Alternative Funding Program (AFP)

An Alternative Funding Program (AFP) is a third-party service that helps self-funded employers move specialty drug costs off the health plan by enrolling eligible members in manufacturer patient-assistance programs, foundation grants, and other outside funding sources. Instead of the plan paying $10,000 a month for a specialty biologic, the AFP vendor navigates the member into a manufacturer program that covers the drug at no cost — the plan pays only the vendor's administrative fee.

AFPs have grown quickly and generated significant controversy. On the plan-savings side, they can reduce specialty drug spend by 60 to 80 percent for the targeted drugs, which for some employers translates into hundreds of thousands or millions of dollars annually. On the ethical and legal side, they've drawn criticism because manufacturer patient-assistance programs were designed to help genuinely low-income uninsured or underinsured patients — routing insured employees to those programs to shift cost off the plan raises fairness concerns, and some manufacturers have moved to exclude AFP-enrolled patients from their programs. State legislatures have begun regulating AFPs, and the Department of Labor and courts have questioned whether AFPs align with ERISA fiduciary duties when they cause plans to exclude specialty drugs and force members into third-party enrollment. The AFP model is real but the regulatory and reputational risks are meaningful.

The takeaway: if you're an employer considering an AFP, get careful legal review of the ERISA implications and think through the member-experience and fairness dimensions before signing. The savings can be substantial but the risk profile is not the same as a straightforward formulary change.