group insurance
Drug Cost Management Guide
A partner you can trust.
www.inalco.com
›
Table of Contents
For a cost-effective, competitive plan that benefits
you and your plan members ______________________________2
Potential savings at a glance _____________________________3
Part 1 – Cost management measures that
can be implemented by plan sponsors ______________________4
1.1 Pay direct and deferred drug programs __________________4
1.2 Plan members’ contribution to drug costs _______________5
1.3 Generic substitution plan _____________________________6
1.4 Tiered plan _________________________________________6
1.5 Managed drug formulary _____________________________8
Part 2 – Cost management measures
implemented by Industrial Alliance _________________________9
2.1 Prior authorization ___________________________________9
2.2 Coordination of benefits (COB) ________________________9
2.3 Hospital Drug Program ______________________________10
2.4 Dynamic Maintenance Drugs Process __________________10
2.5 P roactive Detection of Health Care
Fraud and Abuse ___________________________________11
Myths of the Insurance World ____________________________12
Communication strategy ________________________________12
Making the right decision today for your group plan future___12
›
For a cost-effective,
competitive plan that benefits
you and your plan members
Escalating health care costs are a challenging reality for
plan sponsors, plan members and insurance carriers, as
they have a direct impact on the cost of group benefit plans.
Drug costs generate the largest increase. They account
for almost 2/3 of total group plan health expenses. New
innovative and more costly drugs are constantly being
introduced to the market and are putting a strain on group
benefit plan capabilities.
Ultimately group benefit plans will have to adapt and be
creative in order to meet ever-evolving needs.
Studies show that with an effective plan design, plan sponsors
can reduce their benefit expenses. Savings could be used
to provide additional benefits, provide a cushion for future
increases or reduce overall expenses for plan sponsors.
At Industrial Alliance, we aim to be a strong insurance
partner in creating a value proposition for plan sponsors
and plan members. To achieve this, we rely on 3 pillars:
partnership, proactive management and, most importantly,
communication. We focus on optimizing your plan performance, developing
the right tools, facilitating your decisions and providing you
with worthwhile alternatives. We commit to supporting
your efforts in managing plan costs.
We work in collaboration with Express Scripts Canada,
one of the country’s leading providers of health benefits
management services, to find effective solutions that
make group benefit plans valuable and sustainable while
providing plan members with the best health outcomes.
This guide will walk you through the different
drug cost management strategies implemented
by Industrial Alliance as well as others you can
implement in order to get the most value out
of your group benefit plan.
2
Potential savings at a glance
Cost management measures
that can be implemented by
plan sponsors
Ease of
Implementation
Potential savings*
Plan member’s contribution
(deductible, co-insurance and
maximum)
$ - $$$
Caps on dispensing fees
and mark-up
$$
Generic substitution plan
$
Tiered plan
$$
Managed drug formulary
$$$
Ease of implementation:
Potential savings:
: Easy
: Challenging
$: 0 to 2% of the drug costs
$$: 2 to 4% of the drug costs
$$$: > 4% of the drug costs
* Savings may vary depending on the experience and the plan design of each group.
Note: Most of these measures require the group benefit card, commonly known as the drug card.
One or more of the above measures
+
Measures by Industrial Alliance
=
A lasting and valuable group benefit plan
for you and your plan members
3
1
1.1
Cost management measures that can be implemented by plan sponsors
P
ay Direct and Deferred
Drug Programs
What are Pay Direct and Deferred Drug Programs?
Pay direct and deferred drug programs provide on-the-spot claims
processing of prescription drugs, provided that the pharmacy supports
these programs. Plan members know up-front the reimbursement
amount they are entitled to. Pay direct and deferred drug programs
are automated processes that require the utilization of a drug card,
contrary to the reimbursement plans where claims are processed
manually by the insurance provider upon reception of claims. Whereas
pay direct drug programs allow for a reimbursement directly at the
point of sale, deferred programs require plan members to pay the
total bill and get the reimbursement at a later date.
Pay direct and deferred drug programs mainly facilitate the management
of complex drug insurance plans. Industrial Alliance partners with
Express Scripts Canada (ESC) to implement these programs. Claims
are sent electronically from the pharmacy to ESC and are processed
in real time while the pharmacist fills the prescription. These payment
methods benefit both plan members and plan sponsors and are a
key element of an effective cost management process. They help
keep track of all transactions, which allows for data compilation
and analysis. Gathering an overall picture of drug use within a plan
is the starting point for the implementation of various drug cost
management measures.
4
What are the advantages
of Pay Direct and Deferred
Drug Programs?
