The Power of Formulary – Part 2 of 5: Understanding Formulary and the Deductible System

Mar 03, 2015

The first blog touched upon claims management and how a drug formulary may be the best approach to benefit sustainability. This blog explains how the provinces manage drug plans through their formulary and deductible systems.

All provinces employ sophisticated methods to manage drug costs but each province has a slightly different approach. We will focus principally on the province of British Columbia and two key elements – the provincial formulary and a deductible system.

Let’s begin with the understanding of what a formulary is. It is a list of drugs eligible for coverage within a drug program. The formulary or drug list is monitored and amended continually to ensure the most effective and efficient medicines are offered. Medical efficacy and outcomes balanced with financial stewardship are the typical mandates of a drug formulary. Health Canada has about 9,449 drugs approved for use in Canada and can be considered the most inclusive drug list or formulary in Canada. Compare that master list to the various provincial formularies and their drug list numbering between 3,000 and 5,000. In the case with BC, the formulary manages what PharmaCare will pay – the 4,899 drugs on its drug list.

The formulary method is quite effective on its own. For example, the average script cost from PharmaCare runs just over $33 compared to average script costs of over $65 on employer group benefit plans. However, the list of covered drugs is not without controversy. There are times when a patient or physician may believe a certain drug is necessary for treatment but the provincial formulary or a specific formulary employed by sponsors will not cover it. Instead, the patient or physician would need to substitute a different drug with equal efficacy.

Drug plans in BC that mimic the Pharmacare list can offload significant costs and be in a solid position for long term sustainability. This is because the public healthcare system will pay for catastrophic claims for each member once their unique annual claims level (eg. the deductible) is exceeded.

A deductible is the amount that must be paid either by an individual or group plan. Once the deductible is reached, PharmaCare then begins paying for drug claims for that individual. The deductible system is a component of Fair PharmaCare introduced in 2003.

All residents in BC have a deductible which is set using a financial means test or formula (eg. 4% of family income). Residents must register with Fair PharmaCare which links CRA income reporting with PharmaCare to set the deductible annually. For those who do not register, the deductible defaults to $10,000.

As you can see, this is a somewhat complex method utilized in BC to determine what and when PharmaCare will pay. It does not end here. If you want to know how an employer group plan can transfer costs to PharmaCare, read Part 3 of this blog series.

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