Ever-increasing prescription drug prices have generated much discussion about how best to control these escalating costs. However, the results of a recent Aon Hewitt Rapid Response survey suggest that, while there’s been a lot of talk, there has been little action. Even though certain solutions have been available for some time, there are many organizations that have not taken advantage of them.
In fact, in some cases, plan sponsors are not even aware of the options open to them.
If plan sponsors are slow to react, it may be because they believe no action is required, thanks to recent changes to legislation in some provinces regarding generic drug pricing.
Caps on the price of generics, along with the fact that a number of frequently prescribed drugs are about to come off patent, may well mean that drug plan costs decrease without any effort on the part of plan sponsors. However, the savings will be greater for those organizations that seize the day.
The window of opportunity
With the combination of generic pricing legislation and expiring patents, many plan sponsors will be able to achieve a reduction in historical medical inflation rates with minimal action over the next couple of years. However, a passive approach to drug plan cost management will also only have short-term success, given another factor that is beginning to gain momentum—the increase in biologic drugs.
Historically, the cost of an individual traditional drug ranged from $1,000 to $2,000 per year per prescription, at most. These drugs were used to treat conditions such as high cholesterol and depression, and several are about to be replaced by generics. Biologic drugs, on the other hand, often cost between $20,000 and $30,000 per year. Many are used to treat chronic conditions such as rheumatoid arthritis, multiple sclerosis, Crohn’s disease or lupus, for example. Biologics with a much higher price tag—between $100,000 and $700,000—are also becoming increasingly available.
The growing biologic pipeline raises issues for plan sponsors, not the least of which is balancing overall plan affordability with the need to ensure that employees and their families have access to life-saving treatment.
Best practice solutions
The January 2011 Rapid Response survey updated data that was collected in November 2009. What was surprising was how little action had been taken in that 14-month period with respect to managing drug plan costs, despite all the discussion around the need to do so. While 2011’s 166 respondents indicated a higher level of awareness of some of the solutions open to them, there was little change in the adoption rate of cost management strategies. This finding was true even for the basic “best practices” solutions that have been available for some time.
Probably the most startling finding was the low take-up rate of mandatory generic drug substitution: only 47% of plan sponsors indicated that they had this strategy in place, while another 30% were still considering it. Given that this solution has been around for some time and makes even more sense given the recent legislative changes, one would have expected higher adoption.
Implementation of other best practice solutions is sporadic, according to the survey results. For example, while 84% review their drug plan data at least annually and 80% have introduced a prescription drug card, only 32% utilize prior authorization processes, and only 25% of respondents have added or raised limits to their dispensing fee caps.
Leading edge solutions
Other drug cost management strategies are available today (and have been for some time, in many cases) but not in widespread use, according to survey results.
Part of the issue appears to be lack of familiarity with these approaches. For example, with respect to managed drug formularies, 14% of respondents currently have this solution in place, 45% are considering it, and 23% state that they simply don’t know enough about managed formularies to be able to make a decision. Similarly, in the case of improved co-ordination of benefits with provincial plans, 27% already have this approach in place, 37% are thinking about doing so, 33% of plan sponsors need more education before they can make an informed decision.
Given the growth of both generics and biologics, regardless of what decisions plan sponsors have made in the past regarding the implementation of these cost-saving measures, it is a good idea to revisit these solutions. Plan sponsors that may have decided in the past that the cost savings from a managed formulary were not worth the potential employee reaction may find that the financial side of this balance is far more significant than in the past.
Next generation solutions
A third category of strategies are those that have only recently become available or are not yet in place but are worth considering for the future. For most employers, these are not solutions that they will be implementing right now. However, for leading innovators or companies wishing to push the envelope, the potential to implement these solutions exists today.
These solutions generally involve some elements of either price negotiation (e.g., preferred provider networks, mail-order pharmacy, direct negotiation with suppliers), health management (e.g., high-cost claimant management, health coaching) or behaviour change (e.g., targeted communication, step therapy).
Only a small percentage of employers (less than 10%) are looking at these solutions right now, but as plan sponsor drug costs begin to surge upward in two to three years, the expectation is that the interest in these next generation approaches will grow quickly.
Today, it is incumbent on plan sponsors to understand what these next generation solutions are, and how they work. Even if they do not expect to implement them in the short term, an appreciation of the potential plan management strategies of the future is important.
A range of solutions
Drug plan management solutions exist. Rather than avoiding the introduction of drug cost management solutions, it is important for plan sponsors to continue to increase their awareness of the solutions open to them and evaluate them in the context of their own employees’ health. There are solutions currently available that all organizations should consider in order to ensure good governance and proper drug plan management, for today and for the longer term.