Employers slow to react to rising drug costs: Survey

One-half require mandatory generic substitution
|hrreporter.com|Last Updated: 05/25/2011

Despite the escalating cost of prescription drugs, Canadian organizations that sponsor benefit plans are slow to adopt innovative solutions to manage this expense, according to a survey by Aon Hewitt. As a result, drug costs continue to take up 60 per cent to 80 per cent of medical benefit plan budgets, leaving organizations with questions about continuing to provide this coverage for employees.

Prescription drug costs have risen by at least eight per cent per year over the last few years and average $566 per claimant and $1,013 per employee (including dependant claims) per year, according to Aon Hewitt. However, several of the more commonly prescribed drugs will soon lose patent protection, likely resulting in the availability of less expensive generic versions. In addition, a number of provinces have passed legislation that regulates the price of generic drugs, eventually decreasing their cost to 25 per cent of brand-name equivalents.

"These factors have led some plan sponsors to conclude that their drug plan expenses will decrease even if they do nothing," said Shawn O'Brien, a senior health and benefits consultant at Aon Hewitt in Toronto.

However, some organizations are being more proactive, he said, as 47 per cent of the 166 respondents to an Aon Hewitt Rapid Response survey indicated they are ensuring reductions by requiring mandatory generic substitution.

“We expected this number would be higher but another 30 per cent stated they are considering taking this action," said O’Brien.

However, the prescription drug landscape is changing and plan sponsors may want to think long term when it comes to developing a cost management strategy, said Tim Clarke, Aon Hewitt Canada's health and benefits innovation leader.

"The number of biologic drugs in the pipeline is increasing — which is great news for those suffering from chronic conditions such as rheumatoid arthritis, multiple sclerosis, Crohn's disease and lupus," he said. "The challenge for organizations is that these drugs cost $20,000 to $50,000 per year per prescription, and as much as $100,000 for some rare diseases. Organizations need affordable solutions that help employees and family members suffering from these conditions."

Some solutions to manage drug plan costs have been available for some time, said O'Brien.

"In addition to mandatory generic drug substitution, 80 per cent of plan sponsors are already using pay direct drug cards and 12 per cent are thinking about introducing them; 46 per cent encourage a 90-day supply for refills, with another 36 per cent considering doing so; and 32 per cent require pre-authorization for certain high-cost drugs, while another 34 per cent may do likewise,” he said. “These are examples of best practice strategies that all organizations should consider implementing."

Though fewer plan sponsors have introduced more leading-edge approaches to contain costs — such as managed drug formularies, optimized provincial plan co-ordination and employee education using targeted messaging for specific drug classes — these are emerging opportunities that at least 30 per cent are willing to consider, found Aon Hewitt.

"Other strategies are not readily available and in very limited use but represent tactics that plan sponsors should keep an eye on for the future," said Clarke. "For example, fewer than 10 per cent of survey respondents currently have preferred provider pharmacy arrangements, encourage mail order delivery for maintenance drugs, negotiate discounts or provide case management for high-cost claimants. These strategies may provide significant savings in the next few years."

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