© Copyright 2000 Rogers Media. The following article first appeared in the April 2001 edition of BENEFITS CANADA magazine.

Re-examining healthcare costs

Managing drug costs is a priority for plan sponsors. But managing the drug plan in isolation could do more harm than good.

By Andrea Davis

"Our biggest challenge is making sure we get value for what we're spending," he says. "We have trouble understanding whether the outcomes are worth the costs."

Tangney is probably not alone in his concerns. Canada's private sector spent an estimated $9.8 billion on drugs in 2000, an increase of 7.1% over 1999 expenditures, according to the Canadian Institute for Health Information. In its annual Fearless Forecast presentation earlier this year, consulting firm William M. Mercer Ltd. predicted a 15% increase in healthcare benefits for plan sponsors in 2001. So what's a plan sponsor to do?

"Clearly, the biggest issue is to see the drug plan as a health plan," says Fred Holmes, national practice leader, group health & welfare practice, with Buck Consultants in Toronto. "That means moving plan sponsors from [focusing on] dollars to what are the health risks [among their plan members] that are being addressed through the drug plan."

Changing employers' focus from dollars to health risks is no easy task. Holmes says silo management, where each component of the employee health picture--drugs, absenteeism, short-term and long-term disability, workers' compensation--is managed and controlled independently of each other, is deeply ingrained in plan sponsors. He says it's high time employers started looking at the health of their employees holistically, and move away from the traditional approach of managing individual areas in isolation.

"Trying to drag [employers] horizontally across the silos is like taking a cantankerous two-year-old out of Eatons at Christmas time," he says. "Intellectually, they know what you're trying to guide them towards but they have this resistance, which is finance driven."

Plan sponsors have a vested interest in maintaining employee health. By 2010, baby boomers will be 44 to 64 years old, an age when healthcare costs start escalating. At the same time, there will be fewer young workers to replace the aging boomers as they retire. As a result, worker retention--and keeping those workers healthy and on the job--will emerge as a big issue for employers over the next decade.

"If we accept that we have few young replacement workers, then we have to keep our older workers longer," says Holmes. "And to keep our older workers productive, we have to keep them healthy. The conundrum is that many employers are trying to reduce their contribution to health. Curtailing the drug plan or bringing in a restrictive formulary isn't going to help these people."

Getting employers to take an integrated approach to the health of their workers is an even greater challenge in Canada than it is in the U.S. because Canadian employers don't pay for the whole healthcare picture, as do employers south of the border.

"If I was in the U.S. and paying the full cost [of healthcare], we would be far more proactive in running health management programs because there would be a direct savings to me that would justify the expenditure," says Tangney.

Managing the healthcare costs together, and taking into account the demographics of the employee population, enables plan sponsors to develop tailored health and disease management initiatives that should, in theory, save them money down the road in drug, absenteeism and disability costs. For example, if data from your drug plan indicates a high use of antibiotics for respiratory infections and the majority of your employees are male smokers, your plan members may benefit from an educational program on cardiovascular disease.

"Right now employers see drugs as a problem. They need to see the value that these therapies bring in terms of how they affect absenteeism, short- and long-term disability, increased productivity and those sorts of costs," says Roy Pullman, manager, health strategies with GlaxoSmithKline in Mississauga, Ont. "They need to understand the cost drivers as well, such as the aging workforce and the increased utilization in that workforce. Employers need to develop a strategic approach for the long-term management of those costs. And what that typically means is that they need to invest in managing disease areas that are contributing to large costs in their workplace."

But for plan sponsors like Sonoco, targeting specific disease states and trying to take an integrated look at the health of their employees is of limited value if these measures don't affect the bottom line.

"We may know that there's a benefit if we can improve the health of our communities and our employees, but we have to prove the savings," says Tangney. "The problem is when you go to senior management you have to prove it with dollars because it requires an investment. Our No. 1 [benefits] cost is drugs, it's rising and we're told to stop the rise. Do you really want to stop the rise of drug costs if it's saving you elsewhere? But how do you prove it?"

In addition, says Tangney, disease management programs are an even tougher sell with senior executives because savings from such programs--which often require significant investment from the plan sponsor--are perceived to go to the public sector, not the employer paying for the program. "Let's say we're doing an asthma or allergy program," says Tangney. "If I can improve the knowledge of my employees in this program and they use their medications better, if we keep people out of the doctor's offices and hospitals, the immediate savings go to the [provincial] government."

While Tangney admits that plan sponsors who run health and disease management programs probably do benefit from having healthier employees at work, there is too little evidence to show this is the case. "I gain because hopefully our employees appreciate what we're trying to do. I also gain because if my employees use their medications correctly and they're more alert at work, I get better productivity in a safer environment. So I gain, but we haven't been able to measure that [benefit]. It tends to be a longer term gain [which is difficult to measure]."

