Specialty drug carve-out programs are gaining traction as a potential money-saving strategy, redirecting employees to Patient Assistance Programs for their pricey medications. However, before hopping on this cost-saving train, it's crucial to have a solid plan in place to avoid care fragmentation and administrative headaches that could turn those savings into unexpected expenses!
"Healthcare, and specifically specialty pharmacy, continues to be a huge driver of costs, and businesses can’t continue to absorb an overall 8 to 9 percent increase every year."
These words from Bob M. Charles, staff vice president at WellPoint Specialty Pharmacy, deeply resonate with employers grappling with escalating healthcare expenses. In our previous posts we discussed how PBMs are contributing to this issue and how you can change that by switching to more transparent PBMs. If you missed these posts you can check them out here and here!
Today we are exploring one of the most talked-about and controversial topics in healthcare cost control: specialty drug carve-out programs. These programs aim to offload the financial weight of specialty drugs, which can consume over 50% of your health plan's pharmacy spend. Sounds like a game-changer, right?
Many employers would agree. About 8% of employers are already using carve-out programs, with another 31% considering them. Clearly, there’s a growing interest in this approach!
Beware: Carve-out programs can indeed be a fantastic cost-saving tool, but only if implemented right. So, before you jump on the bandwagon, let’s take a closer look at what specialty drug carve-outs are, the risks they bring, and the best practices you should follow when navigating this complex landscape. By the end, you’ll be better equipped to decide if a carve-out program is right for your organization.
Ready to dive in? Let’s get started!
Specialty drug carve out programs are just what they sound like. These programs exclude high-cost specialty drugs from regular health plans and then manage their dispensing with a separate plan. Under this “new” plan employees are redirected to other funding sources like Patient Assistance Programs (PAPs). These programs aim to provide specialty medications either free or at a significant discount to uninsured patients, supported financially by drug manufacturers, pharmacies, and other groups. Because carve-out programs render patients technically uninsured for specialty drugs, they become eligible for PAP support. This little loophole means employers can ensure their employees still get the medication they need, just not on the company’s tab.
So the main benefit of specialty drug carve-outs is clear– cost saving. However, as we all know, when one pocket gets fuller, another might feel a bit lighter. So, who’s getting the short end of the stick here? Is this really the best approach that provides quality benefits while keeping costs down?
The rewards of specialty drug carve-outs are certainly enticing, but be careful– they come with high stakes! The pitfalls of these plans shouldn't be overlooked, as they could easily turn your savings into unexpected expenses. So, before you decide on where you stand, let's take a look at the six main risks associated with specialty drug carve-out programs.
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When employers carve out specialty drugs from their health plans, they end up juggling two separate plans: one for specialty drugs and another for everything else. While this might sound like a great way to focus on specific benefits, it actually complicates care coordination.
For instance, a psychiatrist might not have timely access to information about the medications a patient’s primary care physician has prescribed. This communication gap can lead to potential drug interactions or conflicting treatment strategies. Such uncoordinated care can result in unwanted side effects and other poor health outcomes, increasing the likelihood of emergency department (ED) visits or other urgent healthcare needs.
When you look at the numbers, the impact of uncoordinated care is pretty shocking. Think about it: the average hospital stay costs $23,911, and a trip to the emergency department (ED) averages $2,453 per patient. If these visits go up by just 10%, that's an extra $1,318 per patient.
Now, if your company has 10 employees on specialty drugs—that's a jaw-dropping $13,180 increase! This really shows how fragmented care can lead to some serious financial surprises.
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Managing two separate health plans also brings added administrative complexities. For starters, patients have to deal with obtaining separate authorizations for services and navigating different billing processes. Imagine a patient with a chronic illness needing both physical and specialized behavioral health treatment. They have to coordinate between two completely disjoint networks, trying to align different insurance requirements, authorizations, and providers. For employers this means more administrative fees!
Additionally, this confusing process can be incredibly stressful and may discourage patients from seeking treatment, potentially increasing long-term healthcare costs. A study from JAMA Internal Medicine shows that individuals facing financial and administrative barriers to drug access were 11.6% less likely to stick to their treatment plan.