For plan members:
›
Protection against potentially harmful (or
fatal) drug interactions, since pharmacists
are immediately aware of other medications
prescribed and provided by another pharmacy
›
Immediate confirmation of the benefit
payable by Industrial Alliance in accordance
with the coverage provided by plan sponsors
›
Coordination of benefits with other coverage
in real time (if a direct payment drug card
is used)
For plan sponsors:
›
Point of sale (POS) claim adjudication
allowing for effective communication
between plan members and pharmacists
›
Active management of the quantity of
prescription drugs dispensed at each
transaction (refill too soon, refill too late
notifications are provided to pharmacists)
›
Effective management of drug utilization
review systems, exception drugs and hospital
drug programs at POS
›
Greater plan flexibility (generic substitution
plans, tiered drug plans, managed
formularies, etc.)
1.2
P
lan members’ contribution
to drug costs
Some common opportunities to engage plan members in effective
cost sharing are outlined below:
Annual deductible: The amount a plan member must pay before
the plan will provide any reimbursement for eligible expenses.
Deductible by drug: The amount a plan member must pay for
each prescription before the plan will provide any reimbursement
for eligible expenses.
Co-insurance: The percentage of each claim that the plan will
reimburse for eligible expenses, with the balance paid by the plan
member.
Maximum: The total amount the plan will reimburse for eligible
expenses for each plan member. The maximum can be combined
for all medical expenses or a separate maximum may be applied for
each drug class (e.g., stop-smoking products, treatment of infertility,
narcotics).
Control over three components of the cost of drugs:
The price of a drug includes three components:
➞ Ingredient cost
➞ Pharmacist’s mark-up
➞ Dispensing fee
The ingredient cost is relatively steady, whereas the other components
vary from one pharmacy to another. Plan sponsors may establish
mark-up and dispensing fee restrictions to manage drug costs within
their plan. At the same time, plan members should be encouraged
to purchase their prescription drugs from pharmacies with low
dispensing fees.
What are the advantages of
having plan members contribute
to plan costs?
›
Create a financial incentive to ‘shop
smart’ by involving plan members in
paying the total drug bill
›
›
›
Raise drug cost awareness
Encourage prudent spending habits
Engage plan members in effective
cost management
5
1
1.3
Cost management measures that can be implemented by plan sponsors
G
eneric Substitution Plan
1.4
Tiered Plan
What is a Generic Substitution Plan?
What is a Tiered Plan?
In a generic substitution plan, drug reimbursement is based on the
cost of the least expensive generic drug, which creates a financial
incentive for plan members to choose less expensive drugs.
In a tiered plan, there are different reimbursement levels
(tiers) depending on the drug purchased. The plan
member’s share of the total cost increases from one
level to another. This reimbursement method encourages
the use of the most cost-effective drugs while preserving
access to other prescriptions drugs, as needed.
Two options are available under the generic substitution plan:
standard or mandatory. The standard generic plan provides
reimbursement according to the lowest priced interchangeable
drug unless the physician indicates “no substitution” on the
prescription, in which case the reimbursement is based on the
cost of the brand-name drug. The mandatory generic plan,
on the other hand, always provides reimbursement according
to the lowest priced interchangeable drug, regardless of the
“no substitution” indication.
Increased use of generic drugs in place of brand-name drugs is an
integral part of any effective drug cost management strategy.
What is a generic drug?
Health Canada-approved, generic drugs are copies of brand-name
drugs whose patents have expired. The active ingredient(s) in generic
and branded drugs must meet the same standards set by the
Health Protection Branch of the federal government. On the other
hand, non-medicinal ingredients used to give a generic product
its shape, colour and taste may vary from the brand-name drug.
Since less time is needed to do the initial research, generic drugs
are often less expensive. However, the quality, purity, efficacy and
safety of generic drugs are similar to those of branded drugs.
What are the advantages of
a Generic Substitution Plan?
›
›
›
Protect the viability and sustainability of the benefits program
›
Promote optimal drug management
6
Tiered plans can have 2 or 3 reimbursement tiers.
According to the tiered plan that you implement,
a drug card may be required.
Reimbursement tiers may be defined according to:
› Drug types
› Tier 1: Generic1 or unique2 drugs
› Tier 2: Brand-name drugs with a generic equivalent3
› Drug lists
› Tier 1: Provincial formulary drugs
› Tier 2: Non-provincial formulary drugs
› Tier 3: Over-the-counter drugs
›Claimants
› Tier 1: Plan member
› Tier 2: Spouse
› Tier 3: Other dependents
›Providers
› Tier 1: Preferred provider network pharmacies
› Tier 2: Mail order pharmacy
› Tier 3: All other pharmacies
What are the advantages
of a Tiered plan?
