote this back in July:

The U.S. has about 4 main insurers. All of them have their own specialty pharmacies. Aetna, for example, is owned by CVS, which has CVS Caremark, the specialty pharmacy, attached.

Because specialty drugs are so expensive, virtually no patients can afford to go around the specialty pharmacy system. For that matter, because each major insurer more or less requires patients to use their in-house specialty pharmacy, there really isn’t a way to go around, unless you’re negotiating with AbbVie yourself and paying hundreds of thousands of dollars a year fully out of pocket.

It also means that providers are constantly battling this system when prescribing and delivering drugs.

Sites of care

Many specialty drugs have to be infused into a patient through an IV line. This includes drugs like infliximab for autoimmune disease and many oncology drugs. Many of these drugs are delivered on an outpatient, ongoing basis at one of several sites of care:

  • Hospital outpatient department (HOPD) infusion centers 

  • Off-site infusion centers

  • Home infusion

Unless the patient is prone to allergic reaction or is very frail, or the drug has a high rate of serious side effects, it doesn’t really matter where the patient receives the medication—at least from a medical standpoint. From a payment (and, frankly, power struggle) standpoint, it very much matters where the patient receives the medication.

Hospitals make more on every service than standalone doctors’ offices—Medicare automatically reimburses more, and large, integrated hospital systems are able to negotiate more out of private insurers.

Hospitals have leveraged this to their advantage. By locating outpatient provider offices and clinics on the hospital’s campus, the hospital can automatically bill more for those services.

This is one of those widely known accounting privileges of hospitals, and policymakers have tried to rein it in. In 2017, CMS began something called “site-neutral payments,” which began slowly rolling back this disparity. (Ferocious lobbying by hospital groups delayed the policy’s implementation, but just two months ago the Supreme Court declined to hear the hospital groups’ case, clearing the way for the policy to take place.)

HOPD (hospital outpatient department) upcharging also applies to infusion centers on hospital grounds. In short, infusions received at HOPD centers are the most expensive, followed by infusions at standalone clinics, and then infusions at home.1 

Because of the cost difference, many insurers have started to require that patients receive infusions at standalone clinics, or even with infusion at home. This has become so prevalent that hospital consulting groups like the Advisory Board have begun recommending hospitals invest in an at-home infusion program.

Acquiring the drugs

The vertical integration of specialty pharmacy comes into play with another part of the drug acquisition and infusion pipeline: How hospitals acquire the drugs.

In recent years, insurers have provoked a shift from something called buy-and-bill to procedures called white-bagging and brown-bagging. This shift was likely accelerated because of COVID.


This is where a pharmacy buys a large quantity of drug from the drug distributor and holds it until a patient is prescribed that drug. This is how non-specialty pharmacies typically operate, and it’s the most traditional model.


This is where a provider is required by the insurer to buy the drug on an individual patient basis, routed through the insurer/PBM/specialty pharmacy entity. This has increasingly become the standard as insurers begin to flex their vertically integrated muscle against providers.


Brown-bagging is the most Wild West of the options. This is where the provider is required by the insurer to put in a prescription for the specialty drug, and then the insurer sends the specialty drug to the patient, who is responsible for properly storing it and bringing it to the site of care (or holding it until the at-home infusion nurse arrives).

(Ask me about the time my apartment building lost $3,000 of specialty medication in the package room—and by the time it was found, it had been baking in 80 degree heat for several days.)

Providers have complained about the shift from buy-and-bill to white- and brown-bagging, most recently in the form of a whitepaper published by the American Hospital Association. The whitepaper argues—fairly—that white- and brown-bagging policies constrain physicians from easily modulating treatment plans and put the onus of drug storage on the patient. America’s Health Insurance Plans (AHIP) responded that specialty pharmacies are an essential go-between to ensure patient safety. (In reality, it appears that specialty pharmacies are an essential go-between to ensure UnitedHealth’s continued dominance.)


Finally, there’s a fourth term: Clear-bagging. This is where the drug routes through the provider’s specialty pharmacy but is fulfilled by the insurer’s specialty pharmacy. This is nearly the same as buy-and-bill, but it “moves billing and payment to the front of the process, while securing reimbursement at known terms, usually with quicker turnaround,” according to Michele Rice, consulting director of pharmacy advisory services at Vizient. 

I suspect this strategy has become more popular as more hospital systems contract out their specialty pharmacy programs from one of the national chains (which are, in turn, owned by major insurers)—it means there’s a nonzero chance that the provider’s specialty pharmacy and the insurer’s specialty pharmacy are…the same company.


If it wasn’t already clear, let me state it outright: The shift in strategies is being driven by reimbursement, rather than patient care. Under the now increasingly outdated buy-and-bill model, hospitals could receive insurer reimbursement for the drug itself, storing and handling the drug, and administering the drug. And because of the 340B program, hospitals had great margins on these drugs. 

But under the white-, brown-, and clear-bagging models, the hospital can only receive reimbursement for administering the drug, because the insurer’s specialty pharmacy gets reimbursed for the rest

Reimbursement under medical vs. pharmaceutical benefit

As I was writing this, it became clear that there’s a whole other newsletter to be had on the question of specialty pharmacy billing alone. Not only is the reimbursement process different for at-home infusion, it also varies wildly depending on whether it’s processed through the pharmaceutical or the medical side of the patient’s insurance.

In short: Infused drugs fall at the intersection of medical care and pharmaceutical care. Because for SOME REASON we bill these things entirely separately, providers have more or less been choosing which side of the insurance to bill. Insurers are now increasingly trying to funnel providers toward the pharmaceutical side of the benefit, because insurers have more cost control abilities on that side. But this battle is ongoing.


No one is innocent here (except the cancer patients…) but this is an important power struggle that will only continue to heat up as specialty drugs take over more of insurers’ yearly spend. It’s also a proxy war for the ongoing struggle between vertically integrated insurers and ever-expanding hospital systems. Based on the shifts in specialty pharmacy, it looks like insurers are winning.

This information shouldn’t be taken as investment advice (obviously), and the opinions expressed are entirely my own, not representative of my employer or anyone else.


Interestingly, HOPD billing is also kind of arbitrary—hospitals can, and have, reclassified sites for billing purposes—but most hospitals treat it as a given and insurers react as such.