As the saying goes, “What goes up, must come down.” In the world of drug benefits, the reverse is also true. It speaks to the balance that occurs when forces are applied to a system with multiple moving parts. Each year, new drugs are introduced (see Table 1), and some lose patent exclusivity, leading to the introduction of lower-priced generic equivalents (see Table 2). Still other drugs may be removed from the market due to safety concerns. For example, weight-loss drug Meridia (sibutramine) and its generics were voluntarily removed in October 2010 due to risk of cardiovascular events. These factors, along with changes in demographics and claims patterns, contribute to the year-over-year increases in private drug plan budgets.

Over the patent cliff
In 2010, one of the most commonly prescribed drugs, Lipitor (atorvastatin), lost its patent exclusivity, which allowed generic equivalents to be sold at roughly 50% of brand prices, depending on which province you reside in. Undoubtedly the biggest drug ever to lose patent protection, Lipitor alone attributed 3% to 5% of many private drug plan budgets. However, plan sponsors expecting to save 1.5% to 2.5% on their overall drug costs (as a result of generic Lipitor) will be surprised to know that this may not be the case. There are many other factors offsetting the savings from generic competition.

If you look at the Top 10 drugs in 2010 by cost (see Table 3), you will see that three of them are specialty drugs: Remicade, Enbrel and Humira. Even as more patents expire for traditional prescription drugs, the savings will be negligible in comparison to higher costs that arise from more specialty drugs being introduced and used for common chronic conditions.

New heights ahead
This is the “new normal,” and plan sponsors should be prepared for higher drug plan increases in the not-too-distant future. Annual double-digit drug plan cost increases will return. While a significant portion of these increases will come from specialty drugs, this change should not be viewed negatively. These drugs are tolerated reasonably well in the human body, and they treat diseases in a targeted and effective manner. In fact, specialty drugs have provided treatments for conditions that previously had no options and have enabled patients with these conditions to live productive lives. Diseases such as rheumatoid arthritis, Crohn’s disease, psoriasis, multiple sclerosis and various cancers have a profound impact on employee health and subsequently on employee job performance—not to mention ancillary issues such as quality of life and time away from work.

Unfortunately, specialty drugs are difficult to manufacture, difficult to store and sometimes require patient assistance in administration (e.g., infusion procedures). Also, specialty drugs are used in specific subsets of the patient population, so it should come as no surprise that they have to be sold at higher prices in order to justify the cost of development and distribution.

Pricing lows
In 2010, another moving mechanism in the market was added to this mix: the drug system reform. While each province chose to approach drug system reform differently, there appeared to be two main targets: lower generic drug prices and controls on, or the elimination of, rebates that pharmacies receive from generic drug manufacturers for stocking their products. For once, private drug plans were considered and, in some provinces, included in these changes. Legislative changes resulted in lower generic drug prices, which applied to private drug plans in Ontario, Alberta and British Columbia. These policies aim to lower generic drug prices over the next few years with an eventual target of about 25% of the brand price.

Finding a balance
What does this mean for plan sponsors? First of all, the drug system reform hurt pharmacies in the pocketbook. Without as much revenue coming from rebates paid by generic drug manufacturers, pharmacies have raised their dispensing fees and, in some cases, implemented higher markups on drug prices. Some pharmacies have started to license and sell their own line of generic drugs, while others have initiated agreements with employers to be their preferred provider.

Plan sponsors should ask their current providers how they should respond to these changes in order to control overall costs. Some benefits managers have policies in place to ensure that claims are paid only for Health Canada-approved indications. This may be most appropriate in cases where off-label use is possible and the costs associated with these conditions may be deemed catastrophic to the drug plan. Some employers may wish to have their employees start with older (and cheaper) drugs before starting therapy on newer specialty drugs. Whether or not this approach is taken, most plan designs will eventually have prior authorization criteria for specialty drugs. Taking this issue one step further, a number of insurers are integrating claims processes so that plan sponsors are the second payer to government-sponsored drug plans and/or disease support programs. So this could apply to diseases such as cancer and multiple sclerosis, for example.

The second approach to controlling drug costs can be implemented on its own or in combination with prior authorization criteria. The idea is to get the best value for the dollar spend on all drug benefits, recognizing that the biggest returns may come from managing the spend on specialty drugs. This is where things are becoming very interesting because the traditional plan sponsor/insurer/benefits consultant/pharmacy benefits manager (PBM) model is changing. Rather than listening to their insurers or consultants, some employers are looking for fresh ideas to tackle long-standing cost issues. Many plan sponsors are starting to deal directly with PBMs, thereby bypassing the use of an insurer. This approach is generally applied to an administrative services only model, but new offerings by some of the smaller PBMs (e.g., stop-loss insurance for catastrophic claims) are making it necessary for insurers and benefits advisors to improve their value in the plan design and claims process equation.

Emerging partnerships
One of the more significant developments is the evolving role of retail pharmacy. This stakeholder is beginning to understand the importance of plan sponsor partnerships. Generally, this is being done under the concept of implementing pharmacy preferred provider networks (PPNs). Some consultants are trying to assume the role of brokering these relationships, but it’s still a twist on the conventional roles between plan sponsors, insurers and benefits advisors.

So does it make sense to carve out drug expenditures from a plan sponsor’s entire benefits offering? Given that drug costs are the No. 1 expense element for benefits, it’s probably worth considering. Perhaps the key is to have an approach that takes into account the trend toward higher drug costs arising from the use of specialty drugs. For example, will a PPN agreement limit or control your specialty drug expenditures? Can the PPN negotiate on your behalf for price and/or service concessions from pharmacies and/or pharmaceutical manufacturers?

Newer approaches need to be considered by all stakeholders. Further, those supporting or advising plan sponsors need to illustrate how they are addressing cost issues while, at the same time, improving the health status of the employee base. It’s a tricky balance that plan sponsors know all too well. It’s just that the stakes (both drug costs and employee health) are getting much greater as the drug treatments of tomorrow come onto benefits plans.

Gordon Polk is president of Drug Benefit Consulting. Johnny Ma is president of Equilibrium Health Consulting Inc.

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Copyright © 2020 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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