Let's put this into perspective. If a company with 1,000 employees, has 30 on specialty drugs, administrative hurdles could lead to 3 or 4 additional hospitalizations or ED visits, costing around $52,728. While this is a hypothetical scenario, the numbers are likely to be similarly concerning in reality. Give it a try and see how these administrative hurdles impact your costs!
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Navigating a new healthcare network is stressful enough, but patients in specialty drug carve out programs also face the added uncertainty of relying on Patient Assistance Programs (PAPs) for coverage. These assistance programs don’t have endless funds to support every patient. With the increase in carve out programs, the demand for PAP support is skyrocketing, and those funds could run dry pretty fast.
When PAPs run out of funds, patients are forced to pay for their medications out-of-pocket or seek help from other third-party organizations. This mess can make patients so frustrated that they might just give up on their treatment which, again, will lead to more hospital and ED visits. And of course, for employers this spells trouble as more of these unexpected visits equal more unexpected costs, wiping out any cost savings from the carve out program.
Did we mention that healthcare costs are the #1 cause of personal bankruptcy for Americans? Don’t be the reason.
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Specialty carve-out programs can also expose self-insured employers to several ERISA (Employee Retirement Income Security Act) and IRS (International Revenue Service) compliance issues. One major concern is misrepresentation. Alternative funding sources like Patient Assistance Programs (PAPs) usually require that patients have no insurance. But here’s the twist: patients in carve-out programs do have insurance—except for their specialty meds.
This means patients are technically insured, just not for the expensive specialty drugs. This gray area can lead to some serious legal trouble. If an employer misrepresents a patient's insurance status to qualify for PAPs, it could result in significant legal ramifications. We’re not lawyers,, but you're thinking about using carve-out plans, make sure you’re playing by the rules.
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While ethical concerns might not seem directly tied to the cost-saving efficiency of specialty drug carve out programs, they shape PAP (Patient Assistance Programs) eligibility requirements, which could eventually impact employers' budgets.
The main criticism is that carve out plans are adding more competition for the already limited funds provided by PAPs, which are supposed to help marginalized and vulnerable patients. Critics argue that this approach exploits resources meant for charity, not for cost relief.
There is no consensus on the ethics of this issue (such is the world of ethics), but the controversy is prompting changes. Some PAPs are starting to exclude patients under carve out programs to keep their support focused on those truly in need. This shift not only increases the administrative burden of finding new ways to fund specialty medications but could also force employers to rethink their funding strategies altogether.
In a nutshell, while specialty drug carve out programs can save money, they also stir up significant ethical and practical challenges. This could affect their long-term success and impact those who rely on PAPs the most.
The risks we mentioned certainly raise questions about the integrity and economic efficiency of specialty drug carve-out plans. But don’t worry! We’re here to help you turn this ship around and make your cost-saving dreams come true.
From analyzing the main risks of these carve out programs, it's clear that the biggest hurdle to saving money is poor planning. To make sure your plan succeeds, remember to:
There are many ways to achieve these goals, including holding plan navigation workshops to teach employees how to use their health plans effectively or implementing point solutions to prevent health issues from worsening. The bottom line is that by focusing on these areas, you can design a carve out plan that truly saves money without sacrificing care quality or running into legal troubles.
However, remember that a complete carve out of specialty drugs from your plan isn’t your only option! There are other programs that only exclude certain services from the main plan, offering a balanced middle ground.
If you’re curious, here’s a quick rundown of three other types of specialty carve out plans to help you find the perfect cost-saving strategy.
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Strategies and programs that promise extraordinary savings also come with extraordinary risks. Jump in too fast, and what seemed like a dream of low healthcare costs could turn into a nightmare of skyrocketing expenditures. Carve-out programs, if not handled right, can lead to higher costs due to hefty administrative fees and more hospital visits when patients get too frustrated to seek proper treatment.
It’s all about approach. Take the time to evaluate every aspect of the plan carefully. Make sure to consider all potential issues so you avoid a cascade of downstream medical costs. And hey, if you’re still not convinced that carve-out programs are your thing, no worries! We’ve got a whole series of posts on alternative cost-saving strategies coming your way.
Contact the TrueClaim team to learn more!
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