›
Promote the use of generic or therapeutic equivalents
that deliver the same outcomes
›
Encourage the use of the most cost-effective drugs
Help control the rising costs of the benefits program
Reduce the total amount payable as long as the plan member
opts for the cheaper generic equivalent
1
generic drug is a copy of a brand-name drug. Since less
A
research is required than for the brand-name drug, the generic
drug often costs less.
2
unique drug is a brand-name drug still under patent or a
A
drug for which there is no copy.
3
brand-name drug with a generic equivalent is a drug whose
A
patent has expired and for which there is a recognized generic
copy. In Canada, unless otherwise noted by the attending
physician, the pharmacist may substitute a generic drug for a
prescribed brand-name drug without asking the physician.
Examples to show the savings
Generic substitution plans and tiered plans are two effective ways to encourage plan members
to use generic drugs. Below are examples of the potential savings associated with generic drugs:
Example of a 2-tiered plan providing the following reimbursement percentages:
›
›
90% for generic1 and unique2 drugs
75% for brand-name drugs with a generic equivalent3
Case 1 – The plan member
takes the brand-name drug
with a generic equivalent
Case 2 – The plan
member opts for the
generic equivalent
Drug cost
$100
$40
Reimbursement
$100 X 75% = $75
$40 X 90% = $36
Amount paid by
the plan member
$100 - $75 = $25
$40 - $36 = $4
Observation
Under the tiered plan, opting for the generic equivalent
saves the group $39 ($75 - $36) and saves the plan member
$21 ($25 - $4).
Example of a generic substitution plan providing a reimbursement percentage of 100%.
Drug cost
$100
$40
Reimbursement
$40
$40
Amount paid by
the plan member
$100 - $40 = $60
$40 - $40 = $0
Observation
Under the generic substitution plan, opting for the generic
equivalent triggers a saving of $60 for the plan member.
* These examples are simplified. They do not take into consideration provincial plan rules and the various
components of the drug cost that may impact the drug reimbursement.
1
generic drug is a copy of the brand-name drug. Since less research is required than for the brand-name
A
drug, it often costs less.
2
A unique drug is a brand-name drug still under patent or a drug for which there is no copy.
3
brand-name drug with a generic equivalent is a drug whose patent has expired and for which there is
A
a recognized generic copy. In Canada, unless otherwise noted by the attending physician, the pharmacist
may substitute a generic drug for a prescribed brand-name drug without asking the physician.
7
1
1.5
Cost management measures that can be implemented by plan sponsors
M
anaged drug formulary
What is a managed drug formulary?
A managed drug formulary is a tool that can be used to define a list
of drugs to be covered under a group benefit plan. It is an effective
way to manage drug coverage and plan costs.
Several types of drug formularies exist on the market:
›
›
›
›
Provincial drug formulary
Prescription drug formulary
Prescription and over-the-counter (OTC) drug formulary
Dynamic Therapeutic Formulary (DTF) managed
by Express Scripts Canada (ESC)
The Dynamic Therapeutic Formulary (DTF) is a defined list of drugs
that incorporates a dynamic process where drugs are reviewed on
a monthly basis, and assessed as to their therapeutic effectiveness
as the most clinically effective and affordable drugs. Using this list
promotes the least expensive treatment options.
ESC updates its DTF as new drug information becomes available.
The DTF is a two-tiered formulary. The first tier of the DTF includes
clinically sound and cost-effective preferred drugs for the most
highly utilized drug classes. The second tier is an open plan design
that can be personalized by the plan sponsor. All first tier prescription
items are reimbursed at a higher level compared to the second tier.
Because of the dynamic nature of the DTF, it is very important to
manage plan members’ expectations so that there are no surprises
when a drug that was previously covered by the DTF is no longer
covered, or when new drugs are added to the list. ESC maintains
a list of covered drugs and alternatives for non-covered drugs on
its website www.express-scripts.ca.
A plan sponsor can either use a list of drugs that already exists or
create a customized list that meets the specific needs of his or her
group for an additional cost.
8
What are the advantages of managed
drug formularies?
›
›
Facilitate cost management
Manage coverage according to the changing
needs of a group and emerging drug therapies
2
2.1
Cost management measures implemented by Industrial Alliance
P
rior authorization
What is prior authorization?
