White Bagging Battle: Behind Vermont’s Drug Pricing Standoff

A major shift in Vermont’s healthcare landscape is unfolding in Montpelier—one that could rewire how hospitals receive funding, how drugs are delivered, and who controls pricing power in the state’s medical system. The spark? A bill known as H.482, passed by the House and now under review by the Senate Committee on Health and Welfare.

While the bill’s language focuses on insurer solvency and Green Mountain Care Board oversight, the debate surrounding it has revealed a much deeper battle between Vermont’s hospitals and insurers—particularly Blue Cross Blue Shield of Vermont (BCBSVT)—over prescription drug pricing, procurement power, and the opaque role of Pharmacy Benefit Managers (PBMs), third-party intermediaries that manage drug benefits on behalf of insurers.

What H.482 Actually Does

H.482 would give the Green Mountain Care Board (GMCB) new authority to:

Reduce a hospital’s reimbursement rates if an insurer is at risk of insolvency.
Appoint an independent observer to oversee hospital operations if a facility is out of compliance with its budget.
Reconcile over-budget hospital revenues from previous fiscal years by adjusting future budgets accordingly.

Although hospitals are already subject to GMCB budget review, this bill would allow state regulators to intervene directly in hospital-insurer financial relationships—with reimbursement cuts aimed at preserving an insurer’s financial stability. Unsurprisingly, it’s BCBSVT, Vermont’s largest insurer, at the center of the discussion.

What This Has to Do with Drug Pricing

During committee hearings, the conversation shifted into a much hotter issue: the return of “white bagging.”

White bagging is a practice where insurers or PBMs require that specialty medications—like chemotherapy drugs—be sourced through their own pharmacy networks, not the hospital’s. The drugs are shipped directly to the hospital for administration, but the hospital:

Doesn’t purchase the drug.
Can’t mark up the cost.
Often isn’t reimbursed for storage, waste disposal, or administration costs.

Hospitals say this model strips them of both financial and clinical control. Insurers say it’s a necessary way to rein in drug costs. BCBSVT has testified that if hospitals would just “charge less,” there’d be no need for white bagging.

But that argument misses something big.

The Pricing Problem No One Wants to Talk About

One of the most repeated claims from Blue Cross Blue Shield of Vermont during recent testimony is that hospitals are simply charging too much for medications—and that if they’d lower their prices, there’d be no need for white bagging.

That argument, however, skips over a central truth: hospitals are paying more for these drugs precisely because PBMs have rigged the pricing system in their own favor.

PBMs are not wholesalers, and their negotiated rates apply only to plan-covered patients through designated pharmacies.

Here’s how the distortion works:

PBMs (Pharmacy Benefit Managers) like Prime Therapeutics—used by BCBSVT—leverage their control over drug formularies to negotiate massive rebates and discounts from manufacturers. These deals are secretive and allow PBMs to acquire certain drugs at 30–70% less than the published Wholesale Acquisition Cost (WAC).
To make up for those deep discounts, manufacturers raise the WAC—the price that hospitals must pay through traditional wholesalers like McKesson or Cardinal.
Because hospitals are excluded from PBM contracts, they’re stuck paying inflated prices. Unlike PBMs, hospitals don’t get rebates or backend discounts, nor can they negotiate at the same volume.
PBMs then ship these deeply discounted drugs directly to hospitals under white bagging policies, cutting hospitals out of the purchase process altogether—but still expecting them to administer, store, and manage the drug at their own cost.
The end result is that PBMs get to play both sides: they control drug prices through negotiations, and then turn around and blame hospitals for charging more—when hospitals are forced to operate under a price floor the PBMs helped inflate.

In effect, PBMs create a system where their “savings” only exist because someone else—namely, Vermont hospitals—is overpaying. The more they save, the more the rest of the market is distorted to cover the difference.

So when BCBSVT criticizes hospital markups, it’s more than disingenuous—it’s a deliberate omission of the fact that their own PBM partnerships are the source of the very pricing problem they claim to be solving.

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What’s at Stake for Vermont

Hospitals stand to lose up to $49 million per year if white bagging is fully reinstated and PBMs control more of the drug pipeline. Rural facilities like Rutland Regional Medical Center, which rely heavily on drug administration revenue, could be hit hard.

Meanwhile, BCBSVT and its PBM partners would continue booking savings that are rarely passed on to patients. Studies show white bagging rarely lowers out-of-pocket costs—it just shifts profits upstream.

Beyond finances, white bagging introduces patient care risks, including:

Delayed shipments.
Inflexible dosing.
Liability confusion in adverse drug events.

And with less purchasing volume, hospitals lose even more negotiating power with wholesalers—locking them further out of the drug pricing game.

What Vermont Can Actually Do

Rather than playing by PBM rules, Vermont lawmakers have a rare opportunity to fight back:

Create a statewide bulk purchasing system
Have hospitals, clinics, and public facilities submit annual drug needs. The state negotiates as a single buyer for better prices directly from wholesalers or manufacturers. This isn’t a PBM—it’s a buyers’ union.
Request a federal pilot program waiver
Vermont’s congressional delegation could push to let the state test direct drug purchasing across public and private sectors. No need to wait for national PBM reform—just give Vermont the freedom to act.
Order a fast feasibility study
The Green Mountain Care Board could estimate savings in weeks. Most of the data is already in hand; it just takes willpower—not another task force.

The Bottom Line

H.482 may have started as a bill to protect insurers from financial collapse, but it’s evolved into something much bigger: a referendum on whether Vermont hospitals must keep playing in a rigged pricing system controlled by PBMs.

If the Legislature wants to protect access, lower costs, and keep our hospitals solvent, it shouldn’t hand more power to the middlemen. It should start buying smarter—and prove there’s another way. Vermont has always led on healthcare innovation—not by bowing to industry, but by charting its own path. It’s time to do it again.

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Dave Soulia | FYIVT

#fyivt #VermontPolitics #HealthcareReform #PBMProfit

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