May 2013

 

Less talk, do more

The past few years have seen significant changes in many aspects of the prescription drug world (think patent cliff and generic pricing) that affect private drug plans in Canada. While it’s important to understand the impact of these recent changes, it’s even more important for employers to recognize that the next five years will be very different from the last five. And new challenges will require new solutions.

Patent Cliff and Generic Pricing Reform

Beginning with reform discussions in Alberta and Ontario in 2009, and including recent multi-provincial negotiations, the past four years have seen a substantial decrease in the cost of a medical service—specifically, generic drugs. More importantly, there’s an overall reduction in the average cost per claim as the influence of lower generic pricing and increased generic dispensing opportunities hit private drug plans.
Prior to 2009, most generic drugs in Canada were priced at 63% to 70% of their brand name counterparts, with some priced upwards of 85%. As has been well documented, provincial governments have negotiated these prices gradually lower. As of April 1, six of the most prescribed generics—atorvastatin, ramipril, venlafaxine, amlodipine, omeprazole and rabeprazole—are now available at 18% of the cost of their brand name counterparts. At the same time, many of the largest prescription drug names have lost patent protection here in Canada. Disappearing from the top drug lists (by cost) of many employers (see Table 1) are high-frequency and relatively high-cost maintenance drugs—such as Lipitor, Prevacid and Norvasc—to treat chronic conditions. In 2012 alone, generics for several former blockbuster brand name drugs (see Table 2) became available in Canada.

These have been replaced by higher cost biologics (e.g., biologic response modifiers Remicade, Enbrel and Humira) to treat autoimmune diseases such as rheumatoid arthritis, psoriasis and Crohn’s disease or by other patented single-source brand drugs such as Crestor, which many patients were switched to after Lipitor lost patent protection.

The marketplace has given us more generics, and the government has given us cheaper generics. All in all, these have been easy years to keep costs down in prescription drug plans.

While the patent cliff and the reduction in generic drug prices may still continue for a few years, the impact will not be as significant as it has been in the recent past. Even if generic prices ultimately end up at 10% (or less) of their brand name counterparts, future price reductions will be far smaller than the price reductions already seen. Historically, there have been low drug trends over the past couple of years, but these trends may return closer to their historical levels as the patent cliff peaks and costlier biologic drugs become the focus of future pharmaceutical development.

Generics and Biologics

Both generic and brand drug manufacturers play a crucial role in drug plan management. While generic production ensures that treatment options for chronic diseases become more affordable for plan sponsors, innovative research and development of branded products targeting previously untreatable or undertreated diseases ensure that employees can remain healthy and productive.

Just as highly utilized drugs that have become genericized begin to flood the market, there is also more focus on advancing medicine through the production of biologic drugs. Although many of these biologics have reached the market already (and are climbing up plan sponsors’ top drug reports as a result of both their disproportionately high cost and their increased utilization resulting from additional indications of use approvals), many more are on the horizon.

Biologics do not provide the same generic substitution opportunity the way small molecule chemical drug entities do.

The manufacturing process is so complex and unique that reproducing an exact duplicate of a biologic drug is not possible. There will be subsequent entry biologics (SEBs) that are similar, but these are not expected to be truly interchangeable with their biologic counterparts. Therefore, pricing relief similar to what has happened with generics will not be achievable. For example, the first SEB for Remicade—Remsima—has been approved and is in use in Korea. However, its cost is approximately 70% of the Remicade price.
The key focus for employers should be to maintain the drug plan’s sustainability by capitalizing on the most cost-effective treatment options, such as generic substitution, where it makes sense. This is important as those savings will be necessary for plan sponsors to afford drug treatment for those few employees suffering from increasingly treatable but costly rare diseases.

Insurance Carriers

The 2012/13 period has become something of a golden age of insurance company products and solutions aimed at employers to manage drug plan costs. Offerings such as mandatory generic coverage and prior authorization and/or electronic step therapy have become standard products at several insurers. These are not new offerings, but due to their automatic nature (e.g., standard offerings but employers can opt out), uptake by plan sponsors has jumped significantly.