Industrial Alliance has developed a prior authorization (PA) program
for the management of expensive drugs. Throughout the process, a
team of specialists ensures that:
›
›
›
›
The diagnosis is consistent with Health Canada indications;
Therapeutic criteria are respected;
First line drugs or less costly treatments are considered;
No public or provincial funding is available.
The prior authorization process allows Industrial Alliance to determine
whether or not a drug will be eligible for reimbursement under
the group plan, prior to an insured making a claim for the drug.
All strengths and generics of the listed drugs are subject to prior
authorization.
Industrial Alliance will ensure that a drug indicated on the prior
authorization drug list is reimbursed only if prescribed for the use
for which it was designed. Please note that approved drugs will be
reviewed on an annual basis.
Which drugs require prior authorization?
A list of drugs that are subject to the prior authorization process is
maintained on our website at www.inalco.com. To access the list,
go to the Group Insurance section, click on Member services and
then To download forms. Under Prior Authorization Form for Drug
Reimbursement, there are two lists of drugs: one for Quebec and
one for all other provinces.
The prior authorization list is subject to change at any time, without
notice. The list does not guarantee that a listed drug is covered under
a specific group plan.
What are the advantages of
a prior authorization program?
›
›
›
›
›
Monitor and maintain all new drugs entering the Canadian market
Ensure appropriate utilization of costly drug therapies
Improve management of costly drug therapies
2.2
What is coordination
of benefits (COB)?
COB is a process that is used when a person is
covered by more than one plan. The coordination
prevents duplicate payments and ensures that the
total amount reimbursed under different plans does
not exceed 100% of the actual expense incurred
by the plan member.
The primary insurer (called the primary payer) first
pays the claim by applying the specific rules of its
plan. The claim is then sent to the second insurer
(called the second payer) for reimbursement
according to its plan rules.
When does COB apply?
COB applies when a person is covered under at
least 2 private plans. It also applies when a person
is covered under a private and a public plan.
Residents of various provinces can be eligible for
coverage under provincially funded drug plans.
Those publicly funded plans are based on various
eligibility criteria including age, income, or specific
diseases. The claim coordination process encourages
plan members eligible for provincial coverage to
submit their claims to the provincial plan first and
then to their private insurer.
In cases where the person is covered under 2 private
plans (e.g., plan member’s and spouse’s), he/she has
to submit his/her claim to the primary insurer. Then,
the balance can be submitted to the other insurer.
What are the advantages of
coordination of benefits?
›
›
Mitigate risk when there are 2 plans or more
›
Save money for the plan
Monitor potential drug qualification for alternate funding
Refer patient to alternate options when possible
C
oordination of
benefits (COB)
Ensure that the plan is not the first payer of drugs
covered under another group insurance plan or
under a government program
9
2
2.3
Cost management measures implemented by Industrial Alliance
H
ospital Drug Program
2.4
Dynamic Maintenance
Drugs Process¹
What is the Hospital Drug Program?
What is the Dynamic Maintenance Drugs Process?
Some drugs are primarily given in a hospital setting
as they require extensive monitoring with medical
or nursing expertise due to the severity of condition
they treat, the complex route of administration,
or potential safety concerns. The Hospital Drug
Program (HDP) contains a list of drugs that are
intended to be administered in-hospital on an
in-patient or out-patient basis (e.g., chemotherapy
drugs or antibiotics given by injection) and should
not be paid by a private drug plan.
The Dynamic Maintenance Drugs (DMD) process is intended for
patients with a chronic condition requiring maintenance medication.
Depending on the drug data already in the system, the program
determines whether a supply of up to 100 days may be given to
the plan member.
Most drugs that are part of the HDP are covered
by the provincial plan. In cases where the provincial
plan does not provide coverage, the group insurance
plan is not required to provide reimbursement,
unless it is stipulated in the group insurance policy.
What are the advantages of the HDP?
›
Ensure that drugs administered in a hospital
setting are not paid by private plans
›
Save money for the plan
The DMD process begins when there is at least four months of claims
history in the system. This program will treat any drug as a maintenance
drug once a plan member has been stabilized on the drug for over
88 days. At the attending physician’s discretion, a supply of up to
100 days will be dispensed, which minimizes total dispensing fees.
What are the advantages of the Dynamic
Maintenance Drugs Process?
›
›
It reduces drug wastage and promotes positive patient outcomes.
›
Analyzes medication history for the appropriate dispensing of
chronic care medications.
›
The pharmacist will enhance plan member care by participating
in this program. Specifically, the pharmacist will use professional
skills and judgment to dispense appropriate quantities based on
the plan member’s prior history.
