Industry Experts Question Alternative Funding Companies That Carve Out Some Specialty Drugs, ‘Abuse’ Charities

As companies are exploring different strategies to keep their pharmaceutical costs in check, a spate of so-called alternate funding companies has emerged in the industry. And while they might appeal to a potential client at first glance, some — such as ones that carve out certain specialty drugs and seek coverage from patient assistance funds — may not be worth the investment, say some industry sources, who encourage companies to take a closer look at what their savings actually are.

During a July 29 webinar titled Specialty Drugs Update: Trends, Controversies, and Outlook, longtime industry expert Adam J. Fein, Ph.D., CEO of Drug Channels Institute, noted that while the use of copay accumulators and maximizers has risen, “there is another newer trend that’s even scarier, and that’s the business of what some people call specialty carve-outs,” he said, calling this “the shady business of specialty carve-outs.” Vendors such as ImpaxRX, Paydhealth, SHARx, PayerMatrix and Script Sourcing get payers to exclude specialty drugs and then get those drugs covered via patient assistance programs at manufacturers or charitable foundations. If patients are denied patient assistance, coverage reverts to the company’s payer/PBM/specialty pharmacy.

“Many manufacturers and charities are not aware of what’s going on yet,” he asserted. “So this is another source of money that’s flowing and, in some sense, changing the game in specialty.”

There are more than 20 alternate funding companies, remarks a longtime industry expert who declines to be identified. “Each program works differently.…There are multiple approaches.” Drugs included are sometimes a “subset of specialty drugs above a certain cost.” Other times it’s “all specialty drugs not dispensed from the PBM’s specialty pharmacy” but rather through a different company because they’re limited-distribution drugs.

Some alternate funding companies are not carving out agents. Some can look to see if there are patient assistance programs for a drug, and if there aren’t, they set up an alternate insurance program and charge the plan for the insurance, which is really just “an end run around the issue,” explains the source. Some programs may “pay a foundation to get a member on an insurance program.” Some companies, if they can’t get access to a drug through a patient assistance program, “will try to get the drug through Canada or an alternate venue.” But this will still “cost something,” they tell AIS Health, a division of MMIT.

Copay maximizers have plans classify certain drugs as “non-essential health benefits” per the Affordable Care Act (ACA) and then the company secures funding for patients who are prescribed those drugs considered non-essential from manufacturers’ or charitable foundations’ patient assistance programs.

“There are other non-ACA programs where specialty drug claims are carved out to access needs-based programs, and some companies source drugs directly from the manufacturer or use international mail order,” Chantell Sell Reagan, Pharm.D., director and national pharmacy clinical leader at WTW, tells AIS Health, a division of MMIT.

Patient assistance programs by both manufacturers and foundations may have income requirements in place for people using that assistance. These are generally for the family — the number of members in the household, not the patient only, explains the source. And they’re generally based on the federal poverty level — usually 400% or 500% of the federal poverty level. “The more members in the household, the higher that percentage gets.” In these situations, manufacturers and foundations “require patients to submit income tax returns.”

“By making a member appear to be uninsured or underinsured, the companies can utilize needs-based pharmacy assistance from manufacturers or other charitable organizations to cover the cost of the drugs,” notes Reagan.

A manufacturer source says that “most manufacturer PAPs [i.e., patient assistance programs] are offering free drugs, charity care, to patients that aren’t just uninsured anymore. They’re also offering it to patients that are underinsured.” When a drug is excluded from coverage, a person “shows up as uninsured or underinsured because she doesn’t have that coverage on that product. Now if the PAP were to deny her, it reverts back to the original plan, and she’ll have a copay.” These alternate funding companies, the source says, use proprietary software to find funding from manufacturers and foundations.

In a situation where there is only a patient assistance program, and a patient has a high income but not high enough that she can pay out of pocket for a drug, and the program has a federal poverty level requirement, that person is not getting the drug through the program. “But in alternate approaches, the plan has confidence that the drug will be covered,” declares the first unidentified source.

Some of these companies, says a different industry expert who declines to be identified, position themselves between self-insured employers and their PBMs, mail order pharmacies (MOPs) and/or specialty pharmacies (SPs). “The driver of value for this new class of vendor is suspicion in the mind of the HR director at the self-insured employer that the PBM/MOP/SP isn't maximizing the value of pharmaceuticals on behalf of the employer client.”

The source cites an employer case study by ArchimedesRx and observes that “the cost of its service is justified to the employer based on the savings that Archimedes generates from what the employer would otherwise have been projected to pay to the SP. From an employer perspective, that's interesting....I'm told that my contracted PBM/MOP/SP vendor is leaving so much Rx money on the table that a third party can swoop in, fix it and manage it going forward, all while ‘costing’ me nothing (above what I otherwise would have spent)? Really?”

