Often referred to as AFPs, alternative funding programs are a third-party entity that works hand-in-hand with self-funded health plans to determine other ways to cover plan participants’ specialty medications, which are often high-cost.¹

Below is a detailed breakdown of what they mean for the industry, including potential effects on the pharma sector.

How do AFPs work exactly?

According to Amy Niles, PAN Foundation’s chief mission officer, AFPs normally work in two scenarios, which vary slightly:

1. Coverage for selected specialty medications are excluded, and as a result, patients are left without coverage for these drugs under the plan benefits.

The patient is given the opportunity to work with the contracted vendor to obtain their drug via another source, such as a manufacturer patient assistance program (PAP). If the PAP application is not approved—and the employer does not override the exclusion as a “medical necessity”—the patient is required to pay for the cost of the drug themselves. These costs do not count toward their annual deductible or out-of-pocket (OOP) cost-sharing requirements.

On the other hand, if a PAP is not available at all, some vendors might try to find the drug another way, such as via a foreign pharmacy. If the patient fails to follow the vendor’s requirements, just as above, they are responsible for absorbing the drug cost without any of it going toward the deductible or OOP cost-sharing requirements. Obtaining other insurance is another option.

2. Under this model, the health plan covers the specialty drug but automatically denies prior authorization, requiring the patient to first engage with a third-party vendor to attempt to obtain the medication through alternative sources, most commonly a manufacturer PAP, as a condition of coverage.

If the patient is ineligible for a PAP or no program is available, the vendor may pursue additional options, such as sourcing the medication through a foreign pharmacy or securing other forms of patient assistance to reduce the plan’s financial exposure. If these efforts are unsuccessful, the drug may then be processed through the plan’s standard benefits pathway, at which point coverage may be granted.

However, if the patient fails to participate in or comply with the vendor’s requirements, the request is typically deemed noncompliant with prior authorization terms. In that case, the patient becomes responsible for the full cost of the medication, and any related expenses do not count toward deductible or OOP limits.

Why should professionals in the pharma industry know about AFPs?

AFPs affect how specialty medications reach patients, how products are reimbursed, and how manufacturers engage with payers, providers, and patient support ecosystems. Even when AFPs are implemented by employer plans or vendors instead of manufacturers, they can impact market access strategy and patient services operations.

From a market access and contracting perspective, AFPs can change effective demand signals. A product may appear to be covered on formulary but is functionally restricted through AFP workflow.

For patient services, hub operations, and field reimbursement teams, it’s important to note that patients who follow the alternative funding route might need additional documentation, coordination with charitable programs, or repeated eligibility verification, which can not only lengthen time to therapy, but increase the administrative burden experienced by providers and support teams.

How are AFPs different from copay accumulators and maximizers?

While AFPs focus on how a drug is sourced and funded, copay accumulators and copay maximizers consist of plan designs that modify how third-party financial assistance counts toward a patient’s cost-sharing obligations.

For instance, copay accumulators prevent manufacturer copay assistance from counting toward a patient’s deductible or OOP maximum, which could leave patients with higher costs once that assistance concludes.

Copay maximizers alter what patients need to cover for copay in a way that captures the full value of copay assistance, which often results in a higher deductible or OOP for patients.²

As for AFPs, they restructure coverage for selected drugs, which excludes them from receiving standard insurance benefits until alternative funding steps are taken.

Why is there controversy surrounding AFPs? Are there compliance or regulatory concerns with them?

Some employer-sponsored plans that partner with AFPs categorize certain high-cost specialty medications as non-essential and, as a result, exclude them from required coverage. When a drug is designated as a non-essential health benefit (EHB), patients who choose to pay OOP are responsible for the full cost of the medication. If a patient instead works with an AFP, any co-payments or coinsurance typically do not count toward the patient’s deductible or annual OOP maximum.

AFPs date back to the Affordable Care Act (ACA), which established 10 EHBs that must be covered by all ACA-compliant health plans, including prescription drugs. Patient cost-sharing for covered prescriptions counts toward the yearly OOP maximum, being that ACA places limits on cost-sharing and total annual OOP spending for healthcare services. These specific requirements pertain to ACA marketplace plans, along with employer-sponsored plans that choose to cover EHBs.

What are some reported system-level impacts of AFPs?

Being that AFPs depend on manufacturer assistance programs that were meant for uninsured or underinsured patients, critics of these programs argue that they redirect the limited safety-net resources away from those patients who need them most.³

What is being discussed at the policy level?

There are patient advocacy groups and medical associations—such as the PAN Foundation—that have called for legislative or regulatory action, in order to boost transparency and ensure that financial assistance counts toward cost-sharing protections. Discussions include clarifying EHB rules and restricting plan designs that could hinder patients that are in dire need of specialty therapies.

References

1. Alternative Funding Programs. American Medical Association. https://www.ama-assn.org/system/files/issue-brief-alternative-funding-programs.pdf

2. Copay Accumulators and Programs that Harm Access to Healthcare. PAN Foundation. https://www.panfoundation.org/protecting-your-access-to-medications

3. The High Costs of Alternative Funding Programs. Alliance for Patient Access. June 2023. https://allianceforpatientaccess.org/wp-content/uploads/2023/06/AfPA_High-Costs-of-Alternative-Funding-Programs_June-2023.pdf