Cubic News

Employers are clueless about the cost of their drug plans

Globe and Mail (June 1, 2011)

Andre Picard

Canadian employers spend more than $200-million a week on drugs. Annually, that figure reaches $10.2-billion.

But, for the most part, they are clueless about the cost of their drug plans and just how poorly they are being managed – to the point where the long-term sustainability of many private drug plans is in jeopardy.

That is the hard-hitting message contained in a new white paper penned by Helen Stevenson, chief executive officer of the Reformulary Group Inc., a consultant company.

Health insiders will recognize that name because, before she made the leap to private enterprise last year, Ms. Stevenson oversaw the country’s largest drug plan, the $4-billion-a-year Ontario Public Drug Programs.

While the role of most assistant deputy ministers is to douse fires (and keep the political boss out of the headlines), she embraced some bold (read: inflammatory) policies such as slashing generic prices and revamping how dispensing fees are paid to pharmacists. Though controversial, she was a game-changer, leading the most significant reform in the drug system in decades.

Ms. Stevenson thinks that private-sector drug plans are ripe for that kind of shakeup too, and she makes a compelling case in her paper, entitled “An End to Blank Cheques: Getting More Value Out of Employer Drug Plans.”

“There are savings to be had in the billions,” she writes. Those are words that should make corporate Canada stand up and take notice – or at least take the time to read her 16-page missive.

Employees and retirees should also care because the financial health of drug plans will ultimately determine their access to drugs and how much they will spend. (About 40 per cent of Canadians depend on private drug plans, 40 per cent depend on public plans and 20 per cent have no drug coverage.)

While there much tsk-tsking at the ever-rising cost of drugs, the report notes that those costs are rising almost twice as fast in the private sector than the public sector – 7 per cent versus 4 per cent. That is because private drug plans have made little effort to negotiate lower prices or limit consumer access to higher-priced brand-name drugs, while provinces are now making that an obsession.

The problem in the private sector is not complacency but lack of awareness, Ms. Stevenson writes. Governments are acutely aware of drug costs and have actively pursued cost-containment measures while private companies have taken more of a laissez-faire attitude.

With costs soaring, that has to change, and quickly, Ms. Stevenson argues. “In the face of costs that could soon make maintaining their drug plans impossible, the private sector needs to take action now,” she writes.

Complacency is already having a negative impact. Insurers are raising premiums – placing a financial burden on employers and employees alike – and costs are being reduced with draconian measures that employees and retirees dislike, such as higher co-payments, limits on how much will be paid out or what will be covered.

Ms. Stevenson says there is a better way to save money than cutting people off: Reduce the price paid for drugs and reinvest those savings in maintaining this key benefit for workers.

One of the strengths of the report is that it is blunt and terse – it’s written like a briefing note for a busy cabinet minister or CEO. In fact, Ms. Stevenson lays out an eight-point action plan for the administrators of private drug plans to deal with this festering problem:

1)  Be clear on the purpose of the drug plan: Benefits, including good drug benefits, are a way to attract and retain the best employees. They are also a way of promoting good health and efficiency.

2)  Get good data for great decisions: There is a lack of monitoring of drug plans by employers and insurance companies, something that is not tolerated in other aspects of day-to-day business. For example, a company with a huge bill for diabetes drugs could invest in a nutritionist and save money, or a spike in antidepressant prescriptions could point to a need for changes in the workplace. “You can’t fix what you can’t measure,” Ms. Stevenson writes.

3)  Manage formularies better: Employers should demand that drugs be evaluated based on clinical and cost-effectiveness evidence. About 84 per cent of new drugs have no additional benefit over existing ones. Ms. Stevenson also advocates incentive-based formularies, where employees pay more out-of-pocket if they insist on newer, more expensive drugs.

4)  Promote appropriate use of brand-name and generic drugs: While the best drug is sometimes a brand name, employers should mandate paying for the lowest-cost product – typically the generic drug – and ensure that this is enforced. This move could save almost $1.3-billion this year alone.

5)  Build buying power: Employers and their insurance providers should band together to negotiate lower prices of the drugs they purchase from pharmaceutical companies or pharmacies. Buying power is what has kept prices in check in public drug plans.

6)  Implement pay-direct drug plans: Having employees pay their prescriptions, then submit receipts for reimbursement adds about 4 per cent to the cost of a drug plan. Having pharmacies submit directly saves money and allows better control.

7)  Drive consumerism: Employees, the ultimate beneficiaries of the drug plan, need to be aware that they will ultimately pay for higher cost drugs through higher premiums or lower benefits. The goal, Ms. Stevenson writes, should be to “shift people’s minds from a mentality of entitlement to a mentality of empowerment.”

8)  Reinvest savings in benefits: Better-managed drug plans will generate significant savings, which can ensure the survival of the drug plan and which can also be reinvested in wellness programs.

It is often said a dose of private-sector discipline would do our health-care system some good. But, in this instance, the public sector has shown the way, and done much of the work. Private-sector employers need to pick up the ball and run with it.

Ultimately, Ms. Stevenson argues, “employers have a real opportunity here to improve benefits for their employees, introduce accountability into their plans, and save themselves money in the process.”

It’s hard to understand what they’re waiting for.

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