Alternative Funding Programs: A Tempting Choice Laden With Risks

It is widely acknowledged that the cost of specialty drugs pose a significant concern for employers and health plan executives. Ongoing trends show the issue remains elusive, causing unease among stakeholders. Reasons for unease include:

• Spending on specialty drugs reached $315 billion in 2022, an increase of 40% compared to 2017¹
• Specialty drugs comprised 50% of total drug spending in 2021 despite making up less than 20% of the number of retail prescriptions filled and less than 10% of the number of non-retail prescriptions filled²
• In 2021, 1% of new specialty drug prescriptions in the retail setting accounted for 20% of spending²

Plan sponsors shell out an average of $38,000 a year to cover a single member’s specialty drug versus $492 for a nonspecialty drug³

No wonder employers and health plans look for ways to manage pharmacy-billed specialty drug costs. Alternative funding programs (AFPs) are one option. These programs either carve out high-cost drugs from a health insurance plan or automatically deny prior authorization (PA) for these medications and seek alternative funding. A study published in 2022 found that 1 in 10 employers with at least 5,000 employees were working with a vendor that sells AFPs, and more than one-fourth were considering doing so.⁴

But buyer beware: these programs are fraught with uncertainty and risk. AFPs are not a form of insurance; rather, they replace insurance. An employer or health plan removes a designated number of specialty drugs from its formulary or PA is denied. Members who require access to these medications but lack coverage might be eligible for financial assistance. The AFP vendor seeks to register these members with a pharmaceutical company’s patient assistance program (PAP). “Assistance, not insurance, covers patients’ medication costs,” according to the Alliance for Patient Access.⁵

Thus, certain patients are left exposed because their income level disqualifies them from assistance, noted a recent article in ONSVoice.⁶ In such cases, employers can but don’t have to, approve the previously denied PA. The AFP might look to a charitable foundation for assistance while awaiting a verdict from the PAP. In such cases, the for-profit AFP ends up siphoning off–and profiting from–funds meant for low-income and uninsured individuals. The Alliance for Patient Access noted that AFPs “create an inevitable zero-sum game. Patients who are technically insured but lack coverage for their prescription medication must now compete with low-income patients and uninsured patients for limited assistance funding.”⁵

Even when AFPs work as intended, patients are subject to treatment delays, given that the PAP application process can take up to 4 weeks or longer. Patient out-of-pocket costs can also increase since PAP dollars reach a ceiling that those taking costly medications will likely reach. AFPs are structured so employers and plans are not responsible for the costs above the ceiling, but patients can be.⁵

Nothing prevents employers and health plans from adopting an AFP. An article in Medhealth Review offered the following guidance when considering such:

• AFPs do not offer contractual guarantees, which makes it difficult to measure program success and guarantees members will have affordable access to medications
• Consider the impact on your pharmacy benefit manager (PBM) relationship. Contract terms and rebate amounts might change, and the PBM may charge a fee for working with the AFP
• Understand the AFP’s fee structure⁷

It appears that health plans are starting to keep AFPs at arm’s length, but employers continue to be lured by their potential savings, according to a post in Drug Channels.⁸ After accessing and analyzing the Pharmaceutical Strategies Group’s 2023 Trends in Specialty Benefit Design, Adam J Fein, PhD, noted that in 2022, 14% of employer respondents (n=114) reported using an AFP, compared with 6% in 2021. For health plan respondents (n=30), in 2022, 7% reported such, compared with 10% in 2021. Dr Fein acknowledged the small sample size means the decline reported by health plans is not meaningful. “However,” he added, “I suspect that health plans are much more sensitive to the potential legal and regulatory risks of AFPs.”

References

1. Competition in prescription drug markets, 2017-2022. US Department of Health & Human Services. Published December 2023. Accessed February 14, 2024. https://aspe.hhs.gov/sites/default/files/documents/1aa9c46b849246ea53f2d69825a32ac8/competition-prescription-drug-markets.pdf
2. Trends in prescription drug spending, 2016-2021. Department of Health & Human Services. Published September 2022. Accessed February 14, 2024. https://aspe.hhs.gov/sites/default/files/documents/88c547c976e915fc31fe2c6903ac0bc9/sdp-trends-prescription-drug-spending.pdf
3. Iverson J. What is drug trend and how to manage it. Evernorth. Published April 20, 2022. Accessed February 14, 2024. https://www.evernorth.com/articles/specialty-drug-trends-and-utilization
4. Employer use of alternative funding vendors. Gallagher Research & Insights. Accessed February 14, 2024. https://mailchi.mp/benfield/2022-trends-data-alt-funding-vendors-8996663
5. The high cost of alternative funding programs. Alliance for Patient Access. Published June 2023. Accessed February 14, 2024. https://allianceforpatientaccess.org/wp-content/uploads/2023/06/AfPA_High-Costs-of-Alternative-Funding-Programs_June-2023.pdf
6. Alternative funding programs: Don’t be fooled by promises of ‘free’ specialty cancer drugs. ONSVoice. Published January 2, 2024. Accessed February 8, 2024. https://voice.ons.org/news-and-views/alternative-funding-programs
7. DiPietro G, Inman A. The impact of alternative funding methods on rising pharmacy costs. Medhealth Review. Published August 23, 2023. Accessed February 14, 2024. https://www.medhealthreview.com/2023/08/23/the-impact-of-alternative-funding-methods-on-rising-pharmacy-costs/
8. Fein AJ. Employers expand use of alternative funding programs – but sustainability in doubt as loopholes close. Drug Channels. Published May 17, 2023. Accessed February 14, 2024. https://www.drugchannels.net/2023/05/employers-expand-use-of-alternative.html