FOR ADVISORS
Drug Growth Trends

Innovative Medicines Canada understands the importance for brokers, insurance providers and benefits consultants to offer high-value benefits for employers and employees through innovative solutions. We believe that the Canadian working population is best served by a private market that provides high-quality and timely access to innovative medicine and vaccines. Drug benefits are consistently ranked at the top of the list of importance when it comes to benefits offered. This is one cost of the many in employee health plans which offer robust dental and paramedical coverage. The importance of this drug benefit reflects Canadian health practices and trends, such as aging population, multiple chronic conditions and the value of new and improved medical treatments.

All stakeholders acknowledge the cost pressure faced by plan sponsors, including annual increases in the number of claims and claimants, which drive increases in utilization and overall plan costs. We believe having an in-depth understanding of the market and what is driving benefit plan costs is vital in order to ensure sustainable health benefit plans. In addition, a multi-stakeholder approach to building innovative solutions is key to continue to provide timely access to innovative medicines and provide long-term sustainability of private plans.

► HEALTH CARE COSTS AND DRUG COSTS

► CANADIAN PHARMACEUTICAL MARKET GROWTH

► SUMMARY OF COST DRIVERS AND EFFECTS 2012-2016:

► COST OF DRUG PLANS

► PRIVATE HEALTH PLAN POOL CHARGES

► DRUG PRICES FOR PRIVATE DRUG PLANS

HEALTH CARE COSTS AND DRUG COSTS

Canada is unique in that it is one of only a few industrialized countries in the Organization for Economic Co-operation and Development (OECD), to have a significant private insurance market share of spending for pharmaceuticals.

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Canada represents a small share of the global pharmaceutical market, and its rank has been declining over the past 15 years. Currently, Canada represents less than 2% of the global pharmaceutical market and is the tenth largest market in the world.

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Prescribed drug spending has kept pace with total healthcare spending (~15%). In Canada, since 2005 patented drug sales share have declined from 7.8% to 6.7% of total drug spend.

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Other components of drug spending (non-patented drugs and pharmacy fees etc.) combined make up more than patented drug sales and grew faster in the last ten years than patented medicine sales growth.

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There can be variability in the amount of dispensing fees and markups charged by each pharmacy, and even within each pharmacy these often vary significantly between the types of payer: no reimbursement coverage, or government provided plan (public), or employer-sponsored benefit plan (private). Generally speaking, those who pay out of pocket and employer-sponsored plans are charged higher dispensing fees and mark-ups. Depending on the province, generally, this ranges between $12-$16 of dispensing fees per prescription and 10-15% of markups.

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Drug costs are borne by many different payers depending on the type of drug and the type of insurance coverage in Canada. The private drug market spends around 33% of the Rx drug market in Canada, while the public sector spends 47% of the drug market (including hospitals).

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Even though private plans spend slightly less on drugs than public plans do, drugs make up a larger component of total private health spending (almost 1/3) because it spends much less on total health services than the public sector does. Private plans also cover different health services than the public sector, and even in the case of medicines, cover a different population (working age with dependents) with different needs than beneficiaries of the public plans. This is just one of the important ways private health insurance complements the public sector to meet the needs of Canada’s working population.

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CANADIAN PHARMACEUTICAL MARKET GROWTH

Growth in pharmaceutical costs is cyclical:

  • We are currently in a period of slower growth in 2016-2017 in the whole market. 2016 saw reduced growth from 2014-15 primarily due to declining growth in HEP-C sales.
  • Out of the almost three decades, only five years have had lower growth than 2016.
  • Historically we have had much faster periods of growth late 80-early 90’s and early 2000’s between 2012 and 2016 the private market had a growth of 4.7% CAGR.
  • Innovation is what has been driving periods of increased growth IE Lipitor in 90’s, Hep C in 2014-2015.

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The Canadian total sales market is predicted to grow between 4.1 % to 4.4% per year from 2018-2021.

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The global pharmaceutical forecast is predicted to grow at 3-6% per year on average.

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Private Market Forecast

The private drug market is predicted to grow on average, at 4.9% compounded annually between 2017-2019, which is in line with growth in the overall Canadian market and the global pharmaceutical market. This is a conservative figure which does not factor in product listing agreements between manufacturers and insurances, future drug pricing policy changes or plan design trends that may occur.

The objective of the annual Private Market Forecast is to provide a total private market view on growth trends which will better predict drug cost growth. This tool can provide important guidance to insurers, brokers and plan sponsors as a comparison to their own plan costs and trends.

