Flag On The Play? How Consultants Can Navigate Alternative Funding

Drug pricing confuses people.?It is complicated.?Consultants are always looking to help clients save money – but people are also always looking to make a buck.?These realities have led to the rapid adoption of programs called “Alternative Funding” programs that look outside of conventional drug contracts for new solutions to the problem of high cost drugs.?These programs look to use financial aid from drug manufacturers’, patient advocacy groups and 501(c)3’s as well as drug importation from countries like Canada and Mexico to source lower cost drugs (importation is not addressed in this article).?This is maybe the most hotly contested issue in the PBM landscape today and to really dive into it we need to talk about how these programs work in some detail and dredge up some compliance risks that exist for plan sponsors.?Unfortunately, it seems as though the narrative on alternative funding has devolved into a marvel cinematic universe good vs. evil arc.?With drug manufacturer and patient advocates facing off against alternative funding providers and their consultant/payer acolytes.?This article is meant to help consultants shed light on the fundamentals of how alternative funding programs work, how to see through the rhetoric espoused by both sides and some guidelines for how consultants can help their clients make practical decisions surrounding these programs.

How Does Alternative Funding Work?

If a patient in the U.S. is uninsured and low income – there are many different ways for them to access their medication for free. ?Manufacturer programs, non-profits and patient advocacy groups are the normal access point.?As an example, if a patient is uninsured and diagnosed with HIV and prescribed Biktarvy – they can turn to the “Patient Assistance Program” (PAP) that was created by the manufacturer, Gilead Sciences which will cover the cost of their medication.?This is different from a coupon program.?Drug coupons typically have no patient requirements and are available to any patient regardless of their insurance coverage or income levels.?One important exception to this rule is government funded insurance programs.?Drug coupons or patient assistance programs are prohibited by Medicare and Medicaid because they are considered to be inducements and violate anti-kickback statutes.?The DOJ fined Novartis $642 million for this and other practices in 2020 as an example:

There is a dilemma here for the plan sponsor.?If they offer their employee coverage, they incur ~$3,500 per month for the cost of Biktarvy (I’m going to use this as an example a lot).?If they didn’t offer their employee coverage, the employee would qualify for the PAP program and get this drug for free.??Their pharmacy plan starts to look like a paradox.?It only incurs costs if it exists.?How peculiar.?That may be the case for Biktarvy, but what about other drugs??It’s not so clear.?Many non-specialty brands have coupons – but rarely are there programs that cover 100% of the cost.?100% PAP is more often reserved for very high cost specialty medications.?But high cost Specialty drugs make up only 2% of claims and account for about 50% of the gross spend on a drug plan.?

The solution to this paradox proffered by alternative funding program providers is to exclude coverage for specialty medications from the plan design and direct the patient towards a “patient advocate” who will search for and enroll the patient in a PAP program.?But what if there is no PAP program for that drug??Or, what if the patient makes too much money and doesn’t qualify for the PAP program??In that event the “patient advocate” comes back to the PBM or plan administrator and processes an “exception” request that allows the patient to get coverage for the medication under the self-funded plan.?Perfect.?Best of both worlds – if a patient can qualify we get the medication for free and if not, the patient isn’t left holding the bag for the entire cost of the drug.?

How Effective is Alternative Funding?

Right now – it’s very effective.?Most reports are of between 60-75% of patients qualifying for assistance programs.?The lower the average income of an employer group, the higher the patient qualification rate and the greater the effect.?That effectiveness is starting to come down as manufacturers become more stringent with their program requirements in a reaction to these types of programs.?But this can reduce a plans cost 35-70% on pharmacy and typically results in a patient having no out of pocket costs either.?

If it’s Effective, Why is it Controversial?

There are a number of potential problems that run from compliance issues to patient experience to moral – which I’ll save for last – with these programs.?It is so easy for a company to create these programs (a telephone and internet access for a patient advocate is all that's required) and the profits are so large that there are highly questionable practitioners rapidly entering the space.

25% Percent of Savings?:?Most of the vendors that administer these alternative funding programs charge 25% of savings.?That may seem high, but program administrators argue it’s a factor of the risk that these programs could disappear at any time.?What is highly concerning is that there are benefit consultants who tack on 5% and charge 30% of savings so they can take a 5% rate.?This creates a significant conflict of interest for the consultant who should be independently evaluating the programs risk/rewards for the client.?But percentage of savings programs are already a problem due to the difficulty in calculating what the savings actually is.?Some of these vendors consider the AWP of the drug current cost and take 25% off of Average Wholesale Price (AWP) or 25% off of some slight discount off of AWP.? For a plan sponsor on a flat dollar rebate contract – the Biktarvy claim I used previously may have a rebate of $2,500-$3,500.?So the actual net savings to a plan is at best $1,000 and at worst $0 or negative.?So the plan could be potentially losing money on some medications but the consultant who is charged with providing the analysis is making money on the program at 5% of the $3,500 per claim.?Accurately calculating percentage of savings in the drug industry is very challenging and can lead to abuses.

