When you think of your employee benefit plan, prescription drugs are likely one of the first things to pop into your head. Prescription drug coverage is one of the most high-profile employee benefits out there, and one of the key aspects for Canadians. It’s also one of the biggest cost drivers for employee benefit plans.
Prescription Drugs as a Cost Driver
Typically, prescription drug costs are one of the largest contributors to total employee benefit plan costs. They often account for 30% or more of total plan costs. They have one of the highest utilization rates of all employee benefits. There are also high-cost scenarios (such as specialty drugs) that can cost hundreds of thousands of dollars for a single plan member.
Removing prescription drug coverage altogether isn’t an option (let’s be realistic!). The good news is, there are ways to manage the costs. There are different elements of prescription drug costs and several different avenues to address them.
Prescription Drugs 101
Having a good understanding of the different types of prescription drugs is important when trying to understand the costs.
Brand name drugs – Brand name drugs are drugs that are under patent. This means the manufacturer who developed the drug is the only one who can produce the drug. Developing new drugs is costly; while a drug is under patent, the manufacturer typically charges a high price to recoup research and development costs.
Generic drugs – Once the patent has expired on a prescription drug, other manufacturers are free to start producing “copies” of the brand name drug. These “copies” contain identical active ingredients and must undergo the same rigorous testing as brand name drugs. Only non-medicinal ingredients (such as color and fillers) can vary. Because generic manufacturers do not have to recoup research and development costs, the price of generic drugs is usually significantly less than their brand-name counterparts.
Biologics – Biologics are a type of drug that are derived from living organisms, instead of being chemically synthesized like traditional drugs. They can often succeed at treating challenging conditions where traditional drugs cannot. These drugs are extraordinarily difficult to create and often require special storage and handling. As a result, they tend to be very expensive.
Biosimilar biologic drugs – Biosimilar biologic drugs are sort of like the generic drug of biologics. However, they are NOT an exact copy of the biologic drug. Because biologics are created with living organisms, it’s not possible to copy the exact drug. Instead, biosimilars try to mimic the innovator (biologic drug) once the patent on the biologic drug has expired. They are not considered interchangeable but can sometimes be used as an alternative. They tend to be less expensive than biologics.
When it comes to managing prescription drug costs for your employee benefits plan, there are a number of things to consider. As a private benefits plan, your goals are different than a public healthcare plan. You’re looking to maximize the value you get out of the money you spend on employee benefits. You’re looking for a way to ensure the long-term sustainability of your benefit plan.
A Managed Formulary
One of the most effective ways to manage prescription drug costs for your benefit plan is to use a managed formulary. A managed formulary is a list of covered prescription drugs. The right employee benefits provider should provide you with the option to use a managed formulary. Your provider should already be working with a great pharmaceutical team to maintain a formulary.
Drugs on the formulary should be based on clinical efficacy as well as cost effectiveness. Although there are new drugs that can improve the quality of life for some plan members, these drugs could also make the plan unaffordable for you (a plan sponsor). The challenge for these experts is to look beyond cost to value.
The pharmacy team should examine downstream effects of including particular drugs. This means looking at whether including a drug will result in fewer absences or improved productivity. It’s not always about the lowest cost option.
Targeting peripheral costs
Instead of only looking at the drugs that are covered under a plan, another avenue is to address the peripheral costs associated with the drugs. Here we’re talking about dispensing fees, markups and ingredient costs. There is a wide variation between pharmacies when it comes to the prices that are charged for these elements.
These costs can be targeted when your provider has agreements with preferred pharmacies. Negotiated fees and markups mean that when a plan member fills a prescription at a preferred pharmacy, these costs are minimized.
Sometimes it’s a brick-and-mortar pharmacy that the plan member visits, and sometimes it’s a central dispensing pharmacy that delivers (by courier) prescriptions to your plan members. Your employee benefits provider should give you options that will work for your organization.
Incentivize Cost Control
Without an incentive, many plan members will not make choices based on the cost to their benefit plan. Educating them on preserving the sustainability of the plan is one tactic. Providing a higher level of coverage for choices that help control costs is another tactic.
For example, providing a higher level of coverage for generic drugs will help encourage plan members to choose generic drugs. The same goes with biologics. Plan members who have not previously been on a biologic drug should first be required to try a biosimilar drug in order to receive coverage. In this way, your plan is still providing good coverage, but is not paying unnecessary costs.
Requiring Plan Members to seek prior authorization for high-cost drugs is another way to help contain benefit plan costs. Prior authorization means the insurance company conducts a review to help confirm that the medication is medically necessary and appropriate for each plan member’s specific situation. This review is guided by clinical expertise.
Prior authorization prevents plan members from automatically skipping to the most expensive medication, when there are less expensive medications that may be appropriate and effective for the plan member’s situation.
Good Advice is Key
Does the prescription drug coverage you provide have built-in cost containment? Has your provider given you options on ways to control the prescription drug costs associated with your plan? Review your options with one of our licensed advisors on the phone, 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 benefits packages that work as hard as you do.