Alternative Funding Programs (“AFPs”) are third-party entities who are engaged by employer-sponsored health plans regulated under ERISA (“Plans”). Ostensibly, AFPs work to identify alternative sources for Plan patients’ specialty drugs, such as manufacturer patient assistance programs (“PAPs”), manufacturer copay assistance programs and third-party charitable patient assistance programs for the purpose of helping the Plans reduce specialty medication spend, without compromising patient access to essential medications. In reality, however, the AFP strategy hinges on limiting access to expensive specialty medications. This approach creates a significant negative impact on patient access to necessary and often life-saving medications, as well as potentially creating long-term liability for the Plans.
How AFPs Work
While each specific AFP model is different in its design and operation, there are certain commonalities to the general AFP approach. AFPs approach the Plans with a clear value proposition – achieve cost containment by denying coverage via prior authorization for certain high-value specialty or other targeted drugs, while avoiding patient disruption by enrolling them in PAPs, for example, which are programs designed to provide free medicines during limited periods of un- and under-insurance. The AFP works with the Plan to exclude coverage of the drugs, either by express carve-out or indirectly via prior authorization for their medication to appear uninsured or “underinsured” for purposes of the PAP application, as most PAPs require an individual to lack applicable insurance coverage as a condition of eligibility. Targeted patients are instructed to work with the AFP to apply for free medication via the respective PAPs – or else shoulder the responsibility for up to 100% of the cost of their medications. This “effort,” as noted in more detail below, is time consuming, intrusive and often results in a significant delay in the patient obtaining medications. The AFP goes to great lengths to present the patient as someone without insurance coverage (notwithstanding their enrollment in the Plan), thus improving the odds that the PAP will assist the patient with free medication.
In many instances, AFPs misrepresent to employers and patients that their exclusive purpose is to act as seamless advocates for patients by promising to support existing coverage options without requiring additional patient information or involvement. The pitch made to the Plans is that AFPs are operated in conjunction with manufacturers, and that the AFPs access free drugs from PAPs that are otherwise unused and available. In fact, AFPs exploit manufacturer assistance programs at the expense of individuals that actually need such financial assistance, and their true interest is earning profits under the auspices of “saving” the employer money. In typical arrangements, AFPs earn profits by keeping a portion of the “savings” that the Plan realizes as a cost avoidance fee – e.g., a flat fee or percentage of the amount that the Plan spent for the patient’s specialty drug in the previous year or would have spent had the PAP not provided the drugs for “free.” Thus, they are therefore incentivized to work with the Plans to drive “savings” on these drugs.
Furthermore, AFPs mislead employers by asserting that there will be no impact on the patient experience or access to drug benefits, although patients are forced to provide extensive confidential health and financial information, execute limited powers of attorney, and endure delays that average over sixty-eight days to obtain their medications.
Essential Health Benefit Coverage Requirements and Protections
Historically, drug coverage for patients with serious high-cost chronic health conditions typically worked as follows: The patient is prescribed an expensive specialty medication by their physician. The pharmacy checks with the Plan’s third-party benefits administrator (typically the Plan’s pharmacy benefit manager) (“TPA” or “PBM”), which works with Plans to help administer healthcare benefits for their patients, to determine whether the drug is covered and whether it requires “prior authorization” by the Plan. Upon approval, the drug is dispensed and/or administered, and the claim is paid.
With an AFP in place, by contrast, the prescribed drugs are classified by the Plan, TPA and/or PBM as “non-essential” health benefits and are removed from the normal pathway to Plan coverage. The targeted drugs – or, in some cases, an entire category of “specialty drugs” or “orphan drugs” – may be specifically carved out from the formulary, or they may be subjected to a prior authorization process that leads to an automatic denial, regardless of medical necessity. The TPA or PBM advises the patient that they must apply for patient assistance through the AFP to obtain coverage for their drug. The Plan ultimately determines that the drug is in fact not an “Essential Health Benefit” required to be covered according to the provisions of the Affordable Care Act and is not covered under the patient’s benefit. In some instances, patients have seen Plans indicate that the drug is subject to a so-called “Orphan Drug Exclusion,” suggesting that coverage determinations are unappealable. By implementing sham “exclusions” of targeted specialty and orphan drugs from insurance plans, the AFPs cause the Plan patients and beneficiaries to suffer unavoidable financial harm (and potentially physical harm through delays in receipt of medication) because drugs secured through AFPs are not counted toward patient deductibles/maximum out-of- pocket limits, forcing patients to pay additional amounts themselves.
The protracted process does not end there; multiple hurdles still stand in the way of the patient receiving their medication. The pharmaceutical companies that operate PAPs will perform their own coverage determination and benefit check. AFPs try to “game” this determination by securing powers of attorney from the (worried and confused) patients and submitting PAP applications which misrepresent the patients as being uninsured, or as within income guidelines for PAP eligibility. Many patients are reluctant to complete and sign these PAP applications because they are wary of executing a document under the pains and penalties of perjury, particularly when they believe that they in fact do have coverage.