Proving a drug's value to a company's bottom line is a significant challenge. Pharmaceutical companies are slowly starting to work with employers and benefits consultants to address the need for hard data. One success story is Imitrex, a migraine medication manufactured by GlaxoSmith-Kline that was introduced in the early 1990s. At a cost of approximately $14 a pill, the drug wasn't exactly welcomed onto formularies with open arms.

"When Imitrex first came on the market, employers just looked at the cost and they never even considered the fact that migraines are most common in women, that people will be off work for more than one day," says Holmes. "They never considered what the cost to their short-term disability plan was versus the cost of $14 or $15 a pill."

Pullman says research shows that the average migraine sufferer misses 4.9 days of work per year. If those employees appropriately manage their condition, days lost due to migraines plummet to 1.3 days per year. "When Imitrex was first launched, there were a lot of plans that didn't cover it because they saw it as a very expensive drug on a per-pill cost," he adds. "But payers recognized fairly early that it was a product that looked like a high cost but it does the job and provides value."

Pullman says new generations of asthma medications also have great potential to improve worker attendance and productivity. "We know from studies that females in the workplace with asthmatic children or parents miss an average of 13.3 days per year," he says. "So with newer asthma medications that do allow people to live normal lives, that can be reduced drastically."

But Jane Petruniak, a senior consultant with Watson Wyatt in Toronto, says pharmaceutical companies have traditionally focused on getting their drugs on public payer formularies and still have a long way to go in providing data that is truly useful to the private payers--the plan sponsors. "Some new drugs will save employers money long term and some won't," she says. "What pharmaceutical companies need to do for us is not to prove the pure clinical merits of a drug but tell me how it's going to save me money [as an employer] if I cover your drug. Why should I spend $25,000 a year on this medication? What's it going to do for my employee base down the road?"

Pullman admits the pharmaceutical industry has yet to make serious inroads with senior level decision-makers on the private payer side. "Our contact with senior level executives at organizations isn't as strong as we'd like it to be and we need to elevate it," he says. "Once we get there, we need to demonstrate the hard numbers that they want to see."

Hard numbers is what plan sponsors want, particularly if those numbers show cost savings. But getting the data they need to take an integrated health management approach is a huge challenge. Looking at drug plan data is an important first step towards a holistic healthcare approach because therapeutic drug classifications give plan sponsors clues as to where they might want to direct disease management dollars.

"Employers can't afford not to have the data they can get from the drug plan," says Holmes. "The drug plan is a hidden vehicle to really let you know what the health risks are of your group."

Denise Balch, principal with Connex Health Consulting in Burlington, Ont., warns that looking at data in isolation can give plan sponsors an over-simplified view of what's really going on. She cites her work with the Hamilton Employers Regional Health Partnership--a group of 13 employers from the Hamilton region, including Stelco, Dofasco and McMaster University, that meets regularly to discuss healthcare issues and carry out local managed care programs--as an example of how employers can have a narrow view of where their costs really are.

Balch discussed the idea of doing a drug analysis with the group, whereby they would look at the top 100 or 200 drugs at each company and break the drug data down into disease areas to get a clearer picture of utilization. "We know that would give us a very different picture than looking at just the top 10 drugs," she says. "And yet the response I got from more than one employer was 'we don't need to do that, we already know what our problems are--it's Losec,' or some other drug. And yet gastrointestinal, which is what Losec is used for, is not one of their big cost drivers. Based on what we know about their population, cardiovascular disease is a first-line cost for a lot of these companies."

For employers who want to take steps towards an integrated healthcare approach, Holmes suggests going back to the company's staffing model. "You have to get [employers] to understand that if they can't hire new, young labour, then they have to keep the older workers around," he says. "And if you've got the older workers around, what are the things you can do to help them? Use the drug therapeutic classifications to give you your first clues as to what you might be doing with them."

Looking beyond drug plan management to total health management in the workplace is a significant challenge for plan sponsors. It's clear that attempts to rein in drug plan costs--playing around with formularies, changing co-insurance levels, negotiating lower expenses with insurers--have not stopped double-digit inflation.

"Employers have to take a leap of faith and start pulling all of these [silo] costs together and address health as a whole unit, as opposed to just tackling drugs," says Balch. "Only then will they reap the benefits of their drug plan."

The Romanow Commission has released its final report on the future of healthcare in Canada.

For Commissioner Romanow's recommendations, click here.

Click here for Senator Michael Kirby's report, "The Health of Canadians – The Federal Role: Recommendations for Reform."