With the increase in the availability of solutions, the responsibility now lies with plan sponsors to implement the solutions that exist. In part, due to the moderate health inflation environment of the past few years, the uptake on solutions such as managed or tiered formularies has only increased slightly. This reflects several factors, including reduced cost pressure in recent years, as well as many plan sponsors’ desire to minimize potential negative reactions from employees.

As inflation rates in 2014 and 2015 return to historic (pre-2009) levels, 2013 will be a key year for employers to begin implementing the readily available solutions that will help mitigate the coming inflationary pressures.

New Solutions

While 2013 has seen an expansion in the use of solutions to drug plan management (as described above), these are largely focused on product selection. A new generation of solutions is also beginning to emerge that focuses on two items: underlying ingredient cost and keeping employees healthy to reduce the number of prescriptions needed.

Price as a negotiable item Canadian brand name drug prices are limited by the price determined by the Patented Medicines Price Review Board (PMPRB) when they are initially listed for sale in Canada. This has had both a positive and negative impact on the Canadian drug market. Positive, because it means that the prices for brand name drugs are generally reasonable by international standards, and far lower than the price typically paid in the United States. Negative, because it has provided little incentive for Canadians to ask, Should the price be lower?

Several provinces, encouraged by the success in Ontario, have taken action on this question. Through the use of private listing agreements (PLAs), provinces are now negotiating directly with drug manufacturers to receive a lower price than that determined by the PMPRB. They have been able to do so by bringing their substantial leverage to the negotiating table—if the price is lowered, the drug can be listed for all members of the public drug plan. If not, this access is restricted or eliminated.

While not in widespread practice yet, private plan sponsors, insurance carriers and pharmacy benefit managers have also begun to move in this direction.

Demand management In addition to drug plan management solutions that are cost- or product selection-focused, the future cost impact of the demand side of the equation is increasingly part of the conversation.

The growing number of plan sponsors doing detailed reviews of their drug plan reveals that many of the therapeutic categories (high cholesterol, hypertension, depression, gastrointestinal and Type 2 diabetes) driving costs have a behavioural component. These are conditions that can be considered at least partially modifiable, encouraging a shift in focus to pre-claim (versus post-claim) activities. Prevention-focused approaches such as a strategic wellness program and value-based plan design are increasingly part of long-term cost management strategies.

Recognition is growing that, when it comes to employee health, a return on investment requires an investment before a return can be achieved. By focusing investments on those areas that can have the greatest impact on employee health (e.g., by increasing coverage for maintenance drugs to improve compliance), overall costs, including factors such as lost time and lost productivity, can be reduced over the longer term. Examples of this approach include value-based plan designs whereby a plan sponsor may increase reimbursement levels for certain drug classes (e.g., diabetic drugs and supplies).

Organizations are also becoming increasingly focused on employee health and wellness. Programs that focus on nutrition, fitness, stress management, work/life balance and making healthier lifestyle choices can help minimize both the direct and indirect costs where health risks can be reduced. This increased focus includes a shift from passive, episodic wellness program offerings to a more strategic approach. By aligning broader employee engagement strategies with deep analytics (e.g., diagnostics, risk profiling and segmentation) to develop a well-matched wellness program design and delivery, outcomes (including returns on investment) are maximized.

In other words, focusing on pre- and post-claim activities is not an either/or proposition but a strategy that integrates all available resources to support the most appropriate balance of cost, health and productivity.

Years from now, 2013 will be seen as a transition point for private drug plans in Canada. This is the year we begin to move from the era of generic cost savings to building effective plan management for a future of growing high-cost biologics. This may also be the year when the range of potential solutions that private plans have available move into wider use. Acting now before cost pressures grow into 2014 and 2015 will enable plans to do so in a measured manner, in a way that best meets the broader overall business and HR goals.

If 2012 was the year that drove a tremendous number of interesting conversations about drug plan management, let 2013 be the year of future-focused action on drug plan management.

excerpts provided by: Benefits Canada Tim Clarke and Shawn O’Brien | April 23, 2013

 

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