Thom Lackie Financial Advisor, Benefits Specialist

Designing a Drug Plan
There are a number of steps employers need to consider
BY MIKE McCLENAHAN

Employers are faced with both challenges
and opportunities with respect to
their benefit plan’s drug coverage. Recently,
many provincial governments, including
British Columbia, Alberta and Ontario,
have enacted legislation focused primarily
on reducing the cost of generic drugs for
both public and private plans. Longer term,
the introduction of more specialty or biologic
drugs will put significant upward
pressure on the cost and affordability of
these programs.

In an attempt to respond to this dynamic
drug environment, the stakeholders —
which include insurers, pharmacy benefit
managers, consultants, third-party administrators
and employers — are exploring
and implementing innovative strategies.

“This is an exciting time for Canadian
plan sponsors with respect to the solutions
available to manage prescription drug plan
costs,” maintains Mike Sullivan, president
of Cubic Health Inc. “More innovation has
emerged in the last year than over the past
eight to 10 years combined. Stakeholders
are lining up to deliver better relationships
with private payers, and the technology
exists to support these innovations. This
should allow plan sponsors to extract far
more value from their investments, and
[should] result in better health outcomes
for their members.”

There are a number of steps employers
need to consider when designing their drug
plan:
• deciding on their drug plan philosophy;
• partnering with an effective pharmacy
benefit manager (PBM); and
• employing plan design tools and commu-
nication tactics to help make employees
better consumers of the plan.

DRUG PLAN PHILOSOPHY
There are two key players in drug plan management:
the plan sponsor and the PBM,
both of whom have a responsibility to drug
plan management. At any given time, plan
sponsors need to know their drug plan philosophy.
They need to decide if they are
paternalistic — covering everything for
everyone — or if they more restrictive —
covering for only those who need it. If there
is no plan philosophy, then plan sponsors
should work with their advisors and PBMs
to develop one. And for those who do have
a clear drug plan philosophy, it’s always a
good time to revisit the plan, especially
given the drug trends anticipated over the
next five years.
Sal Cimino, director of pharmacy services
for Green Shield Canada, has some
words of caution for those plan sponsors
who don’t think they need to make any
adjustments to their philosophy.
“A plan sponsor whose philosophy is
more paternalistic may have to change their
philosophy in the near future as drug plan
costs are going to become unsustainable.”
CHOOSING THE RIGHT PBM
Not all PBMs are created equal. Within the
cost of any prescription there are three
components: manufacturer’s price, markup
and a pharmacy dispensing fee. Where any
part of the drug price is unregulated, PBMs
negotiate with the pharmacies. It would
therefore bode well for the employer to
ensure that the PBM has favourable pricing
agreements with the pharmacy. For
example, can they track generic pricing and
exceptions, and do they have fee and
markup controls in place?

Next, explore what plan design options
the PBM offers for controlling drug costs.
As Keith Foot of Automated Administration
Services explains, “Generally, employers
can’t control the cost of the drug but they

nication tactics to help make employees
better cthey have fee and
markup controls in place?
Next, explore what plan design options
the PBM offers for controlling drug costs.
As Keith Foot of Automated Administration
Services explains, “Generally, employers
can’t control the cost of the drug but they
to the concept of a user-pay model.
Common plan design features include a copay
(e.g., dispensing fee deductible) or coinsurance
(e.g., employee pays 20 per cent
of the cost of the drug).

The PBM also needs to be managing
high-cost drugs as this is the fastest growing
trend that is going to cripple some plan
sponsors’ benefit plans. A prior authorization
program should be in place to ensure
appropriate drug coverage is provided.
Specifically, biologics are a must for any
PBM to be managing.As Camino comments, “Green Shield
introduced a Biologic Management Policy
because we could see the trend developing.
The important thing to note here is that it
looks like plan sponsors are saving — but
not to the detriment of plan member care.
That is key.”

The final step in the process of designing
a drug plan is developing an effective
communication strategy. As the plan design
techniques become more complex (e.g.,
managed formularies), the advisor must
work closely with the employer to ensure
their employees are aware of the plan philosophy
and how they can manage their
coverage.In the November/December edition of
FORUM, I outlined the rapidly changing
drug landscape in Canada and some
of the implications these changes will have
for employer-sponsored group insurance
programs. This article will focus on strategies
employers can use to help safeguard the
affordability of drug plans while maintaining
protection for their employees.