With the employee benefits landscape rapidly evolving, many self-funded employers are facing difficulties in managing healthcare costs. One major area of concern deals with specialty prescription drugs. In an attempt to save money on high-cost specialty drugs, many specialty carve-outs have entered the market.
Learn more about specialty drug carve-outs, how they have impacted drug pricing, and how employee benefits consulting services can provide companies with low-cost options.
How Carve Outs Have Become Cheaper than Pharmacy Benefit Managers (PBMs)
While specialty drugs only represent about 2% of prescription claims, they accounted for 50% of total drug spending in 2021, according to an ASPE brief.
Specialty carve-out solutions also referred to as alternative funding programs, work by eliminating coverage for specific, or in some instances, all specialty drugs and then sourcing those drugs through various means at a significantly lower cost than going through their health plan’s PBM.
Some employers rely on carve-out contracts with a separate company for sourcing these specialty drugs. These specialty drug-sourcing vendors will obtain members’ prescriptions using patient assistance programs (PAPs) and international sourcing strategies.
The Use of Patient Assistance Programs (PAPs)
Typically sponsored by pharmaceutical manufacturers, PAPs are designed to assist individuals without health insurance or underinsured individuals who cannot afford their medications. To qualify for PAPs, a person must meet specific qualification standards, which can differ from program to program.
However, most require individuals to meet income eligibility requirements. Unfortunately, PAPs have received some criticism as they can be difficult to understand and access. Vendors that source specialty drugs assist plan members by enrolling in available PAPs.
International Prescription Sourcing
Drug costs are rising at an unprecedented rate, forcing many employers to look for new ways to reduce their pharmacy spend. One approach to savings involves international drug sourcing, which entails bringing prescription medications from other countries into the U.S.
Most often, businesses can source prescriptions through Canadian pharmacies, and they import drugs that are FDA-approved and manufactured by the same manufacturer as if the drug had been sourced in the US. The FDA recently issued its first approval for mass drug imports to the U.S. from Canada for their state-run health programs.
How Carve-Outs Benefit the Workforce
There are several ways that specialty drug carve-outs can benefit the workplace, including the following:
- Carve-outs modify an employer’s coverage to exclude specialty drugs.
- Employees are left without specialty drug coverage, making them eligible for a PAP.
- Specialty carve-outs work with employees to secure PAP coverage or source the drug internationally.
- Employer groups can override exclusions if funding is denied, resulting in reimbursement to employees for specialty drugs. So plan members can get the prescription drugs they need.
Reduced Drug Spending for Businesses
According to an analysis published by RAND Health Care, the cost of prescription drugs in the U.S. was 256% of those in 32 comparison countries combined. Employers often feel the brunt of rising drug costs.
Key findings published by the ASPE found that specialty drugs represented 50% of total drug spending in 2021. Businesses can benefit from significant savings by sourcing specialty medications through PAPs and leveraging international sourcing.
Employees Have Cheaper Options
When medications are sourced through a secondary company, additional savings can often be found on specialty drugs through state and federal programs, manufacturer programs, and non-profits. These programs often pass on the savings to employees by waiving deductibles and co-pays, resulting in significant savings on high-cost drugs.
Setbacks from Using Carve-Outs for Businesses
While using carve-outs for businesses has benefits, it can also create certain setbacks. In some instances, carve-outs can result in fragmented coverage for employees.
Carved-out specialty drug benefits make navigating employee benefits more complex, requiring employees to manage several sets of providers, benefits, and reimbursement processes. Specialty drug carve-outs may also prevent some employees from accessing certain healthcare pharmacies and providers when obtaining high-cost drugs.
Potential Legal Implications
Specialty drug carve-outs could also have legal implications. Alternate funding programs that eliminate specialty drugs from plan coverage and instead use PAPs for funding could expose employees and employers to certain IRS and ERISA-related compliance violations and similar risks.
Some PAPs may also take legal action to safeguard their funds and may block the efforts of AFPs to access their funding. A recent lawsuit shed light on the possible legal implications of using PAPs for funding. On May 5, 2023, AbbVie Inc., a pharmaceutical company, filed a lawsuit against Payer Matrix, LLC, an alternative funding program.
According to case information, Payer Matrix developed a “fraudulent and deceptive scheme to enrich itself by exploiting AbbVie’s PAP through the enrollment of insured patients into a charitable program not intended for them.”
Difficulties of International Sourcing
While international sourcing has merit, there are potential safety and legal risks associated with this practice. First, purchasing medications from international vendors requires purchasers to provide their drug and medical history, which could be incomplete and lead to drug interactions.
Investigations when attempting to cross borders can also cause delays. Another challenge that some face involves product integrity. Poor transportation techniques could put the integrity of drugs at risk.
How New City Provides Low-Cost Options with Employee Benefits Consulting
Specialty drug carve-outs have been presented as a powerful strategy for self-funded employers who want to better manage the financial impact of high-cost prescription drugs. However, this solution is not without its challenges.
It’s important to work with an expert employee benefits consulting service who can best explain the benefits and challenges of specialty sourcing to understand if it is the right decision for your business.
Companies that partner with New City Insurance can enjoy unparalleled benefits, expertise, and the opportunity to access low-cost options. To learn more about how New City Insurance can help your organization or to request a consultation with a knowledgeable employee benefits consultant, reach out to New City at 888.210.2765.