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May 2007

Controlling Drug Costs And Meeting Claimants’ Needs

By: Dan Clark

The growing cost of prescription drugs may be the most difficult challenge facing benefit plan sponsors today. For private health plan sponsors, drugs are the highest single cost category, accounting for 60 per cent to 85 per cent of all health benefit expenditures depending on plan design and demographic mix of the covered group. Year over year, drug benefit costs continue to increase at double-digit rates (14 per cent to 18 per cent in recent years) and that trendʼs not expected to improve, given the prevailing influences.

Research advances deliver a steady stream of new and better drug therapies, but can we afford the abundance of blockbuster, breakthrough, and specialty drugs coming to market?

In this article, we take a look at the risks that could affect the sustainability of your drug plan and some strategies for controlling future costs.

The Cost Drivers

A number of factors combine to maintain upward pressure on drug benefit costs.

Population Aging
Simply put, as we age, more of us will need to use more drugs, more often. Many plans are experiencing the impact of aging along with the baby boomers.

Biotechnology and Research Advances
Itʼs estimated that there are 300 new biotech drugs in the development pipeline, many of which will be available by 2010. These new ʻspecialtyʼ drugs carry bigger price tags than existing therapies and often gain rapid acceptance and use, which can have a significant impact on private drug plan costs. Express Scripts, a national pharmacy drug manager, reported that specialty drugs accounted for 19 per cent of U.S. pharmaceutical spending last year, which is projected to increase to 28 per cent of total drug expenditures in the next three years. We see similar patterns in Canada where access to some specialty drugs can be faster and easier under private plans.

Primary Care Changes and Shorter Hospital Stays
Changes in treatment regimes have resulted in shorter hospital stays and more out-patient focused care, which means that, increasingly, private plans are paying for some high cost drug therapies that would have been covered by the public health system in the past.

One example is the proliferation of private infusion clinics set up to administer new intravenous (IV) drugs used in cancer treatment which are not covered by Cancer Care Ontario. Traditionally administered in hospitals, now cancer patients must purchase the drugs which are administered in a private infusion clinic. The cost of the drugs and their administration are the patientʼs responsibility and, to the extent they are eligible, the patientʼs private drug plan.

Blockbuster Drugs
Weʼve seen the impact of new ʻblockbusterʼ drugs, such as the Cox-2 inhibitors – Celebrex and Vioxx – and erectile dysfunction drugs such as Viagra. They quickly became drugs of choice, placing in the top five or 10 drugs by cost under the majority of private drug plans. The cost impact of such drugs is unmistakable and significant, but the related health outcomes are less clear.

Breakthrough/Specialty Drugs
Even the most standard private benefit plan covers a number of drugs for which annual costs exceed $20,000 for a ʻusual dosage.ʼ For many of these drugs, annual costs could potentially exceed $100,000, at higher dosages. The cost and increasing use of these drugs presents a serious risk to many private plans.

Chart 1 lists some drugs in this category, along with the related health condition, estimated annual cost based on usual dosage, and expected number of claims per 100 covered members (per capita) as reported by national pharmacy manager ClaimSecure, based on claims data for its total book of business.

controlling drug costs

Translating this data suggests that a plan covering 2,500 members can expect a claim for Remicade every year at an estimated cost of $24,000. In fact, claims for such drugs often occur in much smaller groups where the effect on costs and affordability is more dramatic.

Specialty Drugs
Although not typically covered under ʻstandard plans, specialty drugs may be automatically covered under some private plans unless specific steps are taken to restrict or exclude them. Included in are some of the new IV drugs mentioned earlier, as well as very high cost drugs used to treat rare Gaucher and Fabry diseases.

Many provinces and/or hospitals have discreet specialty drug programs, which come into play when coverage isnʼt available under a private plan.

Exploring Effective Drug Cost Control Strategies

Predicting future drug costs and trends is increasingly difficult due to emerging developments and, clearly, the picture isnʼt rosy from a cost or risk perspective. In this era of increased personal choice, some flexible plan sponsors may want to review plan designs that include a ʻgold standardʼ option with open access to all legally prescribed drugs.

Thereʼs no silver bullet. Controlling costs is near to impossible for drug plans that offer open access to all drugs, regardless of cost. In the longer term, whatʼs needed is more focus on step therapies, appropriate prescribing protocols, health outcomes, etc. In the meantime, there are a number of blunter techniques which can help to limit the risk to drug plans – some restrict access, others deny access to certain drugs, some simply transfer costs to plan members, and others are more strategic – and can reduce total drug costs. Depending on an organizationʼs priorities and benefits objectives, it may be time to take stock of the drug plan.

Here are some drug cost containment options to consider:

Generic Substitution – This is a longstanding common practice whereby a drug plan restricts payment to the lowest cost available (generic) drug which is chemically the same or ʻbioequivalentʼ to the prescribed (brand name) drug. Generic substitution has been in pharmacy guidelines in some provinces, including Ontario, for many years and its use is widespread. Generic substitution has no effect on the cost of newer ʻsingle sourceʼ high cost drugs, many of which have no bioequivalent alternatives at this time, and represent a big part of drug plan costs.

Therapeutic substitution – This approach substitutes a less expensive, but effective, alternative to a brand name drug (which is chemically different). For example, in the past, Losec generally ranked second or third on most drug lists. Gradually, new gastro drugs (for example, proton pump inhibitors) were introduced. Now Losec is further down the list, but three or four new gastro drugs appear in most plansʼ top 20 lists. Therapeutic substitution is generally used in conjunction with a modified formulary, discussed later.

Dispensing fee caps – With these, drug plan reimbursement limits restrict payment of the pharmacyʼs dispensing fee to a specified amount and the plan member pays any balance. While this technique may reduce the overall cost of most drug plans, it has limited impact on very high cost drugs as the dispensing fee represents a small fraction of the total cost of such drugs. It remains to be seen what impact will result from the introduction of fees for cognitive pharmacy services.

Drug formularies – Drug formulary options abound! Theoretically, benefit carriers/ pharmacy benefit managers can administer an unlimited array of formularies, which are simply lists (static or dynamic) of eligible drugs. Drugs not on such formularies are excluded, or approved only by exception.

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