Prior Authorizations:?Did the drug go through a proper prior authorization or therapeutic alternative search first??In the Biktarvy example – could that patient have started on emtricitabine (generic Truvada)??At 25% of savings the incentives to do proper prior authorizations and deny or interchange a drug with a lower cost generic are skewed.

Section 105(h) Non-Discrimination Rules:?These are archaic rules that are intended to prevent an employer from discriminating in favor of highly compensated employees.?I had a conversation with an ERISA attorney early in my career about this and I said “I read the regs and I think I understand it, but I have some questions” to which he replied “If you understand it, you’d be the first one”.?Suffice to say, its difficult to interpret these rules.?But, because most PAP programs are income based – the plan runs a dilemma of denying medications for low income earners and processing by exception the same medication on the plan for high income earners.?This is, on its face, discriminatory in that only high income employees will have their drugs covered through the plan, entirely at the discretion of the employer.?If a plan fails non-discrimination testing 100% of the plan benefits become taxable to the employees.?

Patient Experience:?It’s not an ideal patient experience.?Prior authorizations aren’t a great patient experience to begin with.?Filing for a PAP program can require the patient submit tax documents, insurance records, medical records, etc.?It can take upwards of 8-12 weeks to process these assistance programs – meanwhile a patient may be denied a medication at the point of service or need to get their employer to process exceptions while they’re getting approved.?Alternatively, these programs can be awful to go through if you aren’t under a PAP program and one of the benefits of an alternative funding programs is the patient advocate who can help navigate it for the patient.

Changing Utilization:?If you are paying 25% of savings on Humira – what happens now that the drug is off patent??Who switches the patient to the biosimilar??What if an alternative, lower cost therapy is better suited??The misaligned incentives of these programs have an unfortunate impact in a dynamic landscape where therapies and patient drug mix is constantly changing.?In addition, many times the plan loses line of sight to the claims being processed.?The plan is charged 25% of savings without being able to see the patients claims processing and validating those charges.

Coordination of Care:?Sometimes these programs are happening completely outside of the PBM management.?That means programs and code run in a PBM adjudication system that are meant to avoid drug-drug interactions can’t be run and can risk a patient taking multiple medications or using medications that shouldn’t be taken together.

Contract Lengths:?The contracts employers and consultants sign with these vendors can be dangerous.?I have seen people sign multi-year contracts that they cannot get out of where the program is costing their clients money (Biktarvy example previously).?The employer attempted to term the agreement but would have been on the hook for 2 additional years of fees even without the PAP program manger doing anything.?In an industry still trying to ascertain how the market works, the risk associated with changing utilization and industry standards can put abusive contracts in the spotlight.

Fraud:?If you agree to process an exception request for any patient denied PAP – is that patient insured or not??The reason this is an important question is because most of the PAP programs require a patient to be uninsured.?The “patient advocate” and/or patient is completing a form on behalf stipulating that they are not insured.??When does an insurable relationship take place??And when is this a fraudulent representation that an employer and patient are now liable for?

There are still more compliance risks such as ADA violations that can be a concern for employers and consultants.?The low barrier to entry and short-term profitability of these programs has led to massive variation in how they are deployed.?Some vendors take legitimate attempts to construct programs that address many of these concerns.?Many do not.

“Hero” and “Villain” Narratives

The landscape pits payers and their consultants against drug manufacturers and patient advocates.?Understanding the narrative arc is important in gaining perspective on the landscape.

Alternative Funding as “THE HERO”:?Have you ever seen an employer have to forego pay increases because their health plan costs eroded the budget??Have you ever seen an employer lay off employees because healthcare costs eroded the budget??I have seen these things.?Drug manufacturer’s are using the guise of “patient advocacy” to remove cost barriers for patients and increase sales.?As cited earlier – these programs are considered a violation of Anti-Kickback Statues under government programs and yet are readily deployed when it is employer dollars on the hook.?Manufacturers like Gilead Sciences, the largest manufacturer of antiviral drugs like Biktarvy – fund most of the PAP programs and patient advocacy groups for HIV and Hepatitis C.??Their “patient” focus is aligned with their revenue models.?The FDA is funded by drug manufacturers and has completely failed in its consideration of cost/benefit in approving new drugs to market.?The alternative funding vendors are providing a solution that is combating drug manufacturer tactics that are driving up utilization and costs.?The only reason a drug manufacturer gets away with high prices is because they can avoid the public reckoning of uninsured patients being unable to afford their drugs.?What’s more, these programs disproportionately benefit employers with lower income employees – and effectively creates a subsidy for those workers in lowering their health plan costs.?Alternative funding programs sustain access and keep payroll deductions down for employees and help businesses thrive.

