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September 2018

Fears of a prescription drug bubble: 20 years later

Do you remember an article titled The Blockbuster Drugs of 1999¹, which outlined the concerns of the drug insurance industry in Canada? This article reported on drugs that were of concern to group benefits plan sponsors. These drugs served as a wake-up call for companies for the sustainability of their plans and for finding the right balance between costs and the level of protection provided to insured members. Over the past 20 years, the world of prescription drugs has undergone significant changes. While it is undeniable that we are facing new challenges, we also have tools at our disposal to ensure the sustainability of drug insurance plans.

Y2K SCARE

In December 1999, ahead of the looming threat of a computer systems failure due to the Y2K bug, the world of group benefits was facing another threat: the surge in prescription drug costs. Do you remember the drugs that were on the tip of everyone’s tongue back then? These days, the total cost of all these drugs combined make up less than 2% of private group plans’ eligible expenses². What happened?

BACK TO THE FUTURE

Naturally, no one back then could have predicted the exponential increase in drug costs. In 1999, the gravest concern was for drugs that cost more than $1,000 per treatment or per year. Nowadays, treatments upwards of $10,000 a year are commonplace. The introduction of generic drugs helped alleviate costs for nearly 10 years. However, drug therapies have evolved into a form of specialized medicine, with some drugs curing previously incurable conditions.

However, these new drugs come at an excessively elevated cost; and, such was the case in 1999, some present-day drugs are considered a high risk for drug insurance plans: Strensiq ($2.5M/year), Vimizim ($1.5M/year), Soliris ($0.5M/year), Remicade ($35,000/year), just to name a few. It is estimated that out of an insured population of 1,000 people, claims for 10 of them will represent approximately 33% of total eligible costs³. In the coming years, a steady increase in the number of drugs with a direct impact on the health of group benefits plans and sustained inflation well above the Consumer Price Index rate should be expected.

POTENTIAL SOLUTIONS

How can we control this risk? While “classic” control measures do exist, plan sponsors have several specialized methods at their disposal. Insurers can provide some 40 risk-control solutions to plan sponsors. However, given that not all solutions are appropriate for all plans, a detailed analysis of performance indicators is necessary. This analysis will make it possible to adapt the strategy to specific issues, otherwise the expected effects will be mitigated. Each plan’s priorities for action should be determined by comparing consumption with the market and by analyzing the factors pushing costs upwards.

ACTING NOW RATHER THAN LATER 

Now more than ever, the world of prescription drugs requires sound management. The article The Blockbuster Drugs of 1999 concludes that key players must act immediately and establish an action plan to benefit from long-term savings. This still holds true today. Each plan sponsor must act now and develop an action plan to control drug cost risks. Based on the current trend we’re observing, costs could double over 10 years. What plan sponsor can afford such an increase?

 


¹   Benefits Canada, December 1999, Kevin Press & Andrea Davis
²   According to the 2017 Normandin Beaudry drug database
³   According to the 2017 Normandin Beaudry drug database

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