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Managing Pharmacy Benefits

By: John Herbert

Employers wrestling with rising costs for group health benefits may be overlooking some of the tools already at their disposal. John Herbert, of ESI, examines this issue.

Canadian plan sponsors have seen costly premium increases for group health benefits in the last few years. The major driving force of these increases has been the cost of prescription drugs, which has increased almost 60 per cent since the beginning of this decade and is expected to continue increasing at a rate of 10 per cent to 15 per cent each year.1 This growth has been fueled by rising consumer demand for prescription drugs, increased use of high-cost medications, the entry of new drugs to the market, and, most recently, price increases by pharmaceutical manufacturers.

Starting in 19992, however, plan sponsors started to take greater measures to mitigate the rising cost of premiums trend by turning to several easy-to-use tools to manage the pharmacy benefit.

While the best trend management strategy includes using a combination of tools in order to address the various factors driving the increasing cost of the prescription drug benefit, an ESI Canada study has found the majority are still not optimizing the value of the drug benefit.

The study weighted groups by the number of eligible cardholders (employees) and focused on cardholders residing outside Quebec since plans in Quebec are bound by a unique set of legislative requirements. It examined the plan tools – adjudication, administration, plan design, and member payment – to assess how they are being used to manage costs.



The increase in drug plan costs that we have seen over the past four years could have been higher if it weren’t for greater use of this highly effective tool. COB information must be kept up to date – and that’s the challenge for plan sponsors. Marilee Mark, vice-president of marketing, group benefits, at Manulife Financial says, “Periodically re-enrolling members is necessary since the coverage status of spouses and dependents may change over time.”

Using both positive enrollment and COB together can help manage trend, especially since these tools can help address the utilization component of trend.

Plan Design

Using a managed formulary that includes a mandatory generic component plus a prior authorization program may help a plan sponsor manage future drug costs since these tools can address the utilization, therapeutic mix, and new drug components of trend. Professional fee caps may also be introduced to help control inflation and can help make plan members more conscientious shoppers.

Member Payment

Having plan members pay a portion of their prescription costs is an important aspect of managing drug trend. The most effective strategy includes using co-insurance which keeps pace with changes in drug costs and dispensing fees more effectively than an annual deductible or fixed dollar co-payment per prescription.

It appears that plan sponsors have taken greater measures in an attempt to manage the pharmacy benefit. However, the majority are still not optimizing the value of the drug benefit.

To mitigate future trend, plan sponsors should use several tools in conjunction with one another since each tool has its own attributes. Plan sponsors should also periodically review their plan design choices in order to ensure they remain effective including re-enrollment of COB and updating of member payment tools as required. Furthermore, there are other, more advanced strategies such as managed formularies and tiering that plan sponsors should consider using to preserve the pharmacy benefit in an era of rising drug costs and increasing consumer demand for prescription drugs.

John Herbert is director of business development with ESI Canada.

1. Percentage increase in average annual cost per ESI Canada claimant 2000-2003
2. Number of ESI Canada cardholders has increased threefold during this period
3. Based on ESI Canada average cost allowable per prescription outside Quebec in 2003 of $51.83

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