This document discusses two case studies of companies with employee benefit plans facing rising costs from specialty drugs. For the first case study, a professional services firm saw specialty drug spending increase 39% annually since 2012 and now represent 28% of plan costs. Their tiered plan design did not significantly change member behavior or lower costs. They are considering strengthening incentives to choose lower-cost drugs or changing their plan design. The second case study examines a trade union plan where costs jumped 19.7% last year mainly from increased specialty drug and chronic condition claims. Three provisions could save over $96,000 annually, enough to offset most of their predicted future cost increases. They are developing a multi-year strategic plan to manage benefits

1. Through the Looking Glass:
Creating Meaningful Plan Design for the Future
April 15, 2015

2. Their Profile
• Global professional services firm w/ 6,000
Employees in Canada (AB, ON & BC)
• Steady growth/expansion over past 3 years, hiring
more of the same – demographic profile of claiming
population unchanged (avg age = 42.5)
• Adjusted for YOY growth in claimants, utilization
relatively unchanged in 2014:
 Plan spending:  0.3% *now $4.4M annually
 Paid claims:  1.1%
Case Study #1

3. Their Situation
2012
• Plan design: PDD, flat 80% coinsurance
• Already impacted by expensive specialty drug
claims:
 23.1% of overall spending
 90% or > $800K of specialty spending for chronic
conditions
• Inefficiencies in product selection (4 categories) and
in pharmacy refilling behaviour = $270K or 7% of
overall spending
Case Study #1

4. Their Situation…cont’d…
2013
• Plan spending for specialty drugs surpassed plan
spending for all generic claims combined (1.1% vs.
52.6% of claims, respectively)
Case Study #1

5. Their Situation…cont’d…
2014
• Introduced incentivized, 2-tiered plan design by 
coverage for preferred drugs in select classes to
100%
• Objectives:
1) Win-win for plan & plan members
2) “Soft” 1st step towards changing member
behaviour towards more cost-effective products
Case Study #1

6. Their Insights
• Continued pressure from specialty claims:
 Specialty spending by $350K or 39% annually since
2012 – rate of growth 3X plan overall
 Now represent 28% of overall plan spending
• Future financial risk profile = additional $715K or
16.3% of current spending annually from chronic
recurring claims within specialty and age-related
chronic conditions
Case Study #1

7. Their Insights…cont’d…
• Limitations with current/new design:
 Drug classes targeted captured only 16% of all
claims, 13.5% of overall spending in 2014
 Negligible change in member behaviour:
o % of “new starts” in affected classes with Tier 1
products unchanged in 2014
o Active member conversion of Tier 2  Tier 1 drugs
barely increased YOY (5.0% of claimants vs. 4.7%
in 2013)
 Maximum opportunity for savings with full conversion
of Tier 2 claims = $188K
Case Study #1

8. Where are they now?
• Recognize 1st attempt with tiered design not enough
to offset existing & future cost pressures, evaluating
options for 2015 renewal:
1) Keep existing design & coverage %, but increase
communications to members to help drive T2  T1
2)  coverage % for Tier 2 products that have Tier 1
alternatives (e.g. from 80% to 50%) to  incentive
3) Look at new plan altogether
• Working with carrier partner to adopt strategies to
manage their specialty claims, claimants and costs
Case Study #1

9. • Generic prices declined from 63 – 70% of the cost of
their original brand name product to 18 – 25% for
most.
• Enormous wave of patent expirations has come to an
end, so passive increases to generic utilization rates
have tapered off.
• Specialty drug growth (both chronic & acute with new
all-oral Hep C therapies), once shielded by generic
offset, will not be hidden any more.
• Public plans facing same funding challenges will not
be able to step-in as they have in recent years.
The Era of Passive Savings is Over

10. • 2014 was the Year of Inversion: Plans covering
Canada’s workforce now spend more on specialty drugs
than on all generics combined
The Era of Passive Savings is Over
Source: Cubic Health Canadian Drug Database, 2015

11. Their Profile
• Local trade union, ~600 trade workers covered,
benefit plan overseen by Health Plan Trustees
• Even gender split overall, but EEs = 97% male
• Shifting demographic drove increase in average age
from 50.5  52.8 in 2014; 58% of all claimants now
over 45 years
• Adjusted for YOY drop in claimants, utilization
jumped materially last year:
 Plan spending:  19.7% *now over $1M annually
 Paid claims:  9.0%
Case Study #2

12. Their Situation
• Very generous plan coverage: 100% for most
(members paid only 1.1% of eligible costs in 2014)
• Significant  in plan utilization last year driven by:
1) Claims growth in age-related chronic conditions
 Challenge: difficulty engaging male trades workers out
on-the-job with health & wellness initiatives
2) Expensive specialty drug claims
 ¾ of overall YOY  in plan spending
 Specialty spending  50% or $87K over 2013
 80% of YOY in specialty driven by Cancer; 11 claims
for Tasigna® > $53,400
Case Study #2

13. Their Insights
• Future financial risk profile = additional $143K or
13.9% of current spending annually from chronic
recurring claims within specialty and ARCC
• Current plan design performing as well as it can:
 60% generic penetration
 65% of Maintenance Drug claims filled optimally
 Existing design saving plan > $30K annually
• Opportunity for additional savings from just 3
provisions = $96,400 in 2014, enough to offset 2/3 of
their entire future risk profile
Case Study #2

14. Where are they now?
• Currently working through multi-faceted 3- and 5-
year strategic plan with advisor, including benefit
plan design and different solutions/programs
available through carrier partner
Case Study #2

15. Biggest issue = assumption that existing plan
designs are already managing plan experience
What’s the problem?
• Generic Substitution: only one-part of the story, only
deals with multi-source drugs
• Flat reimbursement structures not viable in an era of 5-
to 8-fold difference in drug prices
• Dispensing fee caps: do not address frequency
• Prior Authorization: lowest common denominator
The Challenge with Traditional Design in 2015

16. What generic substitution doesn’t get at:
The Challenge with Traditional Design in 2015

17. 1. Move away from flat reimbursement to protect your plan &
its level of coverage over the long-term
2. Identify your plan’s risks: current levels of under-saturation
and emerging disease state challenges
3. Isolate recurring waste, eliminate it with meaningful design
and allocate those savings towards
• Offsetting future specialty costs
• Strategic health & wellness initiatives based on your needs
4. Share plan experience with key stakeholders & obtain buy
in for win-win design
5. Communicate effectively, measure the results & tweak as
required– active plan management is needed for success
What’s the Plan for 2015 & Beyond?

18. Chris von Heymann, RPh, BScPhm
Vice President
cvonheymann@cubic.ca
@cubichealth
www.cubic.ca