Problems with Alternative Funding [Article]

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What you need to know about alternative funding

Alternative funding is a recent concept in pharmacy benefits. It's pitched as a way for self-funded employers to make their employees and dependents eligible for “free” medications from charitable organizations and foundations.

Here’s a summary:¹

Certain alternative funding vendors may try to convince plan sponsors to exclude some or all specialty drugs from their formulary to save money.
Once the drugs are excluded from the plan, the member appears to be uninsured or underinsured. The alternative funding vendor can then help the “uninsured” patient apply for needs-based programs to cover the cost of the prescription that was intentionally removed from the plan’s coverage.
When approved, the prescription is dispensed from a specific patient assistance program (PAP) pharmacy at no charge to the plan sponsor or patient.

While this is the way these programs are advertised to prospective clients, the reality can be much different. The problem for plan sponsors is that the alternative funding mechanism rarely works as advertised, may introduce regulatory compliance risk and disrupt care for members.

The truth is that some alternative funding vendors are diverting charitable funds intended for people with little or no insurance coverage to those who actually are otherwise covered. In the process they may charge fees ranging up to 25% of the cost of each drug.²

Needs-based funding for costly prescription drugs has an important role to play in the overall realm of the pharmaceutical market. However, whether these funds come from the manufacturer donations or private citizen contributions to charities, the amount of charitable funding available is finite. Those who would divert these limited funds to reduce employer plan costs are effectively reducing the money available for people truly in need.

Growing popularity

Despite these real drawbacks, employers are interested in the promise of lower costs. A recent survey found that up to 10% of self-insured plans with at least 5,000 employees were already using one of these programs. In addition, another 27% said they were considering their use within the next two to five years^.3

We think it’s time for a reality check. Let us explain why alternative funding is not a sustainable solution. In fact, it carries unexpected financial, clinical and even legal risks.

Financial risk

Health plans and employer groups are being told that carving-out portions of their pharmacy plan is not only simple, but will save them money.⁴ And it may be true that adopting one of these strategies would seem relatively easy — at least at first. However, we believe that carving-out will likely have unforeseen longer-term complications. Worse, it often causes delays or disruption for members and their treatments.

We feel the financial promises being made by certain alternative funding companies may be overstated and unsustainable. Plan sponsors attracted to the promise of immediate cost savings may not be considering the longer-term financial and regulatory risk these strategies may present — both for themselves and for the needs-based funding system overall.

Looking at the system overall, there are already indications that at some point, as alternative funding adoption increases, manufacturers and the charities they work with may stop providing funds to patients otherwise covered by insurance. In fact, this is already beginning to happen in the marketplace. We're hearing reports of patients previously established on alternative funding who are having their eligibility removed due to new qualification criteria.

But it has always been true that alternative funding sources are by definition limited. Program funds can run out in a given year. In addition, donors, including manufacturers, may choose to stop making contributions, meaning exhausted funds may never be replaced.⁵

Funding program limits can take a variety of forms:⁶

Needs-based programs usually limit eligibility according to income, typically based on some multiple of Federal Poverty Guidelines. Coverage is often denied, especially for highly compensated employees.
Therefore, alternative funding is not guaranteed. Individual members may find that either they don’t qualify for assistance, or that funds have run out while their treatment is ongoing.
Alternative funding vendors are not always able to secure funding and then must work to carve drugs back in to the original plan.

