The Power of Formulary – Part 4 of 5: Understanding the Impact from a Well-Managed Formulary

Jul 22, 2015

We discussed how the formulary is likely the best method to achieve long term sustainability (Part 1). We then moved into the two principal methods that the province of BC uses to manage health outcomes and costs (Part 2)Part 3 discussed how a group plan can intersect with the public system to transfer catastrophic drug risk. Part 4 in our series focuses on the greatest impact afforded from a well-managed formulary, which is the day-to-day drug claims reimbursed for the average individual.

We have spent a considerable amount of time talking about the deductible system and how employers can limit their drug risk through transference of high claiming employees to public programs, such as PharmaCare. The reality though is most employees (well over 90%) will never reach their deductible and transfer any costs to PharmaCare. Here’s why.

Back in Part 2 of the series, we indicated that the average prescription drug cost from Fair PharmaCare is about $33 versus an open ended plan cost of $65. Not only are average drug costs 50% lower but the annual inflation on a managed drug formulary such as PharmaCare is about 75% less than the typical inflation. Insurers assume the inflation on extended health claims is about 14% but the reality is that the drug component of the extended health benefit on an open ended plan is well above that trend assumption. This is compared to the inflation rate of 3% for BC PharmaCare plans over an 8 year period and -2.25% for PharmaCare over the past four years. The long term inflation differential can be as much 10% per year. If you calculate this cost impact over a ten year period, the numbers are astounding. This is coupled with the fact that average formulary claims run 50% lower per drug prescription.

One final point on providing coverage for expensive drug therapies is the component under the PharmaCare system which grants access and payment for some therapies that cost between $15,000 and $1 million per year. There is a defined process for physicians and group benefit plans to follow that can allow access to these expensive therapies and still limit group plan exposure to an individual’s deductible. In BC, it is called the Special Authority program. A similar process exists in most provinces. For example, in Ontario, it is called Limited Use, and the Non Group Drug Plan in Alberta. It is crucial to understand the Special Authority process to ensure you are not exposed to a potential ongoing $100,000 claim!

Now that we have a better understanding of the value of a public pharmacy program like Pharmacare – Stay tuned for our final blog in this series which will touch on other emerging trends in pharmacy benefits, and how they can be beneficial to your program.

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