“There's something seriously wrong with this picture, from multiple perspectives,” asserts the source. “First, why is the contracted vendor not acting as a fiduciary, acting in its clients’ best interests? Second, why isn't the employer client in a position to understand that it isn't getting the service that it contracted for from the SP? So does the self-insured employer, with good reason to not trust its SP vendor, have a cost-effective solution for this problem, other than hiring a redundant watcher over its contractor?”

Surveys Show Growing Interest

According to a 2022 report from Pharmaceutical Strategies Group, an EPIC company, 8% of benefits leader respondents (employers, unions/Taft-Hartley plans and health plans) said that they currently use an alternative funding model, but 31% are exploring their use. And Gallagher Research & Insights’ 2022 Employer Market Trends study found that 10% of self-insured employers with at least 5,000 U.S. employees use alternative funding vendors, 8% said they are planning to use them within two years, and 19% are considering their use in three to five years.

Advantages of such programs, says Reagan, is that “moderate-to-significant specialty drug savings can be achieved for plan sponsors for select drugs that are carved out, and members often have zero out-of-pocket costs in these programs. Vendors indicate they can save up to 50% to 70% on specialty spend; however, other industry commentators express concern with the methodology used.”

A Forbes article by Rich Adams, the president and CEO of PBM Integrated Prescription Management (IPM), argues that “alternative funding is one way that patients can get the medications they need without putting their lives and finances at risk and for employers to ease the cost-of-care burden. Alternative funding programs help offset specialty drugs prices through creative and sometimes philanthropic means so that employers can provide access to the drugs people need.”

Disadvantages, though, include “usually limited clinical oversight or accounting for appropriate utilization,” Reagan says. “Additionally, carving out specialty often impacts rebate/pricing guarantees and may violate PBM contract language regarding the PBM being the ‘exclusive provider of pharmacy benefits.’ In addition, these specialty vendors will most likely affect a plan sponsor’s ‘exclusive specialty’ pricing. The alternate funding programs can also be duplicative of other PBM programs like SaveOn and Prudent although the funding source (i.e., needs-based vs. non-needs based) varies. There may be administrative challenges with carving out select drug claims, and not all members may qualify for needs-based assistance due to their individual financial situation.”

Many problems exist with specialty carve-outs, asserted Fein, including the ethics around them: “You’re basically trying to access money that is explicitly intended for needy, uninsured, financially strapped patients. This is not copay support for commercial benefits, where the benefit kind of stinks or they over-cost-shifted.”

“These employer groups are basically using PAPs to bolster their benefit,” maintains the manufacturer source. “And there could be other implications for this as far as price, best price in the future possibly. We’re working on solutions for it…It’s hurting all of us, and ultimately, it’s going to hurt the patient…This started with really small employers, but now it looks like it’s picking up steam to include some health care, like IDN [i.e., integrated delivery network] plans and things like that, so a health system, they’re using this. Anyone who’s self-insured may use it. Where I’m also seeing uptake is in education,” including colleges and universities.

These alternative funding companies, they say, “keep popping up, and I think the issue is growing, and I’m hoping that along with other pharmaceutical manufacturers, we can find a way to stop this because it’s, quite frankly, abuse of our charity.”

Fein revealed during the webinar that he’s heard anecdotally “that some patients are being put on therapies that have easier-to-fool charities or easier-to-fool foundations than one that isn’t. And that’s like another weird type of non-medical switching, if you will, being driven by how good is the patient assistance program at figuring out if this person actually needs patient assistance. Ick.”

He said that while he’s not a lawyer, he sees “a whole bunch of compliance problems” with these companies, including “how these are being implemented, often with the lowest-paid employees, which is kind of a discrimination test within ERISA, and there are also questions about whether the risk plans are being upfront about what benefit they’re actually offering when they start doing this stuff.

“And like all these things, there’s always an amazing amount of money to be made,” he continued. “The vendors will typically keep 25% of the money they…got from a charity to fund their own operations, and that’s an excessive amount of payment. And unlike, let’s say, the maximizer companies, they don’t have to share that with a PBM partner. In fact, the PBMs don’t like this. It takes them out of the system, takes them out of the commercial pharmacy, it takes them out of the formulary, utilization, rebates, everything. These companies are very small, enormously profitable, very sketchy.”

A provider source points out that these companies are getting “20% to 25% of list price for something that is already being done for free, as a service, for qualified rheumatology patients by their doctors caring for them.” The manufacturer source tells AIS Health that some companies get 30% to 35% of whatever they find in savings.

Plans should know what the funding arrangements are, contends the first unidentified source. “Some are purely patient assistance program-related, some are expanded to foundations and pharmacies abroad.” In addition, plans should ask “what is being charged? What’s the fee? If it’s 25% of savings, the plan could still end up spending a lot of money.”

Madelaine A. Feldman, M.D., a clinical assistant professor of medicine at Tulane University School of Medicine and provider with The Rheumatology Group in New Orleans, tells AIS Health that the Coalition of State Rheumatology Organizations — of which she is now president — “is putting together an employer tool kit to educate them” on these practices. When employers are approached by an alternate funding company, “it sounds like the best thing since sliced bread” in that they could save 80% of their drug costs, she says.

