The Impact of Specialty Drugs on Private Plans

Sep 15, 2015

We have been talking about it for a few years now, but the patent cliff, which was the term used to describe the period of time when a large number of blockbuster drugs lost their patent protection, has paved the way for generic versions to enter the market. During the past several years, this patent cliff, combined with provincial drug reforms designed to regulate the price of generic drugs, has systematically helped hide the true impact of the rise of new specialty drugs – the real rock stars of the pharmacy industry.

During the last two to three years, plan sponsors of private drug plans have enjoyed some welcome relief from double-digit increases in pharmacy benefit costs. However, this relatively flat inflationary period we have had within this segment of the employee benefits industry is now coming to an end. The period of drug inflation we are about to enter, will pale in comparison to the so-called blockbuster drugs that just fell off the cliff.

Enter the biologic period.

The new drugs entering the market right now are called biologics. They differ from traditional chemical based drugs in that they are derived from living cells (both human and animal). What makes these new drugs so impactful is that they control the underlying disease rather than just the symptoms of the disease. These drugs also require special handling and dispensing. As a result, they tend to be very expensive – on average 30 times more expensive! Treatments that cost $25,000 to $100,000 per claimant per year are not uncommon.

If you’re thinking that these drugs are just for the treatment of a rare and exotic disease, consider that one of the most popular biologic treatments (Humira, Remicade) today is for rheumatoid arthritis. This disease affects 1 in every 100 Canadians – that’s over 300,000 people. If you haven’t already seen a claim for Remicade, or the other three biologics that treat rheumatoid arthritis, you soon will.

British Columbia is a Pharmacare province, which means many of these drugs are now, or soon will be approved for use in BC. That’s the good news. The bad news is your private health plan will still be exposed to the cost of these drugs. Private plans do provide a certain threshold of protection against large single claims, and that refers to the stop-loss or pooling threshold of your plan. That’s typically $10,000 to $15,000 today. So although your private plan will only experience a $10,000 charge against your health premium, the cost of insuring all those claims costs that exceed your plans threshold will increase. In fact, we expect a doubling of the pooling charge in the next two to three years!

A recent Sun Life survey of plan sponsors shows that 7 out of 10 employers are worried that increasing costs and the growing use of prescriptions drugs will make private plans unsustainable. If you have been following our blogs, you know there are a number of strategies plan sponsors can consider. We need to start treating private-payor drug plans like the claimant in your plans – and prescribe the right medicine at the right time for the prescribed period of time.

That time is now.

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