Getting a handle on rising drug plan costs

Roundtable looks at options for employers, including evidence-based drug plans, financial disincentives and pharmacy networks
By Liz Bernier
|Canadian HR Reporter|Last Updated: 06/09/2016

There’s no question the cost of drug plans is increasing considerably, if not accelerating — especially when it comes to specialty medications.

So, how can employers slow down the spend increases while still offering competitive benefits packages? 

A recent roundtable in Toronto, moderated by Sarah Dobson, editor/supervisor at Canadian HR Reporter, and sponsored by Sun Life Financial, delved into this and other questions. 

What’s behind the increases?

There are a number of factors behind the growing drug costs, said Atul Goela, director of pharmaceutical benefits at Sun Life Financial in Toronto.   

“There’s been tremendous innovation that’s been occurring from a drug plan (perspective). If you look at what drugs and types of drugs are coming out to the marketplace, we’re in a stage of rapid evolution in the technology that goes into bringing drugs to market,” he said. 

“As a result, the drugs that are coming to market are that much more powerful or effective. We talked about, five or 10 years ago, having targeted medication. We’re also in that area where it is very targeted, precise. If you look at cholesterol, as an example, there used to be hundreds of thousands of people who were eligible for treatment. 

“Now, we’re getting very specific treatments when it comes to their genetic makeup.” 

It’s about targeting at a level where, even in a large population, there are only sub-sets of the population that would benefit from the products. That’s the level and the precision available in medication as a result of the innovation that’s happening in both medicine and technology, said Goela. 

“And we’re in this tremendous upswing of that technology that it’s almost sometimes difficult to see... The example I give is the cellphone. You look at five years ago what a cellphone could do versus today and what a cellphone can do. The same kind of evolution is happening on the drug side.”

Diseases that used to be death sentences have become chronic diseases, whether it’s HIV or cancer, said Tim Clarke, chief innovation officer, health and benefits, at Aon Hewitt in Toronto. 

“That’s phenomenal from a drug treatment perspective. It’s had an unanticipated effect on those who are paying for the programs in that now you’re treating something for many years as a chronic disease in a very expensive manner in some cases and differently than you would have in the past,” he said. 

“That’s created a timeline of how long someone will be on a very expensive therapy that’s different now than it was 10 years ago. It really flows through into something like large-amount pooling, which has become a huge challenge for many organizations, whether you’re talking about the insurance industry or about employers. You’re now funding treatment for chronic diseases that can be upwards of $30,000 or $50,000 or $500,000 a year.”

There’s a whole new world of funding chronic diseases, said Clarke.

“That’s not what stop-loss insurance was built for. You’re trying to solve today’s problems with an old solution, and everyone’s feeling the tension from that.”  

Usage in general has also gone up as a result of the aging population, said Goela. 

“We have an older population, not only aging in itself and the disease that comes with it, but they’re also using more medications. Where in the past it might have been just diabetes, now it’s diabetes, high blood pressure and cholesterol. So, right there, we’re treating three diseases, once again, in a population that’s also aging. So more people, more drugs, more diseases.” 

Practical solutions?

Evidence-based drug plans and formularies could be one solution, said Goela — although there’s no silver bullet. 

“It’s all incremental and additive solutions, so evidence-based and looking at the evidence. We talked about the ‘Who’s the right person for the right drug at the right time?’ concept. So, are you taking the drug where it will actually have clinical values and effectiveness?” he said. 

“It’s looking at things like mandatory generics. The prices have come down to where they are 18 to 20 per cent of the brand. The evidence suggests they are effectively equal. Promoting these generics... it’s all additive solutions that come to help manage the overall cost.” 

Legislation has certainly improved the use of generic drugs, said Alan Kyte, senior pharmacy consultant at Willis Towers Watson in Toronto.  

“Government intervention has reduced the price of generic drugs considerably... a generic drug was maybe 70 per cent of the cost of a brand not so many years ago, maybe 10 years. Now it’s 20 per cent the cost of a brand. So there’s an 80 per cent savings there,” he said. “Government has certainly stepped forward not only to encourage the use of generics but also reduce the price through different reforms across the province. I think that’s definitely been a significant help.” 

There’s also the option of using financial disincentives such as co-pay or co-insurance, so employees share some of the cost, said Kyte. 

“I’m a big believer in sharing some cost with employees... I have seen far too often when it is 100 per cent covered, there is a complete disregard for need versus want. You go to the physician and you get a year’s worth of prescription, some of which you may or may not need through the year.”  

You want people to be thinking as if it’s their own money for those day-to-day expenses, said Clarke. 

“At the same time, you want to make sure someone has the protection if something really catastrophic happens.” 

For Thomson Reuters, it’s been about moving to generics, moving to formularies and prior authorization, said Barb Conway, vice-president of human resources and customer experience at Thomson Reuters Legal Canada in Toronto.

It’s also interesting paramedical costs are increasing, she said.

“We’re trying to balance that with ‘How is that then pushing down some of our drug costs?’ and really trying to analyze that and get our arms around that. We’re definitely seeing that trend.”  

