Medhealth Review

The Impact of Alternative Funding Methods on Rising Pharmacy Costs

As prescription drug costs continue to rise, particularly for specialty drugs, self-insured employers face the challenge of providing comprehensive pharmacy benefits to their employees while also managing expenses. To address this dilemma, pharmacy alternative funding programs have gained attention as a cost containment strategy for high-cost drugs. 

Alternative funding programs seek to offset specialty drug costs by securing funding outside of traditional pharmacy benefit plans. This works by removing certain drugs from the pharmacy benefit, excluding those drugs from the coverage of the pharmacy benefits plan, and then redirecting those drugs to third-party vendors. They achieve this by using different methods to cover drug costs, such as enrolling patients in pharmaceutical patient assistance programs, applying for free or discounted drugs from manufacturer programs, or working with third-party foundations and charities. 

Vendors who supply alternative funding programs for pharmacy fall into two main categories. Some work with pharmacy benefit managers (PBMs) to implement a specialty strategy to target costs on certain claims, likely high-cost specialty drugs, while others work directly with employers, separate from the PBM. Either approach will impact the model these types of alternative funding vendors use to source dollars to cover these claims and how the alternative funding vendor will get paid for providing this kind of assistance, so employers should research these vendor’s business practices before implementing their offerings.

Alternative funding programs are primarily designed to shift costs away from employers, potentially resulting in improved pharmacy spend. While these programs can provide financial relief, they also carry certain risks and potential controversies. For example, alternative funding programs typically leverage copay patient-assistance programs, which often impose limits on funding, leaving patients or employers to cover remaining costs, which can be significant. Additionally, the finite resources of Patient Assistance Programs (PAPs) and philanthropies lead to patient competition for funds and sometimes the intentional reclassification of insured individuals as “uninsured” to access PAP funds. Furthermore, there is significant variability in fees, reporting methods, and transparency among alternative funding program vendors, adding complexity to the decision-making process.

Key Considerations for Evaluating Alternative Funding Programs:

Before evaluating alternative funding, employers must consider several key factors when considering implementing an alternative funding program to help offset pharmacy costs. 

  • Alternative funding programs lack contractual guarantees. Unlike PBMs, alternative funding programs often lack contractual guarantees for drug prices, discounts, and overall savings. This uncertainty can make it challenging to measure program performance and savings, and makes it harder to ensure your members receive necessary drugs at an affordable price. 
  • Analyze the full financial picture to ensure alternative funding is actually the best option. Projected savings from alternative funding might seem attractive, but it is important to remember that excluding specialty drug coverage from a pharmacy plan may alter PBM contract terms, potentially reducing overall available rebates and discounts. Additionally, PBMs can charge additional administration costs to work with alternative funding vendors, diverting time and resources. Some alternative funding vendors might leave employers on the line to cover the full expense of a drug if they cannot secure funding, which is a risk employers must assess prior to leveraging an alternative funding vendor.
  • Understand how alternative funding vendors get paid. Alternative funding vendors use different payment structures, such as flat fees or percentage-based fees. One industry observer estimates that some alternative funding program vendors retain as much as 25% of the value of charitable funds sourced. Be aware of how these models might impact your plan’s overall savings.

Before altering your plan, conduct a comprehensive comparative analysis of traditional and alternative funding options, considering their financial and clinical implications. This involves evaluating renewal proposals with and without the alternative funding aspect, contrasting the alternative funding option against other market alternatives, reviewing the existing PBM’s renewal offer against full PBM proposals (excluding the alternative funding element), and exploring various scenarios, including transition costs, to identify the most advantageous value proposition for your employer plan. When exploring alternative funding options, engaging with pharmacy contract experts ensures a holistic and independent approach to achieve the best outcomes for employer plans.

By Gregg DiPietro, Chief Marketing Officer; Ashley Inman, Regional Vice President

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