At the same time, in some instances, the Plan or its TPA may have previously approved coverage for the drug and authorized a pharmacy to fill and dispense the expensive medication. In these cases, the Plans and the TPAs/PBMs give the pharmacy the impression that they will be reimbursed for the drug, and sometimes, actually reimburse the pharmacy for the medication. Often, however, the pharmacy is left out of pocket for the cost of the medications. This puts the pharmacy in the unenviable position of having provided life-saving care for a patient under the reasonable belief that the medication was approved for coverage, and consequently being subject to either non-payment or a recoupment effort.
Ethical, Legal and Compliance Implications of the AFP Framework
The AFP presents another complicated process for patients, who must contend with a chronic and often debilitating illness as they fill out additional forms and gather information. The patient inhabits a kind of limbo, often for several weeks, while waiting for a final coverage determination, either through a PAP or the original Plan design. The required steps can be difficult for patients to understand and navigate. This is particularly wrenching due to the fact that patients believed, reasonably, that their medication was a covered benefit to begin with. Delays in treatment can lead to potential medical complications – in some cases, a delay or interruption in therapy can result in an expensive hospital visit, or substantial damage to health.
Patient advocates should be aware of, and Plans must consider, the following compliance risks associated with the activities of an AFP:
- Income Discrimination: Although low-income patients pay the same premiums as high-income patients, it is effectively for inferior coverage and benefits. This is because despite low-income and high-income patients paying the same premiums, thus entitling them to the same benefits under the Plan, AFPs leverage PAP income eligibility requirements to force low-income patients to access their specialty medication via PAPs instead of regular Plan-funded channels. This income-based distinction creates an inequitable system that discriminates against lower-income patients by charging them the same premium as higher-income colleagues for coverage of fewer and lower quality benefits.
- HIPAA Compliance: Under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), patients cannot be denied eligibility or benefits based on “health factors” when enrolling in a Plan and cannot be charged more than similarly situated individuals based on any health factors. While Plans are permitted to exclude coverage for certain types of treatments, those exclusions are required to be applied uniformly to all similarly situated individuals. AFPs, as implemented by the Plans, discriminate against patients based on health factors in violation of HIPAA. This is because AFPs specifically target and solely apply to patients with serious, chronic health conditions who are prescribed specialty medications.
- Fiduciary Responsibility: Under Section 404 of the Employee Retirement Income Security Act of 1974 (“ERISA”), plan sponsors have a fiduciary duty to provide benefits to patients and defray reasonable expenses of administering the Plan. By potentially prioritizing cost savings through an AFP rather than solely acting in the interests of the Plan patients, the Plan is substituting its benefit for that of the patient. In other words, if a Plan favors the financial interest of the employer over the best interests of the patients, such motivation and subsequent activity may constitute a breach of duty of loyalty under ERISA.
- Deceptive and Fraudulent Business Practices Under the FTC Act: AFPs may make representations to patients and Plans designed to deceive these parties as to the true nature of the services they provide. For example, AFPs represent to patients that their benefits will not change due to enrollment in the AFP process. Additionally, they represent to employers that AFP programs are operated in conjunction with manufacturers. The AFPs buttress this assertion by claiming that the AFP uses drugs, provided free of charge by PAPs, that are otherwise unused, and that manufacturers benefit from these arrangements. By engaging in such deceptive practices, the AFPs not only violate the FTC Act, but potentially implicate the Plans in a breach of fiduciary duty, and cause harm to patients.
- Discrimination Under the Affordable Care Act (“ACA”): AFPs schemes may constitute discrimination under the ACA because they disproportionately impact patients with chronic conditions. AFP plan designs make drugs specific for certain chronic and serious conditions hard to access under the same terms and conditions as drugs for other non-chronic and less serious conditions. Although group Plans are not required to provide coverage for the ACA’s ten categories of essential health benefits (“EHBs”), if Plans choose to cover one or more categories of EHBs they must comply with the ACA’s requirements for EHBs.
How Frier Levitt Can Help
AFPs pose a challenge to actors across the pharmacy healthcare ecosystem. Their activities are a direct threat to the continued viability of manufacturer sponsored PAPs. The threat stems from AFPs redirecting PAP resources from the intended patient population, who are in dire need of financial assistance, and instead cannibalizing these resources to help employers and health plans lower their pharmacy benefit costs in the short term. For pharmacies and patient groups which serve and advocate on behalf of vulnerable patient populations with life-threatening chronic diseases, the AFP process often leaves these entities with substantial financial liabilities while servicing Plan patients who were led to believe they had insurance coverage. The adverse impact on patient health and continuity of care is another burden that care providers and patient advocates must navigate. Even for the Plans they purport to help, although AFPs may seem like an attractive cost-containment measure to Plans navigating the high cost of specialty medications, there are potential financial and compliance risks.
Whether you are a manufacturer, plan, provider or patient advocacy group, Frier Levitt can help. From assessing the legal and compliance risks of the AFP offering, to challenging the validity of the AFP model with government regulatory agencies, the attorneys at Frier Levitt can provide the guidance necessary to ensure that your rights and the rights of your patients are protected. Contact us today.
