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Biologic Logic
Growing list of biologic drugs could bankrupt poorly protected drug plans

Some of the people who monitor benefits plans can begin to sound a little bit like the Boy Who Cried Wolf. Every time a new category of drugs is introduced, these industry watchers point to projected costs that would bankrupt a poorly designed drug plan. Yet the demand for the drugs is never quite as high as expected; the steep cost of one medication is offset by the value-priced generic version of another drug.

It has led many employers to dismiss the latest stories of doom, much like the annoyed villagers who ignore the little boy’s cries in Aesop’s famous fable.

But a growing list of genetically engineered drugs known as “biologics” may represent the biggest financial threat that drug plans have ever seen.

Biologics are made from living organisms like bacteria and yeast, and can mimic natural processes in the human body. They have led to treatments that can more effectively target something like tumors, ignore healthy tissue, and even trigger a patient’s immune system. Emerging options are already helping to treat everything from rheumatoid arthritis, to cancers, diabetes and HIV/AIDS.

This is wonderful news for patients, but it comes at a steep price.

The Green Shield Canada 2010 Drug Trends Study found that the spending on biologics increased about 12% a year between 2005 and 2010. The top 5% of drug claims account for about 40% of plan costs, and almost half of these most expensive drug claims can be linked to biologics.

There are more of these costly treatments to come. Last year, 13 of the first 21 drugs approved by Health Canada were specialty drugs. Biologics were also involved in an astounding 6,000 clinical trials in 2010, marking a critical step toward their final approvals.

It is easy to see how biologics can make such a large financial impact on a drug plan. The biologics used to treat rheumatoid arthritis can cost $1,000 to $3,000 per month. Herceptin, which is used to fight breast cancer, can cost more than $40,000 a year. Provenge can add four months to the life of a patient with prostate cancer, but at a cost of about $100,000 per patient.

To compound matters, biologics will always be more expensive to produce, store and deliver than traditional drugs. While the ingredients in a pill like Aspirin can be mixed together like a recipe, biologics are made with living organisms and can require manufacturing processes that are unique to each drug. Biologics are also much more complex. An antibody like Herceptin, for example, contains as many as 25,000 more atoms than an existing drug.

This reality should worry anyone who is trying to control the premiums that are paid for employee benefits.

Benefits providers can identify strategies to control the related costs. Since patients often need to try several versions of a biologic drug before finding the best option, for example, some plans require employees to begin treatments with the most cost-effective option. Plan holders can also be encouraged to ask their doctors about generic options known as Subsequent Entry Biologics (SEBs), which are about 20% cheaper than their counterparts.

Employees will certainly want to know how biologics will affect their out-of-pocket fees.

Those who administer the plans, meanwhile, may need to prepare themselves for a potential increase in appeals to address cases in which coverage is denied.

It is a matter of being prepared for the day when the stories of doom come to pass. After all, in Aesop’s fable, the flock of sheep is killed when the villagers completely ignore the little boy’s cries.

Is there a topic that you would like me to address in a future edition of the Buzz? A burning question about benefits plans that has always been hanging over your head? Let me know. Drop a quick email to billz@callerygroup.com.

Top Tips:

  • Ensure your employees understand which biologics are covered by your plan’s formulary. Some plans require treatments to begin with the most cost-effective biologic.
  • Ask your plan provider to monitor the shifting costs of biologics. A single-percentage shift in the cost of one of these treatments could still lead to a massive financial impact.
  • Encourage your employees to ask doctors about Subsequent Entry Biologics, which tend to be 20% cheaper than first-generation versions of biologic drugs.

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The Buzz Bits
Miscellaneous links to interesting benefits information

Five hot issues for 2013: Small Biz Advisor

Biologics and biosimilars ... a new complexity in the world of medicines: Benefits Canada

In pursuit of drug plan cost savings - but at what cost?: Benefits Canada

Stress in the workplace: LifeWorks

Border Crossing: Canadian plan sponsors are looking to the U.S. for cost-containment strategies

Investigate the stability clause for foreign travel: Small Biz Advisor

Travel Insurance: 10 things you need to know: moneyville

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