Controlling rising drug plan costs

Pharmacy benefit management strategies reduce waste, improve efficiencies

A prescription drug benefit plan is a key element in a total rewards program and it plays an integral role in employee health management. It’s also the biggest component of an employer’s medical plan costs. 

While the trend in drug plan costs has been moderate over the past several years, there are a number of factors that are expected to contribute to increased costs in the future — increased use of high-cost drugs, a growing number of employees and dependants with chronic conditions, and the shifting of public costs to private payers. 

Canadian employers remain committed to providing comprehensive drug coverage to employees but they are also cognizant of the need to manage costs. As organizations seek ways to control rising health-care costs and ensure drug plans remain viable over the long term, many employers have been implementing pharmacy benefit management strategies aimed at reducing waste and improving efficiencies.  

Cost increases 
Drug cost trends have been moderate in the past few years primarily because of a greater availability of lower-cost generic drugs and a lack of “blockbuster” brand name drugs entering the market. However, employers are likely to see increases in the future for several reasons:    

•High-cost drugs are typically used by less than two per cent of employees, but can account for 20 per cent or more of an employer’s total drug spend. For example, new drug therapies for Hepatitis C, while more effective at reducing the virus than prior treatments, create budget challenges for employers because the typical cost is about $55,000 for a 12-week treatment. Other new drugs in the pipeline may drive costs even higher. New, high-cost therapies will account for 30 per cent or more of drug plan expenses within the next three to five years, according to Towers Watson’s 2014 Canadian Health Care Cost survey. In the United States, high-cost drug spend is predicted to reach 40 per cent to 50 per cent of total drug spend by 2018.

•Unhealthy lifestyles coupled with aging have resulted in an increase in chronic conditions and are likely to contribute to increases in employer health-care costs. In fact, claimants with diabetes have six times the number of drug claims compared to those without diabetes, according to Green Shield Canada’s 2014 Health Study. Similarly, claimants with high blood pressure have more than three times the number of drug claims compared to those without.

•Pharmaceutical advancement is also contributing to the cost shift from public to private payers. It seems inevitable that as our understanding of “the chemistry of life” grows, we will find new, better and more expensive pharmacological solutions to counter the effects of disease. 

The incredible innovation in cancer treatment is a good example of this. For example, it is now possible to treat some cancers with oral medication. As cancer treatment moves out of the hospital setting, it is no longer covered by public hospital plans — which places the financial burden on the private payer. 

Pharmacy benefit management strategies
Research shows a clear correlation between pharmacy benefit management strategies and health-care cost reductions. As the prevalence of high-cost drugs increases and health-care costs and trends begin to rise, organizations will need to actively manage drug benefits to mitigate the impact on the bottom line. There is a wide variety of tactics employers can implement to reduce waste and improve efficiencies. 

The average annual drug cost per active employee at organizations without a formal drug plan management strategy is $1,124, according to Towers Watson’s survey. Average annual costs, however, are 24 per cent lower, or $266 less per employee, for plan sponsors that have three or more drug cost management strategies in place. Even implementing one or two techniques reduces annual costs, on average, by 12 per cent or $135 per employee. 

Here is a quick list of activities that can save money for future drug spending:

Lower administration fees: Stop paying administration fees based on a percentage of claims cost, especially for high-cost drugs. Ask the vendor for a “per transaction” administration charge.

Limit dispensing fees: Limit the number of dispensing fees paid for employees’ ongoing maintenance medications. Institute a policy to pay for one dispensing fee for each 90-day refill.

Reduce drug waste: Make sure employees are not throwing away drugs. Limit the amount you pay for new, untried drugs to a seven- to 30-day trial period.

Reduce drug misuse: Safeguard against fraud and drug misuse in the plan by imposing a limit on the number of narcotics employees can access. 

Improve medication adherence: Support employee health by introducing an adherence program that will ensure employees are getting the medications they need. Daily medication or refill reminders are easy programs to put into place.

Bill Bright is a Calgary-based licensed pharmacist who leads Towers Watson’s Canadian pharmacy practice. For more information, visit

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