Understanding Alternative Funding for
Choosing the best track for handling
Specialty medications can be life-changing for people diagnosed with debilitating or life-threatening conditions like lupus, hemophilia, and cancer. But for self-funded employers bearing the financial burden, the high cost of these specialty drugs and the associated stop-loss premium rate hikes can be difficult to absorb.
In response to what is a financial crisis for many employers, a new set of pharmacy benefit solution providers have emerged, attracting the attention of self-insured employers and the benefits advisors that represent them. These companies promise to reduce a large percentage of the employer’s specialty pharmacy spending by connecting plan participants with organizations that might provide alternative funding for high-cost drug therapies.
In this eBook, we’ll explain how alternative funding programs work and we’ll tackle some of the questions benefit advisors will want to ask to identify viable solutions that can reduce their clients’ immediate specialty cost and long-term risk while being true to their employee commitments.
- Are these dollar savings guaranteed?
- What does the future hold for alternative funding solutions?
- Are there alternative options I should consider?
How Alternative Funding Programs Work
In an alternative funding arrangement, employer-sponsored plans attempt to reduce their specialty pharmacy trend and their catastrophic claim exposure by partially or fully excluding coverage for certain high-cost branded specialty drugs from their prescription drug benefit. The claim is automatically denied by the PBM when a plan participant is prescribed one or more of these carved-out meds. The participant is then referred to work with an alternative funding vendor that helps them pursue financial coverage from another source, such as manufacturer free-drug programs, condition-specific charities, foundations, and other philanthropic organizations. Through this process, employers hope one of those vendors can help their members access the prescription drug treatment they need while avoiding the expense for the plan. This can be highly disruptive to members, but only to the 2% of members who represent 50% of pharmacy benefit spend. While there is potential for employers to save money, alternative funding coverage isn’t guaranteed for the member, and there are other good reasons for brokers to question whether it’s right to recommend an alternative funding program in all scenarios.
How the member experience changes
Determining When an Alternative Funding Program Makes Sense
Employers might truly see a financial benefit in the short term if they have, for instance, a significant number of low-income, high-cost claimants taking specialty medications that are eligible for coverage via multiple alternative funding sources. So how can those clients be identified?
Determining whether alternative funding solutions make sense for a particular client involves serious clinical, financial, and ethical considerations. Given the complexity of pharmacy, it’s not surprising that most benefits advisors are uncertain about when and how these solutions should be deployed and all the factors that should be considered in forming a recommendation. Even those with an impressive command of all the questions to ask might struggle to find answers.
While each alternative funding option will have pros and cons that will differ from plan to plan, two things are certain:
- Alternative funding vendors make big promises.
- Their approach can be highly disruptive to impacted members.
To recommend alternative funding with a high degree of confidence, benefits advisors should rely on highly skilled pharmacy experts to conduct a detailed review of historical pharmacy claims and perform a comprehensive feasibility analysis. You should expect this pharmacy resource to employ experts in self-funded benefits plans and stop-loss contracts, and to be knowledgeable about many other pharmacy cost-containment programs and vehicles.
Clinical and financial considerations include how alternative funding for specialty medications can impact a PBM contract for a client’s non-specialty medications and the possible impact of a lack of clinical oversight, as well as the potential delay in care while funding options are explored could lead to increased medical expenses in the short term.
Moral considerations include the psychological, emotional, and health impact of excluding specific drugs. Make sure your pharmacy resource can assess these important alternative funding factors:
- Disease states affecting the current population
- Prevalence of high-cost claimants
- Top utilized therapeutic classes
- Efficacy of high-cost medications covered by the plan
- Net cost of medications after rebates
- Plan design concerns
- Effectiveness of lower-cost drug alternatives
- Cost savings through a robust clinical approach to utilization management
- PBM-independent and client-aligned third-party management for prior authorization reviews
- Specialty volume and volatility
The Fine Line Between Fiscal Responsibility & Social Responsibility
When an employee or plan participant has a serious condition, a choice that seems financially responsible for the employer can have unintended real-world consequences for the member. Imagine being prescribed a promising medication for managing a debilitating chronic condition that costs $4,000 a month, only to discover that the drug is excluded from your employer-sponsored prescription drug benefit.
Making the choice to use an alternative funding option means considering the consequences such as: What are the psychological and physical repercussions associated with the delay in treatment? What happens to the employer-employee relationship when the member has to endure the stress, inconvenience, and embarrassment of applying for financial assistance, even though they or their family member work for your client and have employer-sponsored prescription drug benefits? How loyal and engaged will they remain after being forced to discuss their personal financial and medical situations with a third party? At a minimum, the onset of therapy may be delayed while the alternative funding vendor works with the member to secure funding from another source.
