NEWSLETTER
Solutions To Rapid Increases In Drug Costs
March 2006
Rapidly increasing drug costs are profoundly impacting employer group benefit plans. U.S. employers bear a far larger portion of the financial burden for overall health care costs than do employers in Canada. These U.S. companies have instituted very aggressive measures to help control drug expenditures.
Many of the practices can be used in Canada, but we have been slow to implement them. Here are some of the cost-control approaches U.S. companies are using:
- Multi-tiered formularies: Most U.S. drug plans use a several tiered formulary which has different reimbursement levels based on the type of drug dispensed. In Canada we usually use the same reimbursement level for all medications.
- Mail order pharmacies: An employee can receive up to a 3 month supply of certain medications using a mail order pharmacy. In addition, they are only charged for 2 months of medication, which reduces claims experience for the benefits plan.
- Prior authorization: This is used for drugs that are being used for something else than that for which they were originally designed, drugs that could be abused, and drugs only to be used under specific circumstances. This ensures greater responsibility by all parties concerned.
- High amount pooling: Some Canadian carriers already use high amount pooling. This protects employees and employers against catastrophic conditions. Many conditions require a person to use $20,000 or more of medication per year.
- Maximum allowable cost and reference based pricing: Maximum allowable cost sets a ceiling for a drug that does have a generic equivalent. Reference based pricing sets a maximum for drug costs in a particular class of medications. This enables reasonable costs to be maintained for prescriptions.
- Flex benefits: These types of plans allow employees to pick benefits according to their needs. A health spending account can also be used to increase flexibility.
- Specialty pharmacies: These pharmacies effectively manage the application of high cost medications and severe medical conditions. Case managers can be assigned to assist employees in managing strict drug regimens.
- Health risk assessments: Future health risks are better understood based on current medical factors and history. Future drug and medical claims can be predicted using this data and specialty software.
- Pharmacotherapeutic care: These methods can see if an individual is genetically pre-disposed to certain diseases and how they will respond to specific drug treatment therapies.