Drug Management – Part 1 of 2

Jul 23, 2013

Drug claims account for the majority of benefit plan cost inflation. When it comes to drug management, the phrase “the right drugs for the right people at the right time” is often used. It seems to imply that the days of reimbursing any drug for any claimant are long gone.

Recent events, including national drug pricing reform and public policy revisions, are driving drug price changes in each province. In the past two months provinces have changed their approach on generic drug pricing while they seek relief from their own health care angst. The recent changes have created benefit plan vulnerability.

 This blog focuses on two key elements:

 1.     Pricing reform on generic drugs and professional allowances have lowered the cost of generics and pharmacy margins considerably.

 2.    Insurers are introducing “automatic” drug design changes. These changes happen at renewal unless you notify the insurer to maintain status quo.

 There are unintended consequences to benefit plans from both events  and possibly not what you think should happen. Firstly, pharmacy margins have been under relentless attack for two years and the recent pricing changes effective April 1, 2013 has many pharmacy stakeholders scrambling to understand the impact to their business and what sort of strategy is necessary given the current environment. Plans that do not have rules or guidelines outlined (eg. Point of sale messaging that only a drug card can provide) will have the market dictate which drugs are dispensed and likely increase their costs.

 The second element has far greater potential for negative consequences for plan sponsors. Even though pricing for generics have plummeted from 65% of their brand counterparts down to 18% (a 72% reduction), your costs could increase. As counterintuitive as this sounds, consider the following in situations where your plan member has a spouse with coverage at their employer.  An employee’s spousal plan may have changed to lower coverage for Brand name drugs off patent (as in point 2 above). In those instances, if your plan design does not react accordingly, your plan may pick up the costs that are not covered by the spouse’ plan (as much as 82% of the cost).

 If your plan was set up to utilize other payers, your drug plan could avoid claims by actually being the third or non payer (eg. either the spousal plan or the various Pharmaceutical manufacturer drug cards that exist today).

 The Drug benefit arena is evolving quickly. The methods you may need to employ to ensure your plan is sustainable and can be intact for catastrophic health situations can range from simple and elegant to very sophisticated. It all depends on your benefit program philosophy and long term view on how you wish to differentiate your benefits offering long term.

 One thing is for sure, when taking a long term view of your benefits plan,  maintaining status quo will likely erode your value proposition not enhance it.

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