Specialty Carve-Out Models Cost Patients and Employers More Than They Disclose

In the December 2022 issue of Oncology Practice Management, I identified external vendors who are charging self-insured employers a fee to find “specialty funding” or other resources so that employers and employees can pay sharply reduced prices, or nothing at all, for expensive drugs.¹ However, these specialty carve-out vendors do not disclose the sources of this alternative funding or the drugs themselves, hiding the true impact of this practice on patient care and charities. Fortunately, practices and patients are now coming forward to explain how these programs have put individuals, patient assistance programs (PAPs), foundations, and other patient support systems at risk.

Provider groups work for free with their patients to seek out potential assistance from pharmaceutical PAPs, foundations, and charities. Many employed patients are now blocked from the assistance they received in 2022 due to the impact of these third-party vendors.

Specialty Drug Carve-Out Vendors Use Employee Information to Seek Patient Support to Benefit Employers

Twisting the purpose of PAPs, these vendors have created a scheme to reduce costs for self-insured employers by using the patient’s information, and then charging the employer fees of 25% to 30% on the estimated “value” of this patient assistance.² The vendors do not disclose to employers that they are going to drain limited drug and support programs intended for needy patients or that they may be importing drugs illegally from outside the United States. They claim to find alternative funding so that self-insured employers can deny coverage of specialty medicines and reduce their healthcare costs.

How Alternative Funding Vendors Mislead Employers and Patients

Let’s follow one patient’s story shared personally with me, which unfolded in January 2023. This patient is a healthcare professional who is employed by a multistate, self-funded employer. A third-party vendor proposed to this patient’s employer that it could save significant dollars on specialty pharmacy drug spending while only affecting a small number of employees. The employer engaged with this vendor and notified its employees that their 2023 health benefits would be similar to 2022, with just a few “tweaks.” However, the employer did not alert the targeted employees that it would be stopping coverage of the specific specialty drugs they utilize (a failure to cover legally protected essential health benefits [EHBs] and fulfill its fiduciary role to employees). The affected employees were referred to the vendor to seek ways to obtain their denied treatments. The vendor collected the employee’s detailed personal health and financial information so that it could represent them in finding assistance. If any of these employees chose not to be represented by the vendor, they would be fully responsible for all costs of the treatments they needed, creating an onerous financial obligation that the EHB portion of the law prevents. After weeks of delay, the vendor failed to produce the planned savings and the employee speaking to me was pushed back into the regular health benefit structure of the employer—a classic “bait and switch” tactic.

These Models Actually Raise Costs for Employers and Patients

The employee’s medical condition required an expensive therapy that would allow them to avoid costly inpatient care and continue to function well at work and home. Although this employee had qualified for patient assistance for a portion of their drug costs under an available PAP in 2022, that same PAP denied the employee in January 2023 for “inappropriate use of PAP funds,” a message that hurt the employee deeply since their need had not changed from the previous year.

The vendor then switched the employee back to their traditional health benefit coverage. However, since the PAP assistance was denied, the monthly 25% copay obligation for the employee was larger than their mortgage and thus beyond their means financially. The employee was also extremely concerned about where the vendor obtained the drug, since it had arrived at a temperature considered unsafe in the past, leaving the patient without their necessary treatment, and forcing rebilling of the drug to the employer.

Alternate Funding Models Hurt, Not Help, the Healthcare System

The employer had risked bearing the costs of disrupted care for its employee, raising medical benefit costs higher than any savings on the pharmacy benefit. The intrusion of the vendor delayed access to care, forcing the employee to reveal personal information to strangers. The alternative funding program led to the withdrawal of previous PAP assistance, turned a well-managed medical condition into a fragile one, and reduced the productivity of the employee. In addition to forcing the employer to pay for freely available PAP assistance, the vendor caused unnecessary expense and stress and left the employee, the employer, and life-saving PAPs worse off than they were before.

Alternative Funding Models Expose Self-Insured Employers to Use Charity Funds and Services and Illegal Drug Importation

These vendors promise specialty pharmacy savings to their clients. However, they fail to clarify the risk for employers, including their potential liability for patient harm, treatment delays, confusion, coercion to enroll, and the risk, harm, and legality challenges of wholesale drug importation, draining much needed charitable PAPs and foundations, and resulting in bait and switch insurance coverage games.

Alternative Funding Models Are Slowing as Their Targets Adapt

Taking a stand to expose the dark underside of these models will help both self-insured employers and patients. Foundations and manufacturers are concerned about increasing demands for their limited patient support. At least 3 manufacturers have recently changed their PAP coverage for employed patient applicants. No employer wants to hurt patients who need assistance, but they cannot fund profits for other organizations. Some alternative funding vendors have already halted new sales in 2023. Reduced PAP access is lowering their planned revenue goals.

How Can Physicians and Charitable Organizations Protect Employers and Patients?

The National Oncology State Network (NOSN), along with other national charitable and specialty organizations, is developing talking points for practices and patients to use with self-insured employers. These include the dangers of wholesale drug importation, the high-cost impact of white- and brown-bagged drugs, and the adverse consequences of using third-party vendors for employers, patients, and the fragile healthcare safety net infrastructure. It is also important for employers to understand that treating physicians already refer qualified patients for assistance programs at no charge.

Additional steps to protect patients and self-insured employers include the following:

1. Reach out to employers and explain the negative effects of these programs on vunerable patents and let them know whether you will participate in these programs.
2. Warn patients about the dangers of disclosing personal financial and medical information and giving permission, even powers of attorney, to strangers.
3. Work with your local specialty association and NOSN to share stories regarding the negative impact of these models on patients. Leaders at state insurance departments, consumer advocacy offices, and legislators want to hear about egregious behavior that violates EHBs, involves bait and switch coverage, fails the employer’s fiduciary responsibility to its employees for health benefits, utilizes illegal wholesale drug importation, and coerces patients into using vendors that may not be in their best interests.
4. Document the diseases, drugs, employers, unions, and clients affected by these vendors.
5. Document the adverse consequences associated with these models, including substitutions, questionable drug sources, the frequency of last-resort recoverage for patients, white- and brown-bagging, and communications sent to physicians and patients.
6. If every PAP, foundation, charity, and support program insisted on direct referrals from a physician office with each application, this may stop vendors from submitting applications using patient information for their own purposes.
7. Let employers and patients know that appropriate qualified patient assistance is handled at no charge in treating provider offices so they can avoid vendor charges.

Reach Out

Please share comments with me at This email address is being protected from spambots. You need JavaScript enabled to view it.. If you are interested in the talking points being developed, please let me know.

References

1. Holcombe D. Specialty carve-outs: what are the implications for patients and practices? Oncology Practice Management. 2022;12:1,11-14.
2. Fein AJ. The shady business of specialty carve-outs, a.k.a., alternative funding programs. August 2, 2022. www.drugchannels.net/2022/08/the-shady-business-of-specialty-carve.html. Accessed February 7, 2023.