Canadian employers that use drug plan management strategies such as pay-direct cards, generic substitution or dispensing fee caps can realize significantly lower healthcare costs.
Towers Watson’s 2014 Canadian Health Care Cost survey finds that the average annual drug cost per active employee at organizations without a formal drug plan management strategy is $1,124. Average annual costs, however, are 24% lower, or $266 less per employee, for plan sponsors that have three or more strategies in place.
Even implementing one or two techniques reduces annual costs by 12%, on average, or $135 per employee.
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“Canada is one of the most expensive countries in the world for prescription drugs—and prices are going to rise,” says Bill Bright, leader of Towers Watson’s Canadian pharmacy practice. “However, our survey results show that pharmacy management strategies help control healthcare costs. Employers have quite a number of options available to them, and our research shows that as these options are combined, the effectiveness from a cost management perspective improves.”
Overall, the survey shows that employer healthcare spend increased 1.9% from 2012 to 2013 for active employees, down from 2.1% the previous year. The cost trend for drugs has been flat, at 0.2% year over year, while the cost of extended medical benefits—e.g., massage therapy, chiropractic coverage and psychology services—increased by 4.7%. Dental care costs have risen 2.9%.
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“Drug cost trends have been moderate in the past few years, primarily due to a greater availability of lower-cost generic drugs and a lack of new-entry brand names,” says Karen Millard, a senior consultant at Towers Watson. “However, employers may see increases in the near term due to greater use of high-cost and specialty drugs, a growing demographic of employees with more chronic conditions and government shifting of public costs to private payers.”
High-cost or specialty drugs are typically used by less than 5% of employees, but can account for 15% to 25% or more of an employer’s total drug spend, Bright adds.
For example, a specialty drug therapy for hepatitis C is effective at reducing the virus but creates budget challenges for employers, as the typical cost is about $55,000 for a 12-week treatment. New drugs now in the pipeline may drive costs even higher. He says new high-cost therapies will account for close to 30% of drug plan expense within the next three to five years.
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As the prevalence of high-cost drugs increases and healthcare costs begin to rise, organizations will need to actively manage their pharmacy plans to mitigate the impact on their benefits budgets.
“For most organizations, the first step to effective cost control measures will be a review of their drug claims history to understand their unique cost drivers, from there the plan strategies will follow,” Millard explains.