The three-year forecasted CAGR growth rate for 2017-2019 was 4.9%, ranging from 3.0% to 6.3% in a low-growth or high-growth scenario. Most of the growth will come from increased utilization of low-cost drugs, and recent new drug entrants introduced in the last five years will continue to grow in impact. Future generic entrants are expected to offset the impact of new drug entrants in 2017-2019.

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Cost Analysis of Private Drug Plans 2012-2016

Between 2012-2016, private drug plan drug costs grew on average by 4.7% per year.

This growth was driven mainly by growth in the number of claimants (2.1% per year), followed by growth in claims made per claimant (1.4%), and lastly by growth in the cost per claim (1.2%).

During this period of the research 75% of the growth in drug plan costs is being driven by utilization growth. In 2016, the average cost per claimant in private drug plans was $596, which grew at 2.6% (driven by claims per claimant growth and cost per claim growth).

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SUMMARY OF COST DRIVERS AND EFFECTS 2012-2016:

The report identifies that 75% of the total growth, was attributable to factors of increased utilization: of the total 4.7% was attributed to claimant growth 2.1% and claims per claimant 1.4%.

  • The 25-54 and 55-64 age group were the largest contributors to the growth seen.
  • High-cost drugs (all drugs >$10K) grew by 14.2% and its share of total private market drug costs went from 18% to 25%(Fig 16). Lower cost drugs still represent 25% of the overall market in 2016.

The therapeutic categories which contributed the most were:

  • Diabetes and auto-immune diseases (Biologic disease modifiers, other therapies, antidiabetic agents, and other immunomodulating/suppressive therapies).

Employee health benefit plans should consider investing in wellness and prevention programs encouraging good habits in nutrition, sleep, exercise, and stress in the workplace as a cost-containment tool, to prevent the next wave of baby-boomers (those entering the 55-64 age group with the highest cost per claimant) from added costs to drug plan budgets.

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COST OF DRUG PLANS

When plan sponsors think about the “cost of drugs” they are really thinking about the cost of their plan – the premiums they pay for extended health benefits coverage, which includes the drug benefit.

Plan sponsors’ premiums are dependent on their unique plan design and the makeup of the employee population. In addition to their drug plan utilization (claims experience), the premium calculation includes the following costs: insurer administrative charges, plan advisor commissions and trend factor – an actuarial prediction on what future claims might be. Although most of these are driven by claims experience, they should be recognized as an additional cost factor over and above drug claim costs.

For private plans, it is not enough to consider drug prices, drug cost and claims experience because they do not include factors to assess the potential risk of specific drug claims for any one private drug plan sponsor.

Premiums charged for health benefits coverage are customized to the individual plan and a confidential negotiation between the insurer and the plan sponsor (employer). There are no publicly available records to track the changes in health premiums over time.

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PRIVATE HEALTH PLAN POOL CHARGES

In addition to premiums, some plans pay pool charges, which are calculated differently and charged separately.

Within an insurer’s group health plans, pooling protection is offered when an individual certificate’s (an employee plus their family members) claims exceed a specific threshold. When this threshold (e.g. $10,000) is reached, the claim costs above that amount are removed from the plan’s claims experience used to calculate future premiums and transferred to the insurance company’s pool. The cost of the claims above this threshold is shared among all the plans in the pool, which, in turn, pay their insurer an additional “pool charge” for this extra protection.

Although drug pooling offers additional protection from the impact of high-cost drugs, plan advisors and plan sponsors have reported that the pool charges for this protection are growing at a much faster rate than their premiums.

The reason for the fast-paced growth of pool charges may be the result of the growing number of high-cost claims.

  • According to the IMC IQVIA – 2012-16 cost driver analysis, drugs whose annual cost is between $10,000 and $25,000 per patient grew 13.6% CAGR, and drugs whose annual cost is greater than $25,000 per patient per year grew 15.3% CAGR.
  • Medavie Blue Cross – 74% of new medications assessed “were well over $10,000 per year”1.
  • Between 2011 and 2016 annual claims > $10,000.
    • TELUS Health – grew 69%2.

    • Express Scripts Canada – grew 60%3.

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1 Benefits Canada

2 Telus Health

3 Express Scripts

DRUG PRICES FOR PRIVATE DRUG PLANS

Although the price of drugs may be regulated, for private plans, their prescription cost includes drug price plus wholesaler and retail markups and dispensing fees, which are not regulated for private drug plans. These are negotiated and managed via pharmacy agreements with insurers or pharmacy benefit managers who process pay direct drug claims. The amount that pharmacies charge private plans for these costs is wide-ranging due to the many different types of agreements that exist in the market.

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DRUG GROWTH TRENDS