Employers are facing some tough realities and tough decisions when it comes to health benefit plans because of a rising tide of very expensive, non-traditional drug therapies.
It’s terrifying when you look at high-cost recurring drugs, such as biologics, and episodic drugs, such as those used for cancer, along with traditional, low-cost generic drugs and increases down the road, said David West, a partner in Mercer’s health and benefits business in Toronto. Pharmaceutical manufacturers are targeting expensive drugs to private plans and targeting rare conditions with very expensive drugs, he said, and insurers won’t react favourably.
“Insurers are likely to eliminate drug pooling on these high-cost, recurrent medications and that exposes our clients to very significant increases,” said West. “Smaller employers are more likely to cancel plans but even some of the larger clients have indicated this kind of a change could bankrupt them if they had retiree commitments.”
The utilization rate for high-cost recurring drugs, such as biologics, and specialty drugs between 2000 and 2009 is astounding, at 650 per cent, said West.
Biologics are made from living organisms so that boosts the costs more than manufactured chemical compounds, said Steve Moffatt, senior vice-president of sales and marketing at Green Shield Canada in Toronto.
“You have a drug that’s very expensive to make that serves a very small subset of the population,” he said.
Biological therapies have become more refined for conditions that traditionally didn’t have a lot of alternatives, said Chris von Heymann, senior vice-president at Cubic Health in Toronto. For example, traditional therapies for rheumatoid arthritis dealt with managing the inflammation rather than the cause.
“These more refined specialty drugs are getting to the heart of a disease, rather than treating the symptoms,” he said.
Manufacturers are fine-tuning their approaches to go after conditions such as cancer or rare “orphan” conditions, said von Heymann.
“From an employer perspective, the chances of having an employee with one of those rare conditions in Canada is very small but the kicker is those products may be hundreds of thousands of dollars, not just tens of thousands of dollars.”
In the United States, oral specialty drugs that are very expensive but very effective are the next big thing hitting the markets, for diseases such as multiple sclerosis or cancer, said von Heymann. That means people are moving out of the public systems, the hospitals, to be treated at home with oral tablets. So employees taking one medication for hepatitis C, for example, might move to a more expensive option.
“That’s now shifting into the private sector’s experience,” he said. “Suddenly, we’re going to have a treated population that’s otherwise been stable from a cost perspective now layering on a new therapy within that one category.”
One Mercer client saw 12 high-cost recurring drugs and biologics responsible for about 10 per cent of its total drug spend, said West. That represented 241 claimants out of 39,240 employees covered. So what happens to employer drug claims if there are dozens of high-cost recurrent drugs in late-stage development coming to market over the next three or so years? Twenty-two of these new drugs are likely to be in pill form and, therefore, employer-paid, he said.
“The pharmaceutical industry is targeting employer-paid plans as opposed to public plans by virtue of the form they’re putting their products out in,” said West. “The new high-cost drugs coming to market are going to overwhelm savings from other sources.”
In 2010, 15.7 per cent of the average client’s costs and expenditures were going to specialty drugs, said von Heymann. “We’re expecting that to continue to grow.”
It only takes one or two people to really have an impact, particularly on smaller employers, he said. For example, an employee at one organization who was being treated for multiple sclerosis changed medications. But the change in cost was $45,000 — the entire year-over-year cost increase for the plan as a whole.
In reaction to the rising costs and risks, employers will either impose annual maximums, introduce drug formularies to limit access to some drugs or terminate drug coverage, potentially altogether, even though eliminating that coverage will result in higher absence, disability and lost-productivity rates, said West.
“If they were to get hit with one of these high-cost drugs, they would probably say, ‘No, we’re not covering,’ especially if there’s no financial protection for it,” he said.
Some organizations have stop-loss provisions as extra insurance, particularly smaller employers that can’t afford to take the full hit if one of these new therapies comes through their plan, said von Heymann. However, these provisions are meant to cover accidents or unpredictable types of expenses.
“The problem with these therapies is they’re being used to treat, in many cases, chronic conditions so they’re no longer all that unpredictable once you have patients claiming for these drugs within your own experience,” he said.
There’s also the option of putting caps on overall benefits but that could leave people hanging when they’re in the middle of therapy, said von Heymann. An alternative is to try to find savings in the 85 per cent of a plan that is non-specialty.
It’s also wise, at a minimum, for employers to have fairly strict, prior-authorization programs and criteria in place, he said. So, if someone is prescribed therapy, extra paperwork and diagnostic tests should ensure patients are treated appropriately and respond to newer therapies.
“Some specialty drugs are so specific — you have to have a certain type of receptor or cell or subtype of a certain cancer for therapies to be effective,” said von Heymann.
A lot of doctors and pharmacists are very much in tune with this kind of approach, said Moffatt.
“You reach a point where you have this basket of drugs that could work (so it’s about deciding) which one is most appropriate to try that incurs the lowest amount of expense while you’re not compromising the individual’s health,” he said.
United States one to watch
It’s likely the insurance industry in Canada will follow the United States, said West.
“What we’ve seen is the insurance industry reacting to recurrent high-cost drug claims by increasing the pooling level, increasing the pool charge, excluding these recurrent claims from the pool and a partial experience rating of the pool charge itself. So, if the pool claims exceed a certain level, they might charge a surcharge to that client.”
In the U.S., companies look at it entirely differently because all the health-care expenses are under the same umbrella, said von Heymann. There is a high spend on drugs but there are savings when it comes to hospital costs, specialist visits, X-rays, lab values and time in hospital, so the return on investment is very good.
“The problem here in Canada is that the employers are seeing the spend of X on the drug side but it’s a harder leap to show the return on that investment because the person, whether or not they’re in hospital, the employer doesn’t incur those direct medical costs,” he said.
So it’s about looking at how the spend on specialty therapies can reduce issues such as absenteeism and short- and long-term disability amongst employees, said von Heymann.
“We have to look just outside of the drug plan and drug expense alone at the bigger picture and break down those silos so that we can see where the cost offset is coming from.”
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