Using pharmacy networks is another option, said Jonathan Fournier, health and benefits consultant at Mercer in Montreal — but a potentially tricky one. 

“To have success with a pharmacy network is a combination of plan design modification because you need to create an incentive to all employees to go to a pharmacy included your network,” he said.  

And Canadian employers tend to resist retail pharmacy networks, said Kyte. 

“One of the main reasons is we’re so geographically expansive that getting a network that will cover everybody’s locale is very difficult. There are very few groups of drug stores that cover, and you end up cobbling together different pharmacies.” 

Subsequent entry biologics (SEBs) are another newer option that sounds promising — but how much might they actually save employers? 

“It’s still early days. It doesn’t fall into the same pricing realm as it stands today. We’re seeing prices come 16 to 50 per cent lower for the few SEBs that have come to market,” said Goela. 

There are a couple of different issues with SEBs, said Clarke. 

“One is: Are physicians going to start prescribing the SEBs? We’ve seen that with the couple that are on the market now, that there’s virtually no usage of them. Without the ability to do a generic-type substitution, what is the take-up of SEBs going to be?” he said. 

Kyte was a bit more optimistic.

“I’m speaking as a clinician. I firmly believe that (with) SEBs, there is definitely a hope for savings there. Health Canada has not become comfortable with the level of interchangeability between the SEBs and the regular drugs. I think, as time goes on, that level of comfort will rise as well,” he said. “The ability to interchange them at different levels may also help for savings opportunities. But it is early days.” 

Employee considerations

Employers are increasingly looking at what the right amount of money is to be spending on this, said Clarke. 

“What is the right cost? (It’s about) balancing what employees want with what employees need. There are a number of things that have worked their way into our medical and health-care plans over the years which are really cash flow expenses: vision care plans; some of the things that are much lower cost, predictable expenses, dental recalls. There are a lot of things that are in the plan today that really don’t provide insurance protection, they provide cash flow management. Those are the things that employees see every day and they really want because they’re front and centre,” he said.  

“Then, there’s the side of what they actually need, the coverage for catastrophic drugs.”  

It’s important that employers carry out regular reviews of what’s being spent, said Jeannine Quinn, regional HR director, Canada operations, at Bridgestone Canada in Mississauga, Ont. 

“Our benefit contract renews every year so we always look at it. And we rely heavily on our consultant also to say, ‘Here’s what’s new, here are the trends, here’s what we’re seeing.’ We use our data from the insurer to say, ‘What are we seeing in that? Are we doing the right things? Should we revamp the program?’” she said.  

“And communication is key to all of that. You can’t over-communicate to people on those things because they’re going to hear different pieces of it, maybe not the full story. So, as an employer, you’ve got to do a really good job at making sure they understand and simplifying that information.”  

When it comes to changes to employee benefits, good communication is definitely required, said Conway. 

“But I have not found that transition to be a difficult one for employees. We recently engaged in discussions around pharmacy networks. We’re looking for more innovative ways to do that, and what other employers are doing. With benefits, it’s one of those areas where, at least for us, it’s a key part of the total rewards package. We need to be competitive; we want to provide our employees with what is needed, which can be difficult given that spectrum.” 

There has definitely been a shift in the communication elements, said Clarke.

“There’s certainly general education you want your employees to have around their plan and what they can do to keep the cost under control and so on. But we’re moving towards more just-in-time or as-needed communication. So you don’t need every employee in your organization to understand your prior authorization program and every aspect of it,” he said.

“What you need is when someone needs to go through the prior authorization program, they get the information they need so they can go through it in a quick and effective and painless manner.”  

Employees in general are far more aware than they were 20 years ago of the need to take charge of their own health, whether that’s through exercise, diet or even quitting smoking, said Clarke. 

“(We’ve) seen a societal shift to individual responsibility around their health more so than in the past. So when you see employer plans really try to support that desire from their employees to be more healthy on their own — and, in parallel with that, you’ve got the employers looking at ‘What can we do to help support that because it’s good for our business as well?’ — it’s more of a societal change that we’ve seen. And both the individuals and the employers are moving through that together.”  

More and more employers are recognizing that in looking at the cost of a benefit plan, the top 10 conditions are chronic conditions, preventable conditions, such as diabetes and cholesterol, said Antonia Sfichtelis, manager of total rewards and information systems at FedEx Canada in Toronto.  

“So there is an ROI from an employer side to put wellness programs at the forefront and help educate employees to take a vested interest in their health. That said — it’s very difficult. Those that do… do, and they will continually invest in their health. It’s reaching those for whom it’s just not top-of-mind. And, as an employer, we struggle to reach those employees.” 

Thomson Reuters is trying to embed more of that in its culture, said Conway.  

“Recently, we’ve had global fitness challenges where we’re having employees around the world participate and build that into the culture; have that (be) more (about) team-building. So trying to find innovative ways to engage employees in that wellness approach is something we’re focused on.”  

Monitoring all the statistics with regard to a wellness program will improve the treatment and observance, said Fournier.

“We know approximately 70 per cent of all drug costs are for preventable disease. So it’s a big part and, in the majority of cases, it’s possible to change the behaviour of some employees and monitor the information.”  

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