| Dan Eisner, Advisor, ZLC Employee Benefits Solutions |
Almost 15 years ago, an amazing phenomenon occurred in the employee benefits industry and employee benefits inflation slowed dramatically. This was directly related to reduced drug costs due to what we now often refer to as the “Patent Cliff”. Over about a 5-year period, approximately 75% of the drugs in Canada, based on dollars spent, lost their patent protection, and thus generic pharmaceutical companies were able to start producing and selling these drugs at significantly lower prices. As most prescription drugs are reimbursed through private, employer-sponsored employee benefits plans, the “Patent Cliff” helped generate significant and sustainable savings. Employee benefits plan sponsors enjoyed a reduction in annual employee benefits inflation rates, down to as low as 2% per year, as compared to an average of approximately 6% in the years prior.
So, what does that have to do with today? A similar phenomenon is upon us in the employee benefits industry, and we hope to see reduced inflation rates as a result. This time around though, it is high-cost specialty drugs that are losing their patent protection, and many employee benefits plan sponsors may be looking forward to the same kind of financial relief from “Biosimilars” as we saw from Generics. Specialty drugs currently account for less than 2% of submitted drug “claims” but account for over 30% of drug “spend” in Canada, and these costs are increasing. These types of drugs are significant from a cost perspective, typically over $10,000 per year for recurring conditions, so any financial savings would be greatly appreciated by group benefits plan sponsors.
However, biosimilar drugs are not necessarily the same as generic drugs. Biosimilar drugs are still costly to produce even when the pharmaceutical companies do not have to spend the significant research dollars to develop these drugs. Therefore, list prices for Biosimilars have generally been 20% to 50% lower than prices for the related original specialty drug over the last couple of years, whereas the list prices for generic drugs can now be as much as 80% lower. Many in the benefits industry are hoping that further savings might be realized with more competition between pharmaceutical companies in this space. To date, Biosimilars have become available for many of the more popular and costly biologic drugs, including, but not limited to, Remicade, Enbrel, Neupogen, Lantus, Neulasta, and Humira.
However, employee benefits plan sponsors have not immediately achieved these potential savings. Biosimilar drugs were not always considered by physicians to be interchangeable with their brand name comparators. As a result, some physicians did not want to disrupt proven therapies and kept patients on the higher cost drugs. Even though Biosimilars have been available for a number of years, many plan sponsors have not seen the full financial savings that we saw back around the Patent Cliff.
What helped a couple of years ago was a decision made by the B.C. government that took a new (and bold) direction and changed the provincial PharmaCare drug plan to require “mandatory switching” to specific Biosimilars – all patients would need to switch to the lower cost Biosimilar in order to qualify for government funding. Since that time insurers have mostly followed the B.C. PharmaCare protocols, which have extended the savings to employee benefits plan sponsors. The results for B.C. for 2019 and 2020 indicated that, because of this policy change, there was an 80-90% switching ratio to Biosimilars, which generated a 33% overall cost decrease for the specialty drugs category in B.C. versus an 18% cost increase for the rest of Canada over the same time period. Now, Alberta, Ontario, New Brunswick and Quebec have announced similar programs.
The good news is that Biosimilar drugs will now provide some level of cost savings to employee benefits plan sponsors, much in the same way that generic drugs did almost 15 years ago. Unfortunately, the savings have not come as quickly nor as consistently. While generic drugs now often cost 80% less than brand name drugs, Biosimilars typically only offer 20-50% savings. Group benefits plan sponsors are certainly not complaining though as this new phenomenon might bend the annual inflation curve by 1-2% for the next couple of years.
We would be pleased to discuss your specific situation with you to identify the best strategy for your employee benefits plans. Should you have any questions on the above, please do not hesitate to contact any member of our team.
ZLC Employee Benefits Solutions is one of the fastest growing advisors for employee benefits and group retirement programs in Vancouver and we are fortunate to have the best people, resources, and clients. We provide value by leveraging one of the most skilled benefits teams – collectively over 450 years of experience within our team of 21 employee benefits specialists. We have been working with businesses ranging from 3 to over 75,000 plan members for almost 40 years.
