According to the 2014 Canadian Health Care Cost survey by Towers Watson, the average annual drug cost per active employee at organizations without a formal drug plan management strategy is $1,124. Average annual costs, however, are 24 per cent lower, or $266 less per employee, for plan sponsors that have three or more strategies in place.
Even implementing one or two techniques reduces annual costs on average by 12 per cent, or $135 per employee.
“Canada is one of the most expensive countries in the world for prescription drugs – and prices are going to rise. However, our survey results show that pharmacy management strategies help control health care costs, said Bill Bright, leader of Towers Watson's Canadian pharmacy practice. "Employers have quite a number of options available to them, and our research shows that as these options are combined, the effectiveness from a cost management perspective improves.”
Drug cost trends
Overall, Towers Watson’s 2014 Canadian Health Care Cost Survey revealed that employer health care spend increased 1.9 per cent from 2012 to 2013 for active employees, down from 2.1 per cent the previous year.
The cost trend for drugs has been flat, at 0.2 per cent year-over-year, while the cost of extended medical benefits, such as massage therapy, chiropractic coverage and psychology services increased by 4.7 per cent. Dental care costs have risen 2.9 per cent.
“Drug cost trends have been moderate in the past few years, primarily due to a greater availability of lower-cost generic drugs and a lack of new-entry brand names,” said Karen Millard, a senior consultant at Towers Watson. “However, employers may see increases in the near term due to greater use of high-cost and specialty drugs, a growing demographic of employees with more chronic conditions, and government shifting of public costs to private payers.”
As Bright explained, “High-cost or specialty drugs are typically used by fewer than five per cent of employees, but can account for 15 to 25 per cent or more of an employer’s total drug spend. For example, a specialty drug therapy for Hepatitis C is effective at reducing the virus, but creates budget challenges for employers, as the typical cost is about $55,000 for a 12-week treatment. New drugs now in the pipeline may drive costs even higher. Our forecasts suggest that new high-cost therapies will account for close to 30 per cent of drug plan expense within the next three to five years.”
As the prevalence of high-cost drugs increases and health care costs begin to rise, organizations will need to actively manage their pharmacy plans to mitigate the impact on their benefit budgets.