When funding stops or isn't available, members will need their employer to grant an exception to cover their medicine through the prescription benefit. The exception process creates additional administrative complexity — and costs — for plan sponsors. For example, exceptions may require manual coordination between the alternative funding vendor, the plan sponsor and the PBM.⁷

Changing the pharmacy benefit to accommodate alternative funding programs can alter the entire plan’s cost structure. Changes can occur to pharmacy network rates, drug rebates, prior authorization approval rates and savings, costs associated with non-targeted medications, and short-term versus maintenance therapies.⁸

How it works in practice

The prospect of saving money by accessing charitable funds may appear attractive at first blush. But plan sponsors must account for the possibility that their new vendor may not be able to secure funding, or it may run out. Then they could end up paying more, not less.⁹

We can illustrate how the costs a client would pay might vary from the claimed alternative funding savings. In this graph, we show costs for an individual member who is granted $10,000 for a specialty drug through alternative funding. The middle line represents the normal PBM contract. Bars below that line indicate extra savings; bars above the line indicate added costs.*

*Note: Figures are illustrative. Actual results will vary. Contact your Optum Rx representative for details.

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Potential member disruption

Next, we will turn to the potential for member disruption caused by some alternative funding programs. The entire process of having coverage denied, applying for aid and waiting to see if funds are available takes time.

The member might go through the entire process only to find that they are ineligible for needs-based funding because they earn too much. Or, perhaps they are eligible, but all of the funding for the program they need has already been used.¹⁰

Clinical risk

Delays in treatment can have very serious consequences. For example, when cancer treatments — including chemotherapy — are delayed by even one month, patients face up to a 13% higher risk of death. That risk keeps rising the longer their treatment does not begin.¹¹

When or if the patient must be transferred back to their original coverage there is another risk for delayed care. This transfer process also takes time — posing a serious risk for a gap in therapy. And the patient may suddenly incur out-of-pocket costs that they're not prepared for.

Finally, specialty patients often have many other medical needs. For example, rheumatology patients commonly have three or more chronic conditions.¹² These patients need careful management to coordinate care, prevent waste and monitor drug dose, site selection, medication adherence and response.

Clinical management programs are a core value provided by a full-service PBM like Optum Rx. Our systematic, end-to-end specialty drug management includes cost and clinical management from the point of prescribing to dispensing, through first use and throughout treatment. This strategy offers better value through holistic, coordinated care.

Ethical, legal considerations

As we’ve seen, some alternative funding arrangements can carry potentially harsh consequences for both plan sponsors and plan members. But consider the ethical issues:

Charity funds and manufacturer assistance programs are intended for patients who do not have insurance coverage. As indicated, these funds play a vital role.
Alternative funding vendors can charge payers up to 25% of the savings they achieve. But this means diverting critically needed funds away from uninsured patients.
The inevitable result is less money for truly uninsured patients while the alternative funding vendor community profits. It's an ethical dilemma that puts patient access to needed care at risk.

Ethical concerns can spill over into possible legal concerns as well.

Industry observers believe that some of these programs could introduce discrimination risk into a client’s benefit structure. Self-insured plans could face a variety of ERISA- and IRS-related compliance issues.¹³

Some alternative funding vendors will try to source the drug from a foreign market if they can’t secure funding through a patient assistance program.¹⁴ Foreign sourcing for prescription drugs is an intricate area of the law. Plan sponsors may want to seek additional guidance to avoid complications. Also, these international programs generally ship 90 days of high-cost specialty medication at a time, which increases the chance of waste.

Individual members should also know that vendors usually require them to sign a patient authorization form. It certifies that they are not enrolled in a health care program that pays for any portion of their prescription drug costs.¹⁵

Prudence — always a good idea

What little turns up in an online search for alternative funding usually presents them in a positive way, if they aren’t outright sales pitches.¹⁶ But some alternative funding schemes wind up causing more problems than they are worth.

Prudence is the quality of being cautious. As we’ve seen here, anyone considering an alternative funding program for their own use would be well served by caution.

For example, ask yourself what happens when the alternative funding ends or runs out? How will my plan afford these medications when they suddenly need to be funded again?

At Optum, we encourage longer-term and sustainable strategies versus chasing a short-term solution that can pose financial and regulatory risk. We strongly urge our clients to look past the short-term sales pitch and consider longer-term financial implications, compliance risk and ethics of alternative funding programs.

Contact your consultant or Optum representative to learn more about your options.