Alternative Funding as “The Villain”:?Have you ever seen a patient who needed a medication have to go without it because there were no funds left in a PAP program??It does happen.?And the alternative funding vendors are restricting access and draining funds that are meant to help the uninsured and indigent populations so that they can reap egregious profits.?That leaves programs unable to meet the need of truly impoverished communities.?What’s more, they have the net effect of forcing drug manufacturers to subsequently increase the costs even more for their drugs which simply exacerbates the entire problem.?The program managers engage in fraudulent and deceptive acts, overstating their savings projections, ignoring compliance and regulatory rules and endangering access to care for low-income patients.

Running the Numbers:?This article is not intended to espouse any narratives but to help consultants do their job. If you take nothing from this article – please take this:?ACCOUNT FOR REBATES WHEN DOING YOUR ANLAYSIS!?I cannot stress that enough.?I have seen plans that are MAKING MONEY on their specialty drugs because their rebate contracts were so good and their specialty drugs had a low average cost.? Here’s a basic analysis you can do that can help you account for savings variability from these programs.

Step 1:?Calculate the expected cost of your alternative funding PBM contract vs. your current contract.?You need 3 buckets.?Your Net Non-Specialty Costs.?Your Net Specialty Costs and your “Targeted” Net Specialty Costs.?The latter bucket is the list of specialty drugs on your alternative funding providers list.?This usually doesn’t line up perfectly with your PBM’s specialty list and considering the gaps is important.

Step 2:?Make an assumption about your patient qualification rate.?Typically this is 75% but depending on your average income for the plan sponsors membership – it could be higher or lower.?This variable is critical to your analysis.

Step 3:?Make sure you calculate how your alternative funding provider is billing and capture that.?Typically it’s a percentage of savings but some providers are starting to offer flat dollar programs.?

Step 4:?Run a sensitivity analysis.?There isn’t usually a clear “go/no go” analysis.?It's about evaluating risks in various scenario’s.?A sensitivity analysis would require you to build a table to show what the savings is based on different patient qualification rates.?Below is an example of what this analysis can look like when a program may make sense vs. when it may not.

Here are some other guidelines that can help in communicating these programs to clients:

1.??????Be Proactive and Be Honest:?Your clients are going to hear about this.?In a recent survey by PSG – some 8% of employers are using these programs already and 31% of employers are exploring their use.?You cannot put your head in the sand.?The consulting industry has a bias that it will provide more risky recommendations to a prospect than a client.?So your competitors are going to present these solutions to your clients and you should be proactive in the conversation.?Have the moral and compliance risks conversations with the client and if able, try to bring in outside legal counsel or the employers legal counsel and your property and casualty consultants so that the employer fully understands their E&O and D&O liabilities associated with these programs.

2.??????Don’t Take a Cut:?If you are entrusted by the client to vet these programs – you really shouldn’t take a cut of the percentage of savings.?That’s a hill I’ll die on.

3.??????Income and Employer Size Guidelines:?If you have a population of high earners – an alternative funding program is not going make sense.?If you have low average specialty script costs ($4k - $6k) – alternative funding likely won’t make sense.?If, however, you are dealing with outlier claims or particularly high cost claimants – these programs can be incredibly effective.?What I see is that as a group gets larger – its drug mix tends to normalize and the programs can have limited upside.?With smaller employers – the claim distribution is far more volatile and the programs can be very enticing because you typically know everything about the income/use case of the one or two patients on very high cost medications.?

4.??????Look at Integrated Solutions:?Some PBM’s have started to build these programs into integrated solutions that solve for some of the PA , patient experience and coordination of care issues.?I believe these should be preferred over stand alone solutions bolted on to PBM’s that are reluctant to participate with the vendor.?It’s just not a great idea to have a PBM begrudgingly participate in these programs with an outside vendor because of the risks involved.?

5.??????Invite Competition:?The low barrier to entry into alternative funding means there are many providers.?Create a competitive environment instead of accepting any particular program manager.?This will help you gain leverage to address the myriad concerns outlined earlier.

6.??????Ask about Ongoing Reporting:?If there is no detailed reporting on the patients being administered through the program – you are almost certainly going to get abused on pricing. ?You should be able to get a detailed claim report on any claim processed through these programs.?If you lose line of sight you will lose your ability to evaluate the ongoing effectiveness of the program.

7.??????Don’t sign Multi-Year agreements:?There are plenty of vendors doing year to year deals.?Run from a multi-year agreement with an alternative funding vendor.?There is way too much changing in the industry to agree to a multi-year contract in this space.

8.??????Talk to Your Stop-Loss Carriers:?Claims processed by exception request my not be covered by your stop-loss carrier.?You need to get them to make a caveat in their policy to cover these claims if you are running these programs.?Most will do so when they evaluate the benefits of the program – but only if you ask - don't leave yourself open to the risk of an uncovered claim.