Wasted Dollars In Drug Coverage: Are Canadian Employers Too Complacent?

Compared to U.S. based plan sponsors which have for years been implementing and promoting active management of drug plans, Canadian plan sponsors have been more complacent and reluctant to introduce any process which may be deemed as restrictive or policing an employee’s purchase.  The time has come to consider the introduction of plan parameters which are designed to withstand the rapid evolution of drug pricing and at the same time maintain the integrity of the drug plan.
In May 2012, Express Scripts Canada summarized the analysis of their 2011 data.  Their key findings which centred on waste and also the increased prevalence of “Specialty Drugs,” have implications to each and every plan sponsor offering a drug plan.
Express Scripts Canada Key Findings for 2011
While 2011 drug utilization was up, the average drug spend remained relatively flat, primarily due to changes in provincial legislation that has been directed towards the cost of generic drugs in relation to their brand name counterparts.
  • The average dispensing fee in Canada (where applicable:  Quebec does not separate out the dispensing fee charge) for 2011 was $10.74.  In Ontario this was $11.06.
  • It is estimated that private drug plans in Canada wasted about $5 billion in 2011, mostly due to employee behaviour.
  • On average, Canadian employers are spending $272 per employee per year more than they need to on drugs.
  • The concept of waste is broken down into three categories:
    • Channel Waste:  The use of sub-optimal intervals on maintenance drugs as well as not using more cost effective distribution channels (e.g. using pharmacies with high dispensing fees).
    • Drug Mix Waste:  Derived from using higher cost medications that generate no additional health benefits (e.g. use of brand name over generic and use of higher cost Specialty Drugs where another drug may be equally effective.  Interestingly, Express Scripts Canada found that at a time when the cost of generic drugs was falling, the number of prescriptions which indicated “No Substitution” was up by 22% in the last quarter of 2011 versus the same period in 2010.
    • Non-Adherence Waste:  Patients who do not take medications as prescribed.
  • While the average prescription cost is experiencing downward pressure as a result of generic pricing reform and patent expiry, “Specialty Drugs” are having the opposite effect.
Express Scripts Canada defines a “Specialty Drug” as an “injectable or non-injectable drug that is typically used to treat chronic, complex conditions.”  The minimum annual cost per patient is $6,000 with an average of $25,000.  In 2011 this category of drugs accounted for 0.9% of prescriptions filled but 20% of the total drug cost for private payers.  To provide an indication of where drug costs are going, 33% of new drugs approved by Health Canada in 2011 were considered “Specialty Drugs.”  This number is expected to reach 60% by 2014. The vast majority of research and development is in the area of Specialty Drugs.
The Fix
There is no miracle cure for drug pricing and its’ adverse effect on the affordability of benefits plans however, every effort should be made to manage the costs in a manner that will generate successful health and financial outcomes.   With most provinces having legislated the cost of generic drugs, cost effective medications are readily available.  The challenge is to encourage employees to align their behaviour with the interests and goals of plan sponsors while preserving the concept of consumer choice.
At the end of the day, claims drive plan costs.  Plan sponsors need to tackle the entitlement mentality of Canadians and embrace all options available.  For example plan design parameters (including formulary designs) and monitoring programs should be implemented to:
  • Encourage the use of lower cost medications (mandatory generic and monitoring of Specialty Drugs).
  • Encourage employees to obtain medications from a pharmacy which charges a lower dispensing fee.
  • Promote a higher number of days supply where appropriate.
Insurers have been actively rolling out programs to assist plan sponsors in achieving these goals, particularly in the areas of generic fill and monitoring of treatments plans for “Specialty Drugs.”
We strongly recommend that these be adopted sooner rather than later.  Where collective agreements are in place, data is available from insurers to share with the union leadership as they need to understand the implications in order to sell it to the membership:  The more money “wasted,” the less there is available for negotiated pay increases.
Drug plan management can be successful provided that employers are willing to educate their employees about the drug landscape and help them to understand the consequences on the horizon in the absence of their buy-in.  Effective communication is paramount.
Data Source:  Express Scripts Canada, 2011 drug Trend Report
The Leslie Group is a full service benefits consulting firm that is, in keeping with market conditions and legislative changes, committed to providing you with the best advice needed to manage your group benefits program.  We would be pleased to address any questions and can be reached at (416) 510-8966.

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