RISING DRUG COSTS:
Managing Your Group Benefit Package Effectively

Government Cost Shifting:
Prescription drugs costs are the fastest rising cost component of group healthcare claims. Government cutbacks, changing demographics, and the introduction of new, more expensive drugs are all adding up to increased costs for employers.

Provincial governments are reducing coverage, increasing deductibles, and reducing reimbursement levels in their drug plans. The effect is to shift costs onto individuals and employer-sponsored plans. Many provincial governments are also focusing on outpatient treatment and illness prevention to reduce expenditures. Reduced hospital stays mean that drugs normally provided by the hospital and covered under government plans are now being claimed under private plans.

In addition, the Federal government's decision to extend the length of time a new drug is patent means the lower-cost generic versions will be marketed later, driving up costs for drug plans. Cost savings in a generic version can be significant compared with the brand-name equivalent.

Changing Demographics:
As the average age of the Canadian workforce increases, so does prescription drug use. While other age groups are also increasing their prescription drug use, older people, on average, use more prescriptions and more expensive drugs than their younger counterparts. The following are 2 tables showing the impact of age on drug claims:

New, More Expensive Drugs:
There are two components of drug costs:

1. The dispensing fee covers the business expenses of the pharmacy and can vary widely by pharmacy.
2. The ingredient cost is the cost of the drug itself. Ingredient costs are increasing as a result of the introduction of new, more expensive drugs, in many cases when the previous, less expensive treatment is still medically effective. For example, BIAXIN, a relatively new antibiotic can often be substituted with the antibiotic ERYTHROMYCIN at a substantial reduction in price.

Newer, more expensive drugs are not necessarily that much better than their predecessors at treating the same condition. Of the "new" drugs introduced each year, very few are rated as offering significant therapeutic improvement. Many are not medical advances at all, but reformulations of an existing product. A tablet may be re-introduced in a capsule form in a comparable dosage but at a higher cost. For example, ZANTAC, used to treat ulcers, costs $0.45 per unit in a generic tablet form, compared with $1.41 per unit in capsule form.

Average ingredient cost: