Time warp: 2012 Drug Plan Report

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Back in the 1980s, when I worked in my father’s pharmacy, everything was fair game from a drug reimbursement standpoint. It’s incredible to think that, decades later, private drug plans have not become materially more sophisticated in how they manage what is and isn’t paid for.

For those who have been slow to embrace responsible, active drug plan management, developing trends may reshape their approach.

This article was originally published in Benefits Canada. Get a PDF of this article, including lists of new molecular entities approved by Health Canada in 2011 and major generic drug launches in 2011.

Specialty drugs
There are many more specialty drugs on the market today, encompassing all of the expensive biologic and targeted oral therapies. Table 1 (see PDF) shows that of all new drug products approved for sale by Health Canada in 2011, only 50% are considered traditional therapies. While some represent new drug classes for common disease states such as type 2 diabetes and categories such as blood thinners, fully half are specialty drugs.

While the impact of expensive specialty drugs on plan costs is clear, sponsors should note that some of the traditional therapies in Table 1 (see PDF) also have the potential to materially impact drug plan costs. In particular, Brilinta and Eliquis join new agents such as Pradax and Xarelto to provide a wide range of new innovations in the oral blood clot treatment market—at a cost premium to existing therapies. Byetta and Trajenta are examples of the significant research and development focused on treating diabetes. Innovation in areas such as diabetes will add to cost challenges for plans that have yet to seriously consider their design.

In late February, Health Canada put Gilenya—a highly touted initial oral therapy for treating multiple sclerosis—under review after 11 deaths were reported globally. At this point, it isn’t clear whether the deaths were caused by the drug or if there were other factors at play. One downside to new therapies is that there isn’t the same post-marketing surveillance data available, compared with medications that have been out for longer periods of time. There are some wonderful innovations in the market, butnewer doesn’t always mean better or safer.

Generics versus brands
In February, I spent a Sunday working in the pharmacy. Within four hours, I had six separate patients inform me that they were not willing to take the generic medication dispensed by their doctor. All six shared the same concern: generics were inferior to brand name drugs.

This anecdotal story is supported by some research that Cubic Health completed on a set of 600,000 claims for the proton pump inhibitor (PPI) class of stomach acid-lowering medications. From 2010 to 2011, there was a 15% increase in the number of claims paid for multi-source brand PPIs (i.e., PPIs with an exact generic equivalent).

Plan sponsors need to appreciate that there is a role for both innovative brand name drugs (the results of meaningful drug research and development) and generic drugs that allow plans to benefit from a lower-cost alternative once a brand drug’s patent protection expires. Without brand companies, Canadians wouldn’t have important products that have produced immeasurable benefits to their health and wellness.

It’s important to educate plan members and explain that Canadian generic equivalents are not of lower quality or less worthy of consideration. If generic drugs are not bioequivalent to reference brand drugs, they aren’t approved for sale. Access to lower-cost alternatives after patent expiration affords benefits plans savings to fund specialty therapies and other innovative brand products. Clearly, there is a role for both brand and generic drugs in the Canadian market.

Despite the wave of new generics that has emerged in recent years (including those drugs listed in Table 2 (see PDF)) and the well-documented patent cliff, there are some alarming trends in generic penetration. For example, looking at 406,000 claims for the selective serotonin reuptake inhibitor antidepressant class—in which most drugs have generics available (e.g., Celexa, Zoloft)—generic penetration actually decreased in 2011 to 69.6% of all claims, compared with 73% in 2010.

If plan designs don’t encourage more cost-effective drug use, where safe and appropriate, how can sponsors deal with an environment in which an ever-increasing number of new medications are relatively expensive specialty drugs?

But there is one encouraging development in the battle between generic and brand name manufacturers: the industry has begun to focus more attention and resources on the private payer market. Today, brand name drug manufacturers appear to be more interested in helping plan sponsors measure returns from investments in their prescription drug benefits by assessing areas such as total burden of illness and integrating drug, disability and absence data. It’s vital for plan sponsors to start measuring these returns before it gets to a point where they start abandoning coverage, limiting access or establishing dollar limits that can all lead to lower adherence to therapy. At the same time, generic manufacturers are putting resources toward educating consumers about the quality of their products and assisting plan sponsors in understanding the impact of sustainable designs.

