Managing drug costs: What Atlantic employers got right

It seems that every year the same story is trotted out for plan sponsors and public alike. Drug costs in Canada are increasing at an alarming rate and steps must be taken to control them.

The dates and headlines on the stories may change, the suggested solutions rarely do.

Over the years, plan sponsors and their consultants have tried all kinds of tactics to help curtail spending. So why do drug expenditures across Canada keep spiralling upward?

A recent publication from the Canadian Institute for Health Information (CIHI), Drug Expenditures in Canada Between 1985 and 2003, revealed the following shocking statistics:

•In 1985 total drug expenditures per person in Canada were $147. By 2001, this had increased to $537;

•In 1985 total drug expenditures in Canada were $3.8 billion representing 9.5 per cent of total health expenditures. By 2001 the total increased to $16.7 billion representing 15.7 per cent of expenditures. By 2003, it was up to $19.6 billion;

•Since 1997 drugs have represented the second largest overall health-care expenditure, second only to hospital expenses at $36.4 billion and ahead of nationwide spending on doctors at $15.6 billion;

•Prescribed drugs were expected to account for more than 80 per cent of total drug expenditures in 2003; and finally

•While non-prescribed drugs are usually paid for by consumers, various sources pay the cost of prescription drugs, with roughly 47 per cent picked up by the public sector and the remainder by private health-care plans and consumers.

Whatever we’ve been doing, it’s clearly not working. Without a change in approach, the long-term sustainability of private plans is in doubt.

The typical approach to cost management in Canada’s private plans has focused on plan design tinkering, such as introducing or increasing plan maximums, deductibles, drug formularies and co-insurance.

While these changes have met resistance from plan members, few plan sponsors west of the Atlantic provinces have realized any significant plan savings, because the changes have been tentative at best.

Why single out the Atlantic provinces? Because this is the one region where change seems to have been effective. (Even though most plan sponsors in the region would point out that costs still remain a problem that isn’t going away.)

Perhaps because of the significant economic challenges in much of the region, the changes introduced there could not be tentative. Atlantic employers needed cost containment and they needed it immediately.

As a result, as far back as 1992, the Government of Newfoundland introduced one of Canada’s first managed formularies for its provincial employees. A managed formulary is a defined approach to managing the prescription drug claims in a plan. It does this by:

•establishing an explicit list of the prescription drugs eligible for reimbursement under the plan; and

•providing a review process whereby new drugs can be assessed for inclusion or replacement for drugs on the list.

The list, though constrained, can change over time. This plan was also the first to have a special authorization process to allow for exceptions when warranted.

Nearly 15 years later, this type of plan is almost a standard offering in Atlantic Canada. It’s not unusual for the plan cost-sharing to be 50-50 and the co-insurance to be hefty — often as much as 30 per cent.

The challenge with this approach is it also requires the plan sponsor to give up a little control. Understandably, when plan members are responsible for half the cost, they want to have a say in how their money will be spent, whether in plan design changes or eligibility criteria.

It’s common for this employee participation to be accomplished through plan review committees that meet quarterly, where the committee comprises representatives from each stakeholder group — union, staff and management.

To the surprise of some plan sponsors, allowing employee representation in plan management hasn’t led to total chaos. Indeed several of the toughest changes are suggested and driven by employee groups.

Today, many of the largest plans in the Atlantic region work this way.

So why hasn’t this approach been copied across the country? Simply because the economic incentive has not been as great. Human nature being what it is, it’s easier to take the less controversial route first — a little cutback here, a small increase there, ever so slowly inching towards that brick wall of major change.

The reality is there’s no magic solution to managing drug costs in plans. There are only a few options: buy less (plan restrictions and maximums), buy smarter (formularies and generics), or find someone to share more of the cost (co-insurance, deductibles and cost-sharing).

Ultimately, it comes back to educating plan members and sponsors alike, and recognizing their shared interests. The best advice is to monitor the plan and identify the cost drivers, then focus on the problems not the symptoms.

Communicate the hard issues to plan members and be candid about the financial implications. Invest in wellness and encourage healthy lifestyles because prevention is the key.

Shockingly, the CIHI study states that nearly eight in 10 Canadians over the age of 12 take prescription or over-the-counter medication. That means a lot of people are interested in solving the problem. Plan sponsors need to leverage this interest and look for long-term solutions. After all, it took 30 years to get here, it’s going to take several more to get back to a workable solution.

Jacqueline Taggart is a principal in the communications practice of the Toronto office of Morneau Sobeco. She can be contacted at (416) 385-2119 or [email protected].

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