MEET THE EXPERTS: JOE FARAGO

Posted on January 13, 2021
Joe Farago

Joe Farago
Executive Director, Private Payers and Investment
Innovative Medicines Canada

Joe Farago is Executive Director, Private Payers and Investment at Innovative Medicines Canada (IMC). Joe leads IMC’s efforts to take a more proactive, research-based approach to ensuring tomorrow’s workforce has access to strong private market coverage that meets their needs. Joe recently discussed some of the most prominent findings from the association’s 2016-2019 analysis of Private Drug Claim Cost Drivers Report. The report examines the drivers of claims cost growth for private drug plan claims between 2016 and 2019, including the impact of OHIP+ changes in 2018 and 2019, based on IQVIA data.


Why is it important to understand the various factors driving cost growth in Canada? 

A better understanding of the various factors driving cost growth in Canada will help anyone who works with plan sponsors to focus their efforts and resources more efficiently and effectively, and to make better business decisions when it comes to managing benefit costs.

Overall, what were some of the major findings of the Cost Drivers Report? 

In Canada, there is this notion that drug prices are too high and that they are threatening the sustainability of private drug plans. In fact, this report shows this really is not the case. Contrary to popular belief, drug claim costs have been increasing at approximately 5% annually, not the 11% that insurers have predicted. National private drug plan growth rates have been consistent for much of the past decade. What’s more important to understand is what’s behind this growth. More than half of this growth was driven by increased utilization, which means more people making claims for more drugs, rather than increased costs per claim. This suggests that the price of drugs is not the major factor in overall cost growth.

Another major finding was linked to the impact of chronic disease on our drug plans in Canada. Chronic disease remains the primary driver of drug plan costs, accounting for 68% of costs, and 79% of the 2016–2019 cost growth. We found that people with chronic diseases who require six or more medicines create the most disproportionate cost burden.

In addition, in recent years, there has been a significant focus on higher-cost drugs. The report shows that in fact higher-cost specialty drugs are not the biggest cost concern. Private drug plan costs are being driven primarily by lower-cost chronic disease drugs, not high-cost specialty drugs or drugs for rare diseases. The takeaway, then, is that the bulk of drug costs are for plan members with modifiable chronic diseases who could benefit from programs that prevent or manage those conditions.

That said, the report also notes the need for a better approach to spreading the risk associated with high-cost claims for small to medium businesses.

How did the January 2018 changes to OHIP affect Ontario and national drug plan cost growth?

The Ontario government introduced the OHIP+ drug program which offered free medication to all Ontarians under age 25 regardless of family income or access to private insurance benefits. Enrolment was automatic for eligible residents. As a result, drug claims for Ontario Drug Benefit (ODB) eligible drugs for Ontario plan members under age 25 were transferred from private drug plans to the Ontario provincial drug plan. After the June 2018 provincial election, the new Ontario government implemented changes making children and youth with private drug coverage ineligible for OHIP+ effective April 1, 2019.

As a result of these changes, some claims for eligible plan members were transferred back to private drug plans starting April 1, 2019.So, while cost growth dipped in 2018, a significant portion of the cost increases in 2019 were due to the new OHIP+ ineligibilities that came into effect April 01, 2019. In short, it had a material effect.

Based on the report’s findings, what are some recommendations you would provide to employers in Canada?

Three major learnings come to mind. First, there is a clear need for Canada’s health system to better manage chronic diseases. Chronic disease is a rapidly growing burden on Canadians, on the workplace and on our economy. Its impact is greater than we think, and employers must recognize this. Given the significant impact of chronic disease on private drug plan claim costs, there is real opportunity for employers to offer programs that improve the overall health of plan members and to reduce the risk of their members developing chronic diseases.

Second, I would highlight the importance of plan sponsors and their benefit advisors having access to data to help them better understand what factors are increasing private drug plan costs. Understanding those drivers will provide important insights into what is needed to address their specific plan challenges, to ensure their members have access to the health benefits they need, and to plan for innovative products and programs in the future.

Lastly, I would urge employers to assess benefit plans not only by claims costs, but also by the value of their benefit coverage and the outcomes the drugs deliver to the organization in terms of a healthier workforce.

There are opportunities for collaboration to improve the insurance industry’s risk management and pooling methodology to better meet the needs of many Canadian plan sponsors and ensure long-term benefit plan sustainability. All stakeholders seem to agree that the current insurance model simply doesn’t work well for higher cost drugs and needs to be re evaluated to offer better insurance for small to medium businesses.

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