Impact on plan sponsors
Brand companies have started combating the lost market share arising from expired drug patents with a renewed focus on programs such as supplemental drug benefits cards, which cover the cost difference between the brand product and a generic alternative so that the member is not out-of-pocket with the brand option. But there is a major issue emerging regarding co-ordination of benefits (COB) rules with multiple plans and the use of multi-source brand drugs.

For example, take a multi-source brand drug with a manufacturer’s list price (MLP) of $150 for a 100-day supply. A patient arrives at the pharmacy to find that the medication now has a generic equivalent that is 35% of the price (MLP: $52.50). The patient decides that he or she wants to stay on the brand drug and produces a supplemental card from the brand manufacturer. This supplemental card is the “payer of last resort,” meaning the claim will be submitted first to the employee’s plan first and then the spouse’s plan, before the support plan.

Look at the impact on the two private plans when the claim is processed as follows, according to existing COB guidelines (assuming a 10% markup from pharmacy on the MLP).

Employee plan: 100% co-insurance, mandatory generic substitution (MGS): Submitted cost is $150 + 10% markup + $10 dispensing fee = $175. The plan cuts back to the generic price of $52.50 + 10% markup + $10 dispensing fee = $67.75 (a difference of $107.25).

Scenario 1: Spouse’s plan, 100% co-insurance, no MGS: The spouse’s plan pays the lesser of what it would pay as the first payer ($175) and the residual value (RV) of $107.25. With no MGS, the plan pays $175 as first payer, but since the RV equals $107.25, the plan pays $107.25. The pharmaceutical company card pays $0 because the other two plans have already paid the full amount.

Scenario 2: Spouse’s Plan, 100% co-insurance, MGS: The plan pays $67.75 as first payer. Since the RV is $107.25, the plan pays the lesser of the two, or $67.75. The pharmaceutical company card pays only $39.50, since $135.50 was paid by the other plans.

Even in the case of two private plans with MGS—in which the intent is only to pay up to generic price, instead of paying a total of $67.75—the private plans combined actually paid double that: $135.50. That may not be what was intended, but it happens when patients have more than one plan available and supplemental cards of payer of last resort.

Pharmacy’s incentive structure
As of April 2013, generic equivalents in Ontario will be priced at 25% of brand drugs, and there will be no more professional allowances (rebates) on generic drugs. Instead, pharmacies will be able to receive 10% “commercial terms” discounts (e.g., volume purchasing). This is an interesting proposition for plan sponsors: whereas pharmacies have historically been incented to dispense generic drugs because they provided much higher margins, these changes could start to change the playing field.

Consider a single-source brand drug in a given class with a unit cost of $1.44 per tablet and a generic of another common drug in the same class with a unit cost of $0.55 per tablet. Based on current pricing, pharmacies can receive markups under pay-direct drug (PDD) plans as high as $0.144 per tablet for the brand drug.

In 2013, the maximum PDD markup on the generic alternative would be $0.06. If another $0.06 is added in commercial terms, the total reimbursement per tablet would be $0.12. That’s 23% less in the pharmacy’s pocket per tablet when compared with the brand option.

This is an example of how plan sponsors will have to seriously consider their plan designs if they are looking to provide incentives for cost-effective therapeutic options, where available and appropriate, if there is concern about plan sustainability and the plan’s ability to be able to afford high-cost specialty drugs as well.

If sponsors continue to take a passive approach to plan management, how can they be successful in ensuring that they—and their members—receive the greatest value for the money invested? Drug plan management may not have changed significantly over the last 30 years, but if things don’t start changing quickly, we won’t have to worry about what these plans look like in 2042—because they will be long gone.

Transcontinental Media G.P.