Drug Plan Strategies to Decrease Medication Costs

As a plan sponsor, managing the cost of your employee benefits plan is a priority. You need to control costs so that you can continue supporting your employees with benefits over the long term. Prescription drug spend has a significant impact on the total cost of the plan; that’s why finding ways to decrease medication costs is an important strategy in controlling the overall cost of your plan.

Why it’s a problem

Prescription drug costs for employee benefit plans are increasing. We’ve seen this trend continue for more than a decade and as costs rise, the sustainability of benefit plans is threatened.

There are a couple of reasons behind recent increases. First off, the use of specialty drugs has increased. These are drugs that cost more than $10,000 per claimant, per year. Although these types of drugs can have a life-changing impact on patients, their financial impact on a benefit plan is unmistakable. It’s a big pill to swallow.

Recent stats from Express Scripts have found that a relatively small group of claimants account for a large proportion of total drug spend. In fact, the top 5% of claimants accounted for 52% of the total drug spend. This group of super users usually have complex health conditions and often take multiple prescription medications.

The type of prescription medications your employees use (both the super users and the regular users) has a direct impact on how much your plan is costing. In many cases, there are ways to minimize these costs.

Building blocks of a solution

The main goal when managing prescription drug costs is to ensure that employees are supported while trimming unnecessary costs from the equation. Drug plan management strategies are not intended to be punitive – instead they are focused on eliminating needless spending.

The general idea is that to control costs you want your employees to try more cost-effective therapies before moving on to high-cost drugs. This means ensuring that the right drugs are being used in alignment with clinical criteria.

There is a number of building blocks (including various types of drugs) that can decrease or minimize drug costs.

Generic drugs
The cost to develop new prescription drugs is enormous. Research and development, testing, and more mean drug manufacturers are spending a lot of money to bring a new drug to market. These drugs are protected by patents so that the drug manufacturer can re-coup some of these costs.

When the patent expires, other drug manufacturers can produce generic “copies” of the original drug. These generic drugs contain the same active ingredients, are taken the same way and have the same effect as the brand-name drug. The main difference is the price. Because generic manufacturers don’t have to invest in the development of the drug, the price is much lower.

An important way to control medication costs for your plan is to encourage employees to take generic drugs. Mandatory generic coverage means your employees will only be reimbursed for the cost of the lowest-priced generic drug, even if they are prescribed the brand-name.

This is a quick and easy way to trim waste from your plan, although surprisingly there are still plans that do not require generic substitution.

Biologic drugs are a relatively new category of drugs. In contrast to drugs with chemical structures that can be exactly replicated, biologics are more complex mixtures that often contain living cells. This means it’s not possible to create a generic copy of a biologic.

Instead, after the patent on a biologic expires, other drug manufacturers can create a bio-similar drug. These are often lower cost. A bio-similar has no clinically meaningful difference between the originator drug and the bio-similar. However, because they don’t contain the exact same ingredients, switching between a biologic and its bio-similar is a bit more involved. A doctor must be involved in the process, whereas a pharmacist can go-ahead and switch a patient from a traditional drug to a generic.

That being said, bio-similar switching has become much more common than it used to be. In fact, many provincial drugs plans are now doing it. Including a bio-similar switching element to your drug plan can have a significant impact on drug spend.

Therapeutic alternatives
Continuing along on the theme of supporting employees with safe and effective drugs (but not necessarily the most expensive drugs) is therapeutic alternatives. Sometimes there are multiple ways to treat the same condition. This means different prescription drugs with different active ingredients. Both drugs are effective at treating the condition, but they go about it in different ways. These drugs are in the same drug class and are therapeutic alternatives of each other.

Incorporating therapeutic alternatives into your benefit plan means you’ll require employees to first try the lower cost of the various prescription drugs available to treat their condition, before moving on to higher cost drugs.

Because a therapeutic alternative does not contain the same active ingredients, a doctor must be involved in switching a patient to a therapeutic alternative. Including therapeutic alternatives in your plan design is often a way for plan sponsors who already have generic substitution to tap into further savings.

Dispensing fee caps
As with most consumer goods, shopping around can yield savings. The same is true with prescription drug dispensing fees. Different pharmacies charge different dispensing fees. If your employees routinely use pharmacies with higher cost dispensing fees, those fees are passed on to your plan. It can be an unnecessary spend.

Introducing a dispensing fee cap to your plan ensures that the plan isn’t paying for higher fees unnecessarily. Educating employees on dispensing fees means employees may have to “shop around” in order to receive full coverage for their dispensing fee.

Engaged and educated employees
Educating and engaging employees in benefit plan costs can really make a difference in the costs your company is paying for prescription drugs. Help them to understand about generics, bio-similars, therapeutic alternatives, and dispensing fees so they can make good choices that protect the sustainability of the benefits plan.

Engaged and educated employees are more likely to ask questions of their doctor and explore choices for lower-cost prescription drugs before the prescription is written.


From a sustainability perspective, many of the strategies above are sound. Unfortunately, making changes to your plan to incorporate them can sometimes be poorly perceived by employees. Employees may think that you are trying to cover inferior prescription drugs that may compromise their health.

The key is education. Ensure employees know about all of the different types of drugs and that they are safe and effective. Listen to concerns and provide resources for employees who are concerned about the effectiveness of the lower-cost drugs that are covered.

Another roadblock to introducing these strategies is they could make the plan appear less attractive to potential job candidates. Although these strategies still promote safe and effective drugs, there can be a stigma around generic or therapeutic alternatives.

This is where you (as the plan sponsor) need to weigh the benefits of controlling medication costs against the pushback that you may feel from employees and potential employees.

Good advice is key

Wellness programs are an investment that you don’t want to skip. It pays off with happier, healthier employees who are more productive and who exhibit a deeper loyalty toward your company. Does your employee benefits plan do that? Review your options with one of our licensed advisors on the phone or in-person or contact us for a comparison quote.

Whether you’re looking for extended health and dental coverage, disability coverage, or life and critical illness coverage, GroupHEALTH has affordable benefit packages that work as hard as you do.

Share This Story, Choose Your Platform!

Tree Canada Supporter Badge

We’re proud to partner with Tree Canada to help compensate for our carbon footprint.

By visiting our website online, you are actively participating in our paper-free initiative—thank you!