Leading-edge organizations look for ways to implement innovative solutions to manage their costs and be better prepared for the effects of future changes in the drug benefits landscape. For the Alberta School Employee Benefit Plan (ASEBP)—which serves more than 55,000 covered members in 58 school jurisdictions across Alberta—predictive modelling for prescription drug costs was one such way.
According to Jennifer Carson, executive director and CEO of the ASEBP, the main driver for the predictive modelling study was to identify metrics for the ASEBP’s prescription drug plan in order to map out risks to the plan’s long-term sustainability.
The ASEBP also realized that it needed to understand the disease state drivers of its members in order to tailor its health initiatives, as well as to develop a baseline to assess the effectiveness and return on investment of its current benefit invest-ments on employee and workplace health.
And it wanted to build a business case for its trustees about how to better manage its drug spend. “The generic drug price reductions are only the tip of the iceberg,” Carson says. “We needed a more comprehensive view of the future health costs (positive and negative)—including provincial pricing changes, the expected impact of the Canada–EU trade negotiation regarding brand name drugs, drugs coming off patent and the rate of growth of our biologic drug spend—so we could optimize our next planning phase.”
Mapping out challenges
Aon Hewitt has helped the ASEBP gain a better understanding of its drug spend over the past six years and identified a series of potential opportunities to work with both disability and drug data in an integrated manner.
The predictive model for multi-year drug cost projections helped the ASEBP to see what drug plan cost challenges it now has and will be facing in the near term. The modelling focused on three elements:
- the changes in the covered members;
- the drug experience of the group; and
- the benefit related to uncertainty (risk) assessment.
The projection for the ASEBP’s workforce modelled average membership growth based on the plan’s historical experience and its economic and business expectations. For the drug experience of the group, the model focused on the per capita costs based on the ASEBP’s historical experience by drug type and indicated disease state. The model then applied inflation and utilization trends, brand drug patent cliff changes in 2009–2015, and recent provincial and territorial legislative cost changes for generics effective April 1, 2013.
The ASEBP discovered that the model is a dynamic real-time tool with the ability to change 43 assumptions, including modelling of uncertainties, funding and plan design changes by creating different scenarios on demand. The real value, Carson says, is that the model allows the ASEBP trustees and leadership to examine “what if” scenarios around plan design or cost management discussions.
The specialty drug spend
While the ASEBP understands that specialty (biologic) drugs have the highest paid cost per claim, it was surprised to discover that the cost paid per claim trend for these drugs is actually decreasing, in contrast to previous industry news about escalating biologic drug costs. Even though submitted and paid amounts for specialty drugs per claimant and claims are increasing, cost growth rates are consistently decreasing.
At the ASEBP, the modelling showed a positive downward trend of per capita claim costs for submitted and paid specialty drugs. Additionally, year-over-year specialty drug claimant growth is declining, and a number of specialty claims per claimant is decreasing. And, an increasing per capita claim cost trend for expensive drugs—which includes single-source, specialty and multi-source drugs priced as brand names—was offset by the decreasing trend of generically priced drugs. Specialty drug per capita annual claim cost trends were, on average, 16% from 2005 to 2009 and 12% from 2009 to 2011.
The study determined that single-source (a brand name drug that does not have a generic equivalent) drug costs dropped to 43% in 2011 (down from 61% in 2005) as a percentage of total drug spend, while the generic drug spend share increased. In 2011, the generic drug spend was 33%, up from 21% in 2005.
At the ASEBP, generic drugs replaced single-source drugs in terms of relative share of the historical total drug spend. This means, the share of the generic drugs is increasing almost as fast as the share of the single-source drugs is decreasing.
The study also found that the share
of expensive drugs—again including single-source, specialty and multi-source priced drugs as brand names—is decreasing. Expensive drugs represented 74% of the ASEBP total drug spend in 2005 but only 61% of the total spend in 2011. The reduction was almost perfectly offset by the generic drug spend increase. (That is one of the important reasons why the benefits industry has experienced a low overall drugs trend in the recent past.)
The macro findings
Although specialty drug claim costs as a percentage of total drug claim costs have been increasing at the ASEBP since 2004, the rate of that growth is dropping. The 2012 and (projected) 2013 spikes in the specialty drug claim cost share as a percentage of the total drug spend are more of a reflection of recent legislative changes for generics that are decreasing total drug claim costs.
The study also indicated that the annual cost reduction for patent cliff brand name drugs in comparison to prior years was, on average, 23% in the first year, 83% in the second and 47% in the third and after.
This cost-reducing factor will require more study to determine how to align plan design and adjudication protocols to these drugs coming off patent, which Carson says will be an area of focus at the ASEBP.
For the 2010–2018 period, the study projected significant cost savings from the recent legislative changes to generic drugs. Per capita drug cost is expected to grow by 40% from 2011 to 2018, reduced from 86% as a result of these changes. Total drug cost spend should continue to be very low or negative in 2013.
The sum of the 2009–2015 patent cliff effect is expected to be significant by 2018 and is in addition to the savings from the legislative changes. By the end of 2012, the ASEBP had already seen savings of about 4% of total drug spend as a remnant of the patent cliff effect.
As a result of Aon Hewitt’s predictive modelling study for 2009–2018, the ASEBP is able to more precisely measure the longer-term cost savings impact for each of the recent drug changes.
With this cost projection information five years into the future, and with the ability to react to future changes in real time, the ASEBP can now develop the health strategies and potential related
to funding reallocations. This will allow the ASEBP to determine the estimated return on its healthy living investments for its members over the next five years.
The Alberta segment
The interesting context for the Alberta market is that these health initiatives will run parallel to the Alberta Health and Wellness (the provincial government’s health department) initiatives related to Strategic Clinical Networks (collaborative clinical strategy groups that bring together various stakeholders to improve the healthcare system) in Alberta, since both the ASEBP and Alberta Health and Wellness have similar long-term goals—improving the health of Albertans.
“This is a great opportunity for our benefits plan and others to reinvest at least a portion of the projected drug cost savings to influence future benefits plan costs through plan design optimization, healthy living projects and interaction with provincial Strategic Clinical Networks,” says Carson. “This means that, in the near future, we will be able to focus on more disease state analyses through population segmentation and develop more refined and innovative healthy living initiatives.”
For the ASEBP, 2016/17 is a key time frame for developing better health in the education sector population. In December 2011, the federal government announced the slowing of the rate of growth in healthcare transfer to the provinces and territories. The federal Canada Social Transfer increases by 6% annually until 2016/17, when future growth in transfers will be tied to each province’s increase in economic growth.
To the extent that provinces can’t more effectively manage the delivery and cost of healthcare, benefits plans such as the ASEBP could face significant additional cost challenges (e.g., the downloading of medicare-covered expenditures).
The changes in the drug landscape are profound and significant, depend on plan design and utilization pattern, and differ by year, as was illustrated by the drug predictive model. As such, all significant outcomes of the predictive modelling for drugs should be considered under renewal analysis by other benefits plans going forward. Using only past statistics is no longer a sound strategy in a significantly changing environment. Having predictive modelling in place based on a study will assist plan sponsors in building and adjusting their benefits strategy. It’s time to understand the savings from a changing drug landscape.
Perry Dorgan and Alexander Uborcev are benefits consultants with Aon Hewitt. perry.dorgan1@aonhewitt.com; alexander.uborcev@aonhewitt.com