Alternative Funding Programs: What Employers Need To Know

Understanding the pitfalls of AFPs

The cost of employer-sponsored insurance has skyrocketed in recent years, and four in five employers believe these costs will become unsustainable in the next decade. ^[1]

As a result, cost-containment tools have been increasingly marketed to self-insured employers, one of the newest being alternative funding programs (AFPs). AFPs are designed by for-profit third-party vendors who work with the health plan to either exclude specialty medications from coverage or deny prior authorizations. 

Since employees appear to lack coverage for these drugs, vendors proceed to apply them to manufacturer-patient assistance programs (PAPs), which supply prescription drugs at no cost to uninsured or underinsured consumers. 

Ethical and Legal Issues*

Employers should consider that while these programs are pitched as cost-saving solutions, AFPs can pose compliance risks to employers and could harm employees: 
 

• The arduous administrative process of the AFP can delay employees’ access to treatments, potentially worsening their health. ^[2] This can result in absenteeism, presenteeism, or higher medical claims. ^[3] Alarmingly, the cancer community has reported that a large health plan sponsor persisted in using an AFP to save money even after learning it hindered access to life-saving chemotherapy drugs. 
• To complete a PAP application, AFP vendors often collect extensive personal information from an employee, and, in some cases, may even obtain a power of attorney to act on behalf of the employee during the PAP application process, both of which are major privacy concessions. ^[4] 
• Employees may be forced onto an alternative treatment if the AFP fails to acquire the originally prescribed medication.
• Steering individuals normally covered by an employer-sponsored plan onto PAPs depletes these safety nets and jeopardizes their availability for patients who truly need them.
• Vendor fees, long-term medical costs, and potential turnover may outweigh an employer’s realized savings from the AFP. ^{[5] [6]} 

AFPs also raise legal and regulatory concerns, including potential violations of:
 

• The Federal Food, Drug, and Cosmetic Act (FDA): If an employee is ineligible for the manufacturer PAP or no PAP exists, some AFPs may attempt to import medication from abroad; these products could be inferior or unsafe if not held to FDA standards. ^[7] 
• Consumer protection laws: AFPs may be considered “unfair" trade practices because of the unavoidable financial and physical harms that enrolled employees face. ^[8] 
• The Affordable Care Act (ACA): Prescription drugs – including specialty drugs – are an essential health benefit under the ACA, yet some AFPs improperly designate these drugs as non-essential health benefits to avoid ACA protections for consumers. ^[9] 
• The Health Insurance Portability and Accountability Act or HIPAA: By singling out specialty medications, AFPs may transgress nondiscrimination requirements that prohibit consideration of employees’ health status or condition when determining benefits. ^[10]
• The Employee Retirement Income Security Act or ERISA: Employers who adopt an AFP may be breaching their fiduciary duty by acting in the plan’s cost-saving interest rather than the beneficiary’s interest. ^[11] 

Alternative Strategies to AFPs

The costs of a self-funded health plan can be significant – but there are more effective and ethical ways to address increasing costs than resorting to AFPs.
 

• Be selective when choosing a pharmacy business management (PBM): Instead of using an AFP to cut costs, self-insured employers should carefully assess whether a different PBM may be a better fit for their coverage needs. 
• Consider a multiple employer welfare arrangement (MEWA): Small employers can enter a larger group health plan to increase their bargaining power and negotiate better terms with insurance providers.
• Look into independent formulary management: Some employers have achieved cost savings by hand-picking drugs for coverage rather than opting for a PBM’s pre-set formulary or recommendations from consultants. ^[12] 
• Offer a medical advocate program or patient navigators: Medical advocates and patient navigators can work with employees one-on-one to ensure efficient access to comprehensive, high-value care.
• Invest in preventative healthcare and high-quality, in-network primary care: This can reduce medical and pharmacy spending while improving employee health. 
• Reduce employee cost-sharing for medications treating chronic conditions: Doing so can lower medical costs to the extent that the intervention is cost-neutral or even cost-saving. ^{[13] [14] [15]} 

In Summary: AFPS Are Harmful to Employers and Employees

AFPs shift the costs of specialty drugs off the employer-sponsored plan by exploiting alleged coverage loopholes for critical drugs and plundering free patient assistance intended for those who truly lack health coverage. Employee health and retention, long-term healthcare spending, and legal liability are at stake, and employers must consider these risks before adopting an AFP. 

Notes
Adapted from a white paper supported by Boehringer Ingelheim Pharmaceuticals, Inc. 

*This content is not intended to constitute legal advice.
 

	Ashira Vantrees, JD, serves as Counsel at Aimed Alliance.
	Ashley Gregory serves as the Associate Director at the Hemophilia Foundation of Northern CA.
	Estela Mata-Carcamo is a Healthcare Advocate and the President of Looms for Lupus.
	Kim Czubaruk, JD, is the Associate VP of Policy at CancerCare.
	Lindsay Videnieks, JD, is the Executive Director at the Headache & Migraine Policy Forum.
	Lynne Kinst is the Executive Director at the Hemophilia Council of CA.
	Madelaine Feldman, MD, is the President of the Coalition of State Rheumatology Organizations.
	Patsy Writesman Pagan is a Healthcare Educator, Speaker & Executive Training Consultant with Speakers You Need, LLC.
	Richard Howard, MBA, is the Chief Mission Delivery Officer at the Spondylitis Association of America.
	Terry Wilcox is the Chief Mission Officer at Patients Rising.