Patients Could See Delay in Care

Julie Baak, practice manager of the Arthritis Center in Bridgeton, Missouri, reveals another potential harm. Her practice, a nine-chair infusion center, had a patient who had been stable on Simponi Aria (golimumab) infusion therapy since 2020. The patient’s employer was “bamboozled” into hiring Payer Matrix, which in June told Baak — the day before the patient’s next every-eight-weeks infusion — that the employer no longer covered that drug and that it would “find free drug.”

The Arthritis Center, however, administers therapies via buy and bill only and does not infuse free drugs or white-bagged agents, a common approach among many practices, as well as all the hospital systems in St. Louis, Baak tells AIS Health. After she spoke with first Payer Matrix and then the health insurer’s care coordinator — which informed her that Payer Matrix does overrides “all the time” — and then Payer Matrix contacted the employer, Baak was able to get an override for the remainder of 2022 for the patient. She’ll need to undergo this process every year that the employer is using the alternative funding company, she says.

If she had not been able to get an override, the patient’s care would have needed to be transferred to a hospital-based rheumatologist, and the patient would have faced a potential six-month gap in care while she waited for a new patient opening, Baak says.

Payer Matrix refers to itself as a “Specialty Drug Cost Containment Company who partners with commercial plans, Taft Hartley Funds, and TPAs in the industry to help mitigate the financial risk and growing liability related to specialty drug costs.” It has more than 300 agents “for various chronic conditions” on its drug list.

A letter from a Payer Matrix reimbursement care coordinator to an employee of a company working with it reads, “Once enrolled with the Payer Matrix Program, my goal is to find programs that will make your high cost specialty drug more affordable. Alternate funding is obtained in different ways; copay assistance cards, patient assistance programs and foundations. There are current programs in place for the specialty drugs you are taking and once you are in the program, your copay will decrease or go away.”

A different letter states that “You must enroll in the Payer Matrix program or you will be 100% responsible for the full cost of your medication. If it is determined that you are NOT eligible for an alternate funding program, your case will be automatically submitted to [group health plan] and the specialty drug benefit level of your plan will be applied.”

People are required to sign a patient authorization form allowing Payer Matrix to contact patient assistance programs “in an effort to obtain free or reduced-charge medications” on their behalf and also certifying that they are not enrolled in any “federally sponsored or subsidized healthcare program that pays for any portion of my prescription drug costs.”

Payer Matrix did not respond to an AIS Health request for comments.

Baak tells AIS Health that besides Payer Matrix, “there are other ‘interloper’ for-profit companies in the rheumatology/specialty medicine ecosystem that bamboozle the HR departments of typically self-funded employers that get conned into these ‘mandates’ as a ‘cost control/savings.’…What these companies are in a nutshell are another layer of middlemen that insert themselves in between the patient and physician. They are administrators doing none of the actual work but making non-medical switches (NMS) to whatever they have some back-room deal on or think they can get for free from the pharma company. In rheumatology, it can take 12 months of trial and failure to get the right medicine for the right patient, and there is zero one-size-fits-all or even one-size-fits-most. Rheum patients are medically complex, and most have three or more chronic conditions, so making an NMS is not something that anyone who has the goal of great patient outcomes would ever be involved in.”

“All these programs are a response to a marketplace that is totally dysfunctional in multiple ways, but the programs do not change any aspect of the dysfunction,” says the first unidentified source. “The prices of drugs are absurdly high — absurdly high for patients, who can’t even afford the copays and deductibles.” And it’s “even worse for the plans — whether employers or the government through Medicare and Medicaid — who are paying for most of drugs’ costs.”

Drug prices, they contend, “are absurdly high because there is no price competition. Contrary to what is typically explained, there could be price competition in all therapeutic categories where there are interchangeable products, and most therapeutic categories do have interchangeable products — for example, cholesterol-reducing drugs, blood pressure drugs, anti-depressants, ADHD drugs, hepatitis C treatments, all of the diabetes treatments, growth hormone products, multiple sclerosis products, several cancer categories, etc.

“In all such categories,” they continue, “what’s missing is easily accessible public information identifying the efficacy and side effects of each drug, so they can easily be compared; and ‘net price’ information of each drug, so they can be easily compared. If you can’t know that an anti-depressant has extremely limited efficacy — and likely side effects that would far outweigh its efficacy for most people, if they knew the above — then the manufacturer can charge several hundred dollars for the drug; if you knew those things, the manufacturer would have to lower its price, or it wouldn’t have customers.”

“None of these programs are actually fixing the above problems,” they observe. “They are just an end-run around those problems.”

Contact Feldman at nolarheum@gmail.com and Reagan via Ed Emerman at eemerman@eaglepr.com.