Specialty medications provide breakthrough, sometimes lifesaving treatments for complex, chronic, and rare diseases, such as hemophilia and other bleeding disorders. However, due to the financial burden of specialty drugs, self-funded employer plans bearing the financial strain have turned increasingly to alternative funding programs(“AFPs”) as a solution to growing specialty drug spend. AFPs often project significant “savings” for the self-funded plan sponsors (“Plans”), but this attractive solution obscures a more challenging reality for the Plans, beneficiaries, and providers. Beneficiaries and pharmacies seeking coverage for specialty drug claims are oftentimes caught in a Catch-22 situation between the Plans (and more directly, the AFPs), which want such claims to go through the manufacturer sponsored patient assistance programs (“PAPs”), and the PAP, which may deny coverage for the drug, asserting that the patient has coverage under the Plan.
How AFPs Work
AFPs are third-party vendors that effectively control access to specialty drugs that are not covered by an insurance plan. In a strange twist, it is the AFP that is the reason a drug is not covered by the Plan in the first place. The AFP’s sales pitch to the Plans is simple – save money on premiums by dropping coverage for high-cost specialty drugs but avoid member disruption by finding alternative funding sources (such as charities, manufacturer coupon cards, and other PAPs). Accordingly, the Plan is amended to drop coverage of high-cost drugs, thereby making the beneficiary effectively “uninsured” for those drugs. Since the beneficiary appears to be without insurance coverage, the AFP has a greater likelihood of securing funding from alternative funding sources, whose willingness to contribute funds is often conditioned on the beneficiary having no insurance coverage for the drug. If the beneficiary declines to participate in the AFP process, they simply do not have insurance coverage for the drug in question and are forced to pay full list prices for the drugs. AFPs earn profits by keeping a portion of the “savings” that the Plan realizes – i.e., a portion of the money collected from the PAP as a fee. They are therefore incentivized to work with the Plans to drive “savings” on these drugs.
In some AFP models, if a patient is denied coverage under the available alternate funding sources, the AFP or the Plan may issue an “override” to allow the patient to receive coverage as if the drug was covered all along.
Recently, Frier Levitt has seen a steady uptick precisely in such cases where expensive and vital specialty drugs are dispensed by the provider until rejections at point of sale are implemented, or a written recoupment demand from the insurance carrier for prior claim payments is received. Meanwhile, the PAP refuses to cover these claims because it has concluded that the patient has insurance, even though the Plan won’t cover the drug because it is subject to a coverage exclusion. This pattern not only impacts the beneficiary and provider (as discussed below) but also presents challenges to the Plan, including negative member experiences, potential loss of specialty rebate arrangements, increased administrative fees, and litigation. Additionally, Plans should consider compliance risks, such as HIPAA compliance, tax implications, and income discrimination.
Impact of AFPs on Beneficiaries and Providers
As noted above, this scenario plays out multiple times a day across the healthcare national landscape – a Plan beneficiary with hemophilia (or another chronic disease) is prescribed an expensive specialty medication by their physician. The pharmacy checks with the Plan’s third-party benefits administrator (“TPA”), which works with Plans to help administer healthcare benefits for their members. The Pharmacy is initially told that the drug falls under the Plan’s medical benefit, no prior authorization required. The drug is dispensed, and the claim is paid, at least initially, to the tune of thousands of dollars. However, upon further review, and likely with the input of the AFP, the beneficiary is advised by the TPA that although they meet the criteria for medical necessity, and the drug is on formulary, they must apply for patient assistance first, through the AFP, and the drug is not otherwise covered under the Plan’s benefits. The TPA 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 (but rather is subject to the Orphan Drug Exclusion, suggesting that coverage determinations are unappealable), and is not covered under the Beneficiary’s benefit, therefore, the beneficiary’s only possible route to coverage for the drug is to utilize the AFP’s services to obtain financial assistance, typically through a PAP.
However, the pharmaceutical companies are doing their own coverage determination and benefit check. They validate that the J-code in question is covered by the Plan’s benefits and accordingly is not eligible for PAP assistance, since the beneficiary has insurance (or, in some cases, because the beneficiary’s income exceeds the minimum threshold for PAP assistance). In the meantime, the Plan attempts to recoup the amounts paid out initially on the claims it received from the pharmacy provider. For the beneficiary, caught between a negative coverage determination by the Plan, and yet denied coverage by the PAP on account of its determination that insurance benefits are indeed available, the result is, at a minimum, an interruption in coverage that delays access to life-saving medication, or even discontinuation of the prescription. For the pharmacy provider, the result is struggling with a costly recoupment effort, as well as a patient in desperate need of care.
How Frier Levitt Can Help
Providers face significant issues not only from claim recoupment efforts by Plans, but also due to the structural challenge of their relationship with Plans and beneficiaries that are posed by the incentives and inherent conflicts between Plans, AFPs, and manufacturer sponsored PAPs. Pharmacy providers depend on coverage determinations to know whether to dispense a drug product, and they reasonably rely on those determinations when they ultimately dispense the medication.
At Frier Levitt, we work with you to not only review and challenge recoupment efforts and assert providers’ rights through all available means, but also analyze and challenge the misaligned incentives that create the disconnect that is inherent in the AFP model and result in the back-and-forth denial of coverage and subsequent recoupment efforts.
Frier Levitt’s experienced attorneys can work with you to ensure, for example, that the conduct of the Plans and TPAs are in compliance with relevant state statutes and regulations governing such entities; ensure compliance with applicable state Consumer Fraud and Unfair Trade Practices Statutes; and review the conduct of the parties in light of all other relevant federal laws, rules, and regulations. Whether you are the subject of a threatened or current recoupment effort, or are seeking proactively to gain clarity into the process and your rights to receive payment under similar circumstances, contact our office to speak with an attorney today. Frier Levitt can provide the guidance necessary to ensure that your rights are preserved.
