Drug spend: containing costs and building value in a plan

This created discussion around medication costs and led to some key cost-reduction factors now in play. But despite these changes, the cost of covering employee prescriptions continues to challenge organizations. In fact, the importance of understanding the cost and what drives value within a drug benefits plan has never been greater.

Consider the following amendments in Alberta:

• The province has legislated cost reductions for generic medications on the provincial drug benefits list: 56% of the comparable brand price (previously 75%) for medications introduced before the Oct. 1, 2009, cut-off date and 45% for those introduced after the date.
• Pharmacists will be paid for expanded services. The new compensation model is to be defined by July 1, 2010.
• A transitional allowance will be added to each prescription less than $75: $3 per prescription (from April 1, 2010 until March 31, 2011), $2 per prescription (year two) and $1 per prescription (year three, then eliminated).

Proposed legislation in Ontario reduces generic medication costs from 50% of the brand cost to 25%, starting in year one for the public plan only. For private plans, the cost would remain at 50% in the first year, reduce to 35% in the second year and 25% in the third year.

Dispensing fees paid by the Ontario government would increase by at least $1 for the public plan, effective immediately. In the following years, dispensing fees paid by the government would increase annually by 2.5%, and markups on medications would be capped at $125.

As with Alberta, pharmacists in Ontario would be compensated for expanded services.

Even with these efforts, however, most of the drivers of medication costs are still in play. Fifty percent of the current spend is for drugs with no generic equivalent. And there are several exceptions to the pricing rule, including generics that have only a single source or those with no brand equivalent.

Approximately 50% of new medications in development are high-cost specialty drugs and biologics, such as Remicade. Currently used for inflammatory disorders, it carries an average cost of $32,000 per claimant per year. New oral therapies for cancer will also impact private plans, given that they are not administered in hospitals.

Contributing to a steady increase in the number of prescriptions per person in Canada is the fact that there are more conditions for which medication is being prescribed, and given medications are being prescribed for more than one condition.

Age is also a factor. In 2008, the average number of prescriptions per claimant was 11.7, but that number jumps to 29 for those aged 65 and over.

Innovations in medication have increased life expectancy, quality of life and the productivity of the population, making prescription drugs an important and highly valued employee benefit now, and in the future. Costs can be well justified with these outcomes; however, studies consistently show that 20% to 80% of patients make errors in taking medication, and 20% to 60% stop taking medications before being instructed to do so. This means, that money may be spent on medications that never provide their full value.

Decisions surrounding prescription drugs need to be based on the unique patterns and cost drivers of the particular plan, as well as the values and objectives of the plan sponsor. Complacency will ultimately result in increased cost and decreased value. Information, coaching and consultation strategies to support claimants in gaining the best value from their drug plan will become increasingly important as the population ages and the use of and need for drug plans rise. BC

Paula Allen is vice-president, organizational solutions, with Shepell•fgi.
pallen@shepellfgi.com

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© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the June 2010 edition of BENEFITS CANADA magazine.