In a worst-case scenario, the member might be deemed ineligible for charitable funding because their income exceeds qualification limits—or be deemed eligible, but learn that all the available funding sources have been exhausted. What is the emotional, financial, and medical impact of being denied a second time? What should the plan sponsor do in these situations? Often, the employer ends up working through an override or exception process with their PBM and covering the treatment anyway. Only then is the patient finally able to get started with therapy, with zero savings for the plan and much precious time and good will wasted. Without an exception or support from alternative funding, the member will be the one responsible for paying the bill. With some drugs costing hundreds of thousands of dollars, many could be left without treatment.
Perhaps most troublesome is the thought of sick, lower-earning, uninsured Americans having to go without treatment because these for-profit alternative funding programs have methodically consumed scarce funding resources that were intended for the indigent.
As many as 18 million Americans can’t afford their prescribed medications at all, while many others are forced to ration them, according to a 2021 nationwide poll.¹ The dollars that alternative funding vendors tap into were intentionally set aside to assist people with no other options —they were never intended to support alternative funding programs that financially benefit plan sponsors.
¹Gallup organization, news release, Sept. 21, 2021
Many drug manufacturers and charitable organizations are on high alert regarding these employer-sponsored alternative funding programs. They’re beginning to take legal or other action to protect their funds for the needy.
In the next few years, it’s possible — even likely — that their efforts will block alternative funding vendors’ access to their funds.
Then what? Given the importance and growing utilization of specialty drugs, how can benefits advisors help their self-funded clients ease the cost burden sustainably so that their most vulnerable plan participants can continue to get the medications they need at a price point that won’t break the bank?
Address Current & Future Risk With a Strong Partner
The support of a strong pharmacy benefits partner is essential for prospecting and retaining clients amid today’s specialty cost crisis. The right partner should have their eyes fixed on the horizon to anticipate where the next crisis is coming from and be able to proactively recommend mitigation strategies and solutions that will insulate a benefit advisor’s current and future clients from changing market dynamics.
That partner should have scalable business intelligence capabilities to continuously monitor the evolving characteristics of their clients’ employee populations, ensure that the currently implemented cost-containment strategies work in their clients’ best interest, and make data-driven, client-aligned recommendations to optimize economic and clinical outcomes.
They should be capable of performing independent, unbiased analyses of all available cost-containment programs in the marketplace to identify and recommend highly viable ones. For example, they might bring data-driven condition management programs focused on areas of specialty drug trends such as anti-inflammatory and oncology.
Top Takeaways for Consideration
There is no proverbial “silver bullet” for addressing the rising cost of the pharmacy benefit in the near- or long-term. A multi-pronged, data-driven, and clinically led approach to address the specific needs and nuances of each client is warranted.
While alternative funding solutions can help highly impacted plans save on specialty drugs in the near term, these solutions have a limited shelf life coupled with serious clinical, financial, and moral complications.
- Needs-based alternative funding is not guaranteed. Needs-based funding requires income verification, and in certain white-collar industries, many members may fall beyond the maximum income thresholds, especially when many specialty utilizers are more seasoned employees in higher-level positions. If the member cannot secure funding, the plan or the member may be left picking up a large, unexpected bill or need a special override of coverage to “carve back in” to the pharmacy benefit. This process, while possible, can be complex. Or even worse, not getting the medication they need to effectively treat their condition.
- Some specialty medications may not be included. Many alternative funding programs address fewer than 300 – mostly brand-name – medications. These programs omit over 1,300 specialty medications, generic and brand, from being covered by the benefit or the carve-out vendor management process. The client would need to either create a dual benefit – one to address medications included on the third-party listing, and another to address the ones omitted from the list – or not cover out-of-scope specialty medications, which would negatively impact members.
- Fees, lost contract value, and lack of clinical review visibility may negate savings and increase medical utilization and expense. Removing a segment of medications impacts underwriting provisions and changes the terms of the contract. The fees incurred are based on gross savings achieved, which may be based on gross costs, not on what the plan is currently paying after rebates. Putting prior authorization reviews in the hands of independent, unbiased vendors is the only effective way to ensure the clinical necessity and overall appropriateness of high-cost brand and specialty medications. Without this, much of your client’s spending will be wasted on low-clinical-value medications and inappropriate prescriptions.
Finally, clinical oversight ensures that access is granted when medically necessary. In a carve-out scenario, who is the gatekeeper? If it’s a third party, consider the possibility of a financial incentive for approval. With all or any of those factors at play – incurred fees, contract value impact, and potential increased medical utilization – the client might not see the savings that had been predicted for them.
Working with a skilled pharmacy benefits partner can turn pharmacy into a significant point of differentiation that will help you retain and grow your book of business. RxBenefits is the first and only Pharmacy Benefits Optimizer (PBO), serving as a trusted pharmacy adviser to employee benefits consultants and the pharmacy benefits solution provider of choice for mid-market self-insured employers. We offer employee benefits consultants a superior alternative to traditional PBM arrangements, combining market-leading purchasing power and contracting expertise with independent clinical advocacy to better manage pharmacy trend and keep the pharmacy benefit affordable. A high-touch service model ensures that clients, employees, and dependents receive exceptional care and enjoy a world-class benefits experience.