Prescription drugs: Turning an expense into an investment

Rising medication spending is creating challenges for plan sponsors–-so how can costs be managed without compromising access to treatment? Which indicators can help identify spending that creates value from spending that delivers less?

Costs are rising

Between 2021 and 2025, the cost per plan member in Canada’s private prescription drug plans rose by 32.5%.ⁱ While increasing costs underscore the need for rigorous expense management, they do not, on their own, provide enough information to assess a plan’s performance.

For example, a claim may be submitted for treatment that helps a person better manage their health condition and continue working. While the expense is easy to quantify, the benefits are often much harder to measure.

As a result, organizations need to identify spending that improves the health of their workforce and better manage spending that generates less value.

“Responsible cost management and improved health outcomes go hand in hand. The best decisions help ensure each person receives the right treatment at the right time.”

Frédéric Leblanc, Strategic Lead, Drug Products and Programs

Not all cost increases are equal

Rising pharmaceutical spending is a reflection of a long-term shift in healthcare needs. This trend is driven in part by an aging workforce, the growing prevalence of chronic diseases, the increased use of specialty medications and access to innovative therapies.

Certain cost increases may indicate patterns of use that should be more carefully managed.  Others are the result of expanded access to treatment or the development of more effective therapies. So higher drug plan use does not necessarily mean poorer plan performance.

The case of chronic diseases illustrates the difference between cost and value. Chronic diseases alone account for 72% of pharmaceutical spending by private health plans.ⁱⁱ While this level of spending may appear high, it reflects investments in the treatment of conditions that, if left unmanaged, could lead to worsening health outcomes and jeopardize a person’s ability to keep working.

Being diagnosed with an illness does not mean that a condition is poorly managed. Many people receiving treatment for diabetes, a mental health problem or an inflammatory disease remain active for years. The data shows the cost of claims, but rarely captures the absences, disability leaves and complications that treatment may help prevent.

“A drug’s price reflects what the plan paid, but it says nothing about what the treatment helped prevent, maintain or improve.”

Frédéric Leblanc, Strategic Lead, Drug Products and Programs

Costs can shift elsewhere

A cost-control measure may quickly reduce visible expenditures, but its true impact depends on the downstream effects. When a person forgoes treatment, delays getting it or does not follow it as prescribed, the underlying health need does not disappear. The condition may worsen, potentially leading to an absence from work or a period of disability.

In Canada, about half of people with chronic illnesses do not follow their treatment plans as prescribed. The reasons vary, but cost and access barriers can delay the start of treatment or lead to its interruption.

Benefit plans should therefore facilitate access to treatment and offer resources that help individuals follow the treatment plan.  Poor treatment adherence can result in:

• Preventable symptoms or hospitalizations
• Disability
• More expensive treatments
• Absenteeism
• Presenteeism

Cost savings do not always translate into lower overall costs. In some cases, they simply shift costs to other areas of the organization, where they are less visible and harder to quantify.

Transforming a cost into an investment

The cost of a medication on its own does not determine its value. The value lies in the benefits it produces, which can transform it into a worthwhile investment.

Appropriate treatment that is properly followed and adjusted over time can improve a person’s health journey while helping them remain active at work. Diabetes offers a clear illustration: effective adherence to treatment is linked to 3.7 fewer short-term disability days each year,ⁱⁱⁱ showing how drug spending can be linked to value creation.

“The value of a medication depends, in part, on the suitability of the treatment, adherence to therapy and the support provided to the individual.” Erika Hatherly, Strategic Leader, Drug Programs

This does not imply that every dollar spent delivers value. However, there are several ways that benefit plans can promote the proper use of medications and control costs without limiting access to appropriate treatment:

• Step-by-step therapy for specialty drugs
• The transition to biosimilars
• Management of therapeutic classes

Drug coverage is just the starting point. Value is created throughout the health journey, from access to treatment and disease management to disability support and return to work.

A different way to measure performance

Most organizations have detailed data on costs, claims and drug prices. However, they often have much less insight into the outcomes.

Only 11% of Canadian plan sponsors say they have a good understanding of how their plan affects their employees’ health.^iv Nevertheless, 81% evaluate plan success based solely on spending, even though they recognize the plan’s role in member health, productivity and employee retention.

Organizations should look beyond cost data alone by including measures of treatment adherence, health outcomes, work participation and costs avoided. The goal is to connect spending to the needs of the insured population and the organization’s priorities.

Achieving this requires a shared effort among all stakeholders:

• Insurers identify emerging trends and risks.
• Advisors interpret those findings through a strategic lens.
• Plan sponsors connect them with their understanding of the workplace environment.

This collaborative approach supports more targeted decision-making, beyond the simple tracking of costs.

“Medications are among the most effective healthcare investments for organizations. When they are appropriate, accessible and used as intended, they support the total wellbeing of both individuals and organizations.”

Erika Hatherly, Strategic Leader, Drug Programs

Do the right calculations

There’s no denying it: pharmaceutical costs will continue to rise. The more important question is what outcomes this spending delivers and the conditions under which it creates value.

In addition to disciplined cost management, benefit plan sustainability depends on understanding the outcomes that spending helps achieve. The issue is not to pit cost control against access to treatment. Instead, it is to identify which expenditures produce results, which require closer oversight and how their impact can be measured.

Evaluating plan performance gives organizations a valuable opportunity to play an active role in supporting the total wellbeing of their workforce.

Our white paper offers valuable insights for reflection.