It’s no secret that drug spending is heavily driven by a relatively small number of high-cost specialty drugs. Self-funded employer groups are looking for any way to save on these costs. As a result, a number of specialty carve-outs have made their way into the market.
Specialty carve-outs are drug cost management services that contract with self-funded employer groups and third-party administrators to secure alternative funding for specialty drugs. They are sometimes referred to as Alternative Funding Programs (AFPs).
The main specialty carve-outs making their way into the Kansas market include Payer Matrix and ShaRx. Others include Archimedes, Nirvana Health, PaydHealth, PriceMDs and Vivio Health.
What is a specialty carve-out?
Specialty carve-outs seek to shift the cost of specialty drugs to alternative sources known as Patient Assistance Programs (PAPs). PAPs are charitable foundations established by pharmaceutical companies. They are designed to help uninsured individuals, or people with no other available options, who need access to life-saving drugs.
Here’s how specialty carve-outs work:
- They amend an employer’s coverage so specialty drugs are excluded from employees’ benefits.
- Employees are left without coverage for specialty drugs, so they are technically “uninsured,” making them eligible for a PAP.
- The employer approves a Business Associate Agreement that allows the specialty carve-out vendor to access data about the employees who need access to specialty drugs.
- The specialty carve-out works with each employee to secure coverage from the PAP. During this process, special efforts are made to “beat the system,” so the PAP ultimately covers the cost of the specialty drug.
- If the funding request is denied, the employer group overrides the exclusion and provides reimbursement to the employee for the specialty drug.
- If the funding for the drug is arranged, the AFP bills the employer a percentage of the savings, or a generous per-employee, per-month fee.
So, what’s the problem?
Specialty carve-outs never really explain how drug savings are generated or how they earn their profits. Yet, they make bold claims about the types of results they can deliver, from dramatic cost savings to improved clinical care.
Industry experts warn that specialty carve-outs are not worth the investment. They encourage employers to take a closer look at the actual savings, while also balancing potential risks.
What types of risks are we talking about?
If you are considering using a specialty carve-out, think through the types of legal, ethical and compliance issues you may be exposing yourselves to:
- Ethical questions. PAPs are needs-based charitable foundations set up to help underinsured or uninsured patients. When you carve-out specialty drugs, and exclude those drugs from your coverage, your employees are now competing for PAP funds with patients who truly need them. Their business model is, at best, controversial, and at worst, unethical.
- Compliance issues. AFPs that exclude specialty drugs from coverage and then use PAPs for funding expose employers and employees to numerous ERISA and IRS-related compliance risks and violations. For a comprehensive list, see this overview from Vivio Health.
- Puts the health of your employees at risk. When prescription and medical coverage is separated, care is less streamlined and more fragmented, resulting in poor health outcomes and higher costs. There is also potential for significant delays in medication therapy, as well as inconsistency in therapy. For employees who need these medications to live, it could lead to deteriorating health and higher overall costs.
- Unsafe practices. When a PAP detects fraud, AFPs are known to resort to sourcing prescriptions from unlicensed, unsafe pharmacies located outside the United States. This is not only against the law, it can be dangerous or even deadly.
- Impacts employee morale. Carving out pharmacy benefits is confusing and complicated for employees. It also makes it significantly harder for employees to get the medications they need, contributing to low morale.
- Cost savings is not guaranteed. AFPs must coordinate with the primary PBM who is administering the pharmacy benefit. This means higher fees, lower rebates, and less discounts from the PBM.
- Unnecessary costs. Specialty carve-outs do not have policies or programs in place to prevent medically unnecessary treatment, such as prior authorization or utilization management. If a PAP is not applied, and a drug is carved back in to an employer’s benefits, the plan may end up paying for a specialty drug that is not medically necessary.
- There’s danger ahead. Many PAPs are on alert regarding AFPs and are taking legal action to protect their funds. It’s possible, and even likely, that in the near future, they will block AFPs efforts to access their funds. Most recently, a biopharmaceutical company added language to their PAP, stating that certain specialty carve-outs (Payer Matrix and ShaRx) are not eligible for assistance.
Considering a specialty carve-out? This article explains what you need to know before making the switch.
Resources: Vivio Health, Drug Channels, WTW