Canadian Employers Slow to Adopt Drug Cost Management Solutions

May 19, 2011 ( - Canadian organizations that sponsor benefit plans are slow to adopt more innovative solutions to manage drug costs, according to a survey conducted by Aon Hewitt.

As a result, drug costs continue to eat up 60% to 80% of medical benefit plan budgets, leaving organizations with concerns about whether or not they can continue to provide this coverage for their employees, Aon Hewitt said in a press release. According to Aon Hewitt data, prescription drug costs have risen by at least 8% per annum over the last few years and average $566 per claimant and $1,013 per employee (including dependant claims) per year.   

However, several of the more commonly prescribed drugs will soon lose patent protection, likely resulting in the availability of less expensive generic versions. In addition, a number of provinces have passed legislation that regulates the price of generic drugs, eventually decreasing their cost to 25 per cent of their brand name equivalents.  

“These factors have led some plan sponsors to conclude that their drug plan expenses will decrease even if they do nothing,” said Shawn O’Brien, a senior health and benefits consultant with Aon Hewitt in Toronto, in the press release. “Some organizations are being more proactive: 47 per cent of the respondents to an Aon Hewitt Rapid Response survey indicated that they are ensuring reductions by requiring mandatory generic substitution. We expected this number would be higher, but another 30 per cent stated they are considering taking this action.”  

Before implementing any cost containment solutions, plan sponsors should review their drug plan usage—and most do so. Eighty-four percent of organizations assess their drug data at least annually and use it to make decisions about health and wellness initiatives, medical plan design, and/or medical plan pricing and budgeting decisions.   

Aon Hewitt says through analysis of employee prescription drug usage and trend spotting, organizations can pinpoint areas of concern. More sophisticated benchmarking and cost projection modeling provide additional insight. Armed with this information, plan sponsors can determine which modifications would have the greatest impact on current and future drug plan costs.  

“Some solutions to manage drug plan costs have been available for some time,” said O’Brien. “In addition to mandatory generic drug substitution, 80% of plan sponsors are already using pay direct drug cards and 12% are thinking about introducing them; 46% encourage a 90-day supply for refills, with another 36% considering doing so; and 32% require pre-authorization for certain high-cost drugs, while another 34% may do likewise. These are examples of best practice strategies that all organizations should consider implementing.”   

Though fewer plan sponsors have introduced more leading-edge approaches to contain costs, such as managed drug formularies, optimized provincial plan coordination, and educating employees with targeted messaging for specific drug classes, these are emerging opportunities that at least 30% are willing to consider.   

“[F]ewer than ten per cent of survey respondents currently have preferred provider pharmacy arrangements, encourage mail order delivery for maintenance drugs, negotiate discounts, or provide case management for high-cost claimants. These strategies may provide significant savings in the next few years,” said Tim Clarke, Aon Hewitt Canada’s health and benefits innovation leader.    

Aon Hewitt is exploring prescription drug cost containment strategies in more detail in an upcoming series of complimentary seminars across the country. For more information and to register online, visit