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Major reform needed to deal with cost of catastrophic drugs

By Susan Yellin | January 23 2014 04:02PM

The price of prescription medicines coupled with the ultra-expensive costs of so-called catastrophic drugs continue to confound the insurance industry and consumers alike and the only way out of the situation is through major reform, says an executive of the Canadian Life and Health Insurance Association.Stephen Frank, CLHIA’s vice president policy development and health, told a meeting of the Canadian Group Insurance Brokers (CGIB) in Markham, Ontario, that private insurance companies in Canada directly reimbursed $10.3 billion in prescription plans to plan holders in 2012, the most expensive cost in the insurers’ group ledger, closely followed by dental care.

About 90 per cent of drugs have gone generic, yet the cost of drugs has been “a preoccupation” for plan sponsors for a number of years. That’s mainly because of plans that cover catastrophic drugs, designed to protect patients from overwhelming drug bills such as costly cancer medications, Frank said.

It’s one of the reasons why 24 insurance companies in Canada, representing virtually all of the supplementary drug market, have joined forces to create the Canadian Drug Insurance Pooling Corporation (CDIPC), which officially opened its doors in January 2013.

The purpose of the corporation is to provide a pooling mechanism by which the carriers share their highest amount drug claim costs, basically sharing the costs of highly expensive and recurring drug treatments, Shirley Leong, executive director of the CDIPC told the seminar.

For Canadian consumers pooling provides some comfort that they will not lose their employer-sponsored drug coverage due to a high-cost claim. It is also beneficial to small- and medium-sized insurers who could be wiped out if they had to pay out a number of recurring claims for catastrophic and biologic drugs.

“There will be more of these drug claims coming and we need strategies to address those,” Frank said.

He said there have been some cutbacks in drug prices, but the pressure is on to reduce costs further, especially with the growing older population which will ostensibly use more medications.

“The industry and what we hear from our members is that it’s not enough – we need some policy level, some structural reform, if we are going to make our system viable going forward.”

Those who think drug costs in Canada are too high may be right. A select study by the OECD on average bilateral price ratios for drugs vis-à-vis Canada, shows our country below only the U.S., Japan and Germany in terms of prices, he said.

Bulk purchasing

The provinces have agreed to create a pan-Canadian bulk purchasing alliance so that for every new drug coming to Canada they will negotiate special prices for provincial plans. This has been done to date with 10 drugs and another 17 are on the list. But while there are material savings resulting from this, they are not benefiting private insurers, who cannot then pass them on to consumers, said Frank.

Patient advocates are frustrated that costs vary by province and by employer, but Frank said that’s a function of the Canadian health system. Health Canada conducts safety approval, then there are three levels of cost-benefit analysis. There are also 14 government plans and each decides on whether to list the drug, then all 24 private insurers do their own separate assessment on whether to list, with plan sponsors then doing the same. The result is dozens upon dozens of different approaches to list or not to list, he said.

There is an agency, the Patented Medicine Prices Review Board, that has a mandate to ensure that drug prices are not excessive – but that doesn’t mean it strives for the lowest possible price, said Frank. “We believe that mandate needs to be clarified. It should be narrowly focused as a consumer-focused agency. It should be striving for the lowest and best prices it can get.”

In a recently released policy paper, the CLHIA outlines a series of guiding principles to make drugs and drug prices accessible, safe, sustainable, affordable and fair.

The CLHIA is also urging that a common, national minimum formulary be developed. With 90 per cent of drugs already covered by private insurers, Frank said it doesn’t seem that “it should be impossible for us” to move forward on the other 10 per cent.

Orphan drugs

On the subject of orphan drugs – those that treat rare diseases (typically fewer than five in 10,000 people) – there are more questions than answers right now, he said.

Frank suggested that a forum and process to discuss how to move forward should take place now, rather than scramble when an orphan drug comes to market.

Meanwhile, Leong of the CDIPC said this is the first year of the national pool and it won’t be at least until after the calendar year that insurers will submit their information to the pooling corporation.

She noted however, that insurance is a competitive marketplace and so the corporation’s ability to set certain standard on costs may not be feasible and might not help everyone.

As well, Leong said insurers can exclude or include any drug they want since there is no prescribed list.

Dave Patriarche, founder of CGIB and a group insurance specialist himself, said there has been a lot of confusion regarding who pays first among private and provincial health plans that subsidize drugs.

Sometimes, each province has a number of these kinds of plans. In Ontario, for example, there is Trillium Drug Plan, the Ontario Drug Benefit program (mostly for seniors) and the Exceptional Access Program, which helps patients get access to drugs not funded on the Ontario Drug Benefit Formulary.

While there was confusion in the past, Patriarche said all insurers are now aware of how they should be paying claims – even though few are moving very quickly to make any major changes.

“Making this happen is not easy and requires effort, innovation and a desire to do the best thing for clients,” said Patriarche.

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