Canadian companies should ask some tough questions and take a closer look at the way their employee drug plans are being managed or risk further benefit cuts, cost increases and even impacts to their own product or service pricing, according to a new white paper.
An End to Blank Cheques: Getting more value out of employer drug plans by Helen Stevenson addresses the issue of soaring prescription drug costs and its economic impact on plan sponsors, employees and retirees alike.
Canadian companies spend about $200 million per week on prescription drugs, which translated into an estimated $10.2 billion last year, according to the white paper. But while total health spending between 1985 and 2007 grew at an average rate of 6.6 per cent annually, total drug expenditure increased by 9.2 per cent for the same period.
Stevenson points at four main factors that drive the cost of drugs upwards: the willingness to pay for almost every new drug at any cost; not fully utilizing the potential of generic drugs; vast pricing and dispensing differences between pharmacies for similar drugs; and employee indifference about the cost of drugs covered by their workplace plans.
The private sector spend on prescription drugs (both employer plans and consumers paying out-of-pocket) reached an estimated $14 billion in 2009, representing annual growth rate of seven per cent, while public sector spending on prescribed drugs reached $11.4 billion for the same period, representing an annual growth rate of only four per cent, according to the white paper.
There are a number of steps plan sponsors can take to tackle the issue and control drug plan costs:
•clarify the purpose of the drug benefit plan
•have the right information to make decisions
•better manage formularies
•promote and educate employees about the appropriate use of generic and brand drugs
•build buying power
•reinvest savings back into benefits.
"Prescription drug costs can be managed but changes need to be made," said Stevenson. "If nothing is done, the steady rise in the cost of these plans will continue and may even lead to dire consequences."
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