Freedom of choice may be coming to an end in drug plans

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drug-benfits-costs-calculator-pillsThe 21st century is a smorgasbord of endless abundance and choice. Growing up in the 1970s and ’80s, strawberries were only available in season and, if the local record store had sold out of the new hit album, you’d have to wait by the radio for hours to hear the single. These days, people can buy strawberries throughout the year at almost any grocery store and can stream or download nearly any song on demand from practically anywhere in the world.

We’ve become accustomed to getting what we want, when we want it, without anyone restricting our choices. This culture of entitlement has made employers somewhat reluctant to implement controls that may limit employees’ freedom of choice under their group drug plans. Choice comes at a price, however, and employers must strike the right balance between managing costs and nudging employees to make cost-effective drug purchasing decisions by imposing conditions that result in financial consequences for those who don’t comply.

Over the past few years, insurers have delivered several innovative solutions to help employers better manage the long-term sustainability of their drug plans. They include mandatory generic substitution, prior authorization and step therapy, evidenced-based formularies and preferred pharmacy networks, to name a few. The benefit for employees is that none of these solutions results in reduced coverage levels or higher out-of-pocket costs, as long as they comply with the program requirements. But these cost management solutions may limit an employee’s choice of what drug they can take and when or where they can purchase a particular medication without incurring a financial penalty.

One of the easiest changes employers can implement is mandatory or enhanced generic substitution. Under regular generic substitution plans, the full amount of a higher-cost, multi-source brand drug would be eligible by simply asking the physician to write “no substitutions” on the prescription. By comparison, the full amount of a higher-cost, interchangeable brand drug would only be eligible under a mandatory generic plan if the plan member is unable to take a lower cost, generic substitute due to an adverse medical reaction.

Unlike some consumer products where a store-brand version could be noticeably inferior to the original, generic medications contain the exact same medicinal ingredients and dosages as the brand drug. Countless studies have proven generic drugs to be safe and as clinically effective as the brand version at a fraction of the cost. Insurers have found that since implementing these mandatory generic programs, less than one per cent of plan members need to remain on the brand drug due to a medical need.

According to Telus Health’s 2015 report on drug plan trends, mandatory generic substitution reduces drug plan costs by approximately 6.8 per cent on average. Shockingly, however, less than half (47 per cent) of Telus cardholders have a mandatory generic plan. Almost a quarter of cardholders (23 per cent) have no generic substitution requirement at all, which is not much worse than the 31 per cent with regular generic substitution plans that offer savings of less than one per cent.

Although high-cost specialty medications have been on the rise for several years, drug inflation has been modest due to the counterbalancing effects of generic price reform and the patent cliff. However, these downward pressures on drugs have recently come to a grinding halt and the approval rate for specialty medications in the marketplace is only going to intensify,which will result in appreciably higher cost inflation for the foreseeable future.

The vast majority of employers that have already implemented some of these solutions have done so with minimal, if any, objections from employees. Presumably, most employees are going to be more accepting of these cost management changes than the alternatives, which often involve reductions in actual plan coverage levels or increases in employee premiums. Employers that have been slow to adopt these commonsense cost management solutions will only be able to endure the pressures of higher drug inflation rates for so long before determining that freedom of choice is no longer worth the cost.

Kenneth MacDonald is a senior consultant with Morneau Shepell in Calgary. These are the views of the author and not necessarily those of Benefits Canada.

Transcontinental Media G.P.