One of the best books I have read in some time is Predictably Irrational by Dan Ariely. It should be required reading for the whole human race to help instil some sustained humility into our species. The book made me smile to think about all the ways we frame and rationalize seemingly routine decisions in our lives, without realizing that we may in fact be looking at things in a profoundly distorted way.
In the office, we came across a case that highlighted the fact that lower costs can come with a much higher overall price over a 12 month to 36 month timeframe. That may seem irrational, but that irrationality is entirely predictable in the absence of appropriate information and context.
This case drove home the point that without the appropriate information and the right context, it is next to impossible to make informed decisions as it relates to managing drug plan benefits. It was also an important reminder that every plan has its own unique priorities.
Big picture
This plan has an average employee age approaching 46, right around the age where claims for medications used to treat age-related chronic conditions start to become more prevalent in most plan experiences. There have been no plan design changes over the 24 month analysis period, the demographic profile of the plan population has not changed, nor has the plan introduced any new vendors or programs. This plan and its members spend close to $1.5 million annually on prescription drugs—so its experience is not skewed by a handful of claims or claimants. However, we found the following:
- overall drug plan costs decreased year-over-year (YOY) by 5% despite no change in the number of unique claimants within the plan experience;
- the plan costs went down despite the number of claims paid increasing;
- spending on expensive specialty (i.e. biologic ) drugs decreased slightly YOY, but that only had a minor impact on YOY plan cost differences; and
- the use of generic drugs within the plan experience was much lower than the Canadian benchmark and increased slightly within the plan YOY—so lower generic drug prices alone could not explain the decrease in plan costs YOY.
If you are the plan sponsor or plan advisor looking at high-level plan data at renewal time, this looks like the most idyllic plan experience you could ask for. No change is the plan population, slight increase YOY in plan utilization as evidenced by 1% more claims paid, no profound change in the specialty or generic drug experience and yet a 5% decrease YOY in plan spending.
What would the average person do in this situation? My guess would be to congratulate everyone on a job well done on a smooth annual renewal of the plan, and onto the next item for consideration.
A closer look
It’s fortunate this plan sponsor didn’t stop at the high level numbers and assume lower costs were the sign of all things good. A deeper look at the plan experience revealed a much different picture.
- The specialty drug experience was skewed by spousal claims. Even though the plan’s overall utilization of specialty drugs was not far off the national benchmark in both years, there was not a single employee claimant out of the well over 1,000 employees in the experience that made a specialty drug claim for rheumatoid arthritis, crohn’s disease, multiple sclerosis, cancer treatment or cancer complications—not a single employee claimant.
- It was calculated that the plan’s risk of an increase in specialty drug spending over the next 12 months could more than double their current specialty spending based on the demographic and disease state profile of the employee group. The threat of an increase in spending is not theoretical—it is real and it’s based on plan-specific claims data. To be able to afford these expected cost increases, it will be necessary to optimally manage the plan experience.
- Although the employee population remained flat YOY, there were 9% fewer employees making claims for cholesterol lowering therapies in the most recent year. With an average employee age of 46, how is that possible in the absence of everyone deciding to eat only broccoli for 12 months and competing in triathlons weekly?
- There were 4% fewer employees in the most recent year taking high blood pressure therapies.
- There were 2% more employees YOY taking antidepressants, but combined they made 7% fewer claims compared to the previous year.
- There was a 3% increase in the number of asthmatics in the employee population YOY, but they made 8% fewer claims than the year before.
- Although there were 16% more employees claiming for diabetic medications and supplies YOY, there were only 5% more claims made in this area.
Action is needed
These are all markers of declining adherence with therapy and when short- and long-term disability data sets are integrated with the drug claims data, we may also find that these decreases in utilization ended up resulting in poorer health outcomes and greater absence from the workplace.
This is not a plan that can stand by and hope for lower or flat costs next year by doing absolutely nothing. They are standing on the edge of a very dangerous ledge, and without investment to ensure that what they are spending on drug claims in producing a return, and a focus on proactively managing plan costs, there is every reason to believe next year will be a much different story.
The key for this plan sponsor is to institute plan design changes that will help to ensure cost-effective utilization in order to be able to afford any increases it is likely to see for innovative specialty claims, and utilization of therapies to treat chronic conditions.
Rational or irrational?
Who is more irrational, the plan sponsor that is not concerned about a decrease in plan spending for no apparent reason or the plan sponsor that is very concerned that unexplained lower costs today are going to end up costing a great deal more tomorrow?