›
The 100-day drugs supply encourages cost savings in regards to
dispensing fees.
It has the potential to eliminate wastage in the event that the
prescription needs to be discontinued or changed. This means
that a 100-day supply will not always be dispensed the first time
a prescription is filled.
¹A
pplies only if your plan offers a pay direct or deferred drug program using the
drug card.
10
2.5
P
roactive Detection of Health
Care Fraud and Abuse
As the incidence of fraud and abuse continues to increase, plan
sponsors expect more vigilance on our part. We work in partnership
with other corporate members of the Canadian Health Care Anti-fraud
Association (CHCAA) to combat health care fraud and abuse.
What methods are in place to
prevent fraud and abuse?
Our investigative services team is responsible for identifying abuse and
fraud cases. Questionable claims practices are identified and resolved
by targeting problematic claims and the service providers involved with
such claims. In addition, as health care becomes more complex and as
the administration review process becomes more clinical, we seek input
from clinical experts to assist us in our assessment and decision process.
Random claims review and audits by our investigative services team
help detect atypical claims situations.
Furthermore, Industrial Alliance subscribes to a special Audit program
with Express Script Canada (ESC) to ensure the integrity and accuracy
of health claims while maintaining a superior network of providers
through diligent review and education. ESC works to resolve situations
that may involve fraud or abuse in a timely manner.
Which cases are more subject to
investigation?
Early prescription renewals, purchases with prescriptions
from multiple doctors, and purchases from multiple
pharmacies are the most common forms of abuse and
fraud.
What can plan sponsors do to help?
Plan sponsors can help in various ways:
›
Co-operate with the insurer when a member’s claim
is being audited
›
Report a fraud to the insurer if you suspect that fraud
and abuse may be going on within your group plan
›
Engage your plan members in the active management
of health care fraud and abuse
Nevertheless, communication is the most efficient way
to raise awareness among plan members.
The audits help eliminate waste and manage costs, with proven savings
to clients.
11
Myths of the Insurance World
If the doctor prescribes it, it’s because I need it and, therefore, my
insurance should cover it. – According to the plan design, a claim for
a drug reimbursement can be denied or partly accepted if a cheaper
and equally effective equivalent exists on the market and if the doctor
does not object (contraindication) to the use of this drug equivalent.
It is strongly recommended that the plan member asks for advice from
his or her pharmacist.
Innovative drugs are more expensive, but you do get what you pay for
– Innovative drugs are more expensive because of the research they
require, not because of their effectiveness.
My drugs do not cost me anything, they are free. – The cost of drugs
is included in the insurance premium paid. If total health claims costs
for a group increase, the premium charged to that group will increase
accordingly.
If it’s new, then it’s effective. – Newcomers tend to steal the show,
as they are synonymous with innovation, however they are not
necessarily better clinically.
Let’s work together to get rid of misconceptions!
Communication strategy
The involvement and contribution of plan members is key to the success
of drug cost management initiatives. To have plan members aboard in
the fight against soaring drug costs, a communication strategy is a must.
It is important to make plan members aware of the cost of their group
benefits plan and to help them understand that they have a financial
incentive in keeping costs within a reasonable range. That is why we
are willing to support you in developing a communication strategy
regarding your benefits and in launching your awareness campaign
among plan members.
We have therefore developed a series of information bulletins that you
can share with your plan members. The bulletins main goal is to make
plan members realize that their decisions have a direct and lasting
impact on their group benefits.
To inform is to empower everyone to make a difference!
Making the right decision today
for your group plan future
Taking care of your group plan health today will protect its value for
tomorrow. That is why it is important to find the best way of allocating
your money.
No need to cut down on other coverage to offset rising drug costs.
Opting for the most cost-effective treatments and monitoring your
drug insurance coverage is the way to go.
You can draw the line and we are there to help.
12
Industrial Alliance
Founded in 1892, Industrial Alliance is an industry leader
in insurance and financial services in Canada. Known for
its financial strength and dynamic approach, Industrial
Alliance is a major financial institution with operations
across the country.
Solutions adapted to your needs
The Industrial Alliance Group Insurance division offers
a wide range of traditional and specialized group
insurance products designed to meet the individual
needs of each client.
To achieve this, we actively develop and maintain
relationships of trust with our clients. Our success
derives from our service-oriented culture, our openness
and flexibility and our effort to continuously improve
our practices.
Need assistance?
For more information on drug cost management
options, please contact your benefits advisor or
your Industrial Alliance group account executive.
The elephant,
F54-895A
symbol of our 100 years
of strength and longevity.