Rising Specialty Drug Costs Drive Use of Controversial Employer Funding Programs

Spending on specialty drugs, which address rare and complex health conditions, has surged significantly, accounting for over half of pharmaceutical costs despite usage by less than 5% of the population. This trend is driven by rising incidence rates and the introduction of more expensive drugs. To manage these escalating costs, insurers have increasingly relied on utilization management tools like prior authorizations, which complicate patient access to necessary specialty medications, including within employer-sponsored insurance plans that cover most Americans.

A recent survey by the PAN Foundation highlights that 54% of privately insured adults were informed their medication was no longer covered by their insurer, and nearly half were referred to alternative funding programs (AFPs). These AFPs, often operated by for-profit companies, outsource access to costly specialty drugs and save employers money by bypassing their insurance coverage. However, AFPs can impose restrictive terms, higher out-of-pocket costs for patients, and may not count toward annual cost-sharing limits, increasing financial burdens on patients.

Delays in medication access were common among patients using AFPs, with over one-third experiencing delays of a month or more, negatively affecting their health and well-being. Despite these hindrances, nearly half of these patients eventually had their medication covered directly through their insurer. The controversial nature of AFPs centers on these delays and financial risks to patients, as well as the profit motives of third-party companies.

Employers face growing pressure from increasing healthcare costs, particularly driven by specialty drugs and inflation-related factors. Cost increases projected for 2025 range from 6% to 9%, compelling employers to shift more costs to employees. Industry groups emphasize that drugmakers predominantly control pricing and that their continuous list price hikes are the primary drivers behind premium and out-of-pocket cost rises.

Regulatory scrutiny is intensifying, with plans for increased audits and enhanced technology to improve oversight, particularly of Medicare Advantage plans. Legislative attention is also anticipated, with lawmakers considering reforms targeting pharmacy benefit managers (PBMs) to address business practices impacting drug pricing and access. These developments underscore the complex interplay between drug pricing, insurance coverage, employer strategies, and regulatory frameworks in the specialty drug sector.