A Balancing Act: How Private Payers Are Meeting the Needs of Specialty Medicine
April 18, 2022
When we talk about the Canadian healthcare system, we often mean the public system. We take justifiable pride in a government-funded system that puts a premium on fairness and equity. That said, millions of Canadians depend on private coverage to pay for the medications that preserve their health and function. This dependence holds especially true for specialty medications, which provide enormous benefits to patients but cost a lot of money and must often be taken for a long time.
The fact is, private payers constitute a vital pillar of the Canadian healthcare system—but don’t always get the recognition that befits their position, resulting in confusion about their processes and roles. Let’s dig into the specifics to bring clarity to the topic.
Why private health insurance exists
Let’s wind the clock back to the 1960s, when Canada first launched the universal healthcare program known as Medicare. At the time, prescription medicines consisted mainly of low-cost drugs for common conditions such as headaches and hypertension, so the architects of the program chose to focus on higher-ticket items such as hospital and physician services.2 While they intended to add prescription medicines to the program at a later date, changing economic and political conditions sidelined this plan. In the absence of a national pharmacare program, provinces and territories developed drug plans for vulnerable groups, and employers began offering private health benefits (including drugs) to attract and retain talent.2
Today, the private payer landscape has ballooned into a rich ecosystem that collectively offers over 100,000 drug benefit plans.2 While these plans usually exist as employee benefits, individuals can also purchase them directly. In Quebec, where medication insurance is mandated, residents who don’t have access to private plans must enrol in the public plan (and pay a premium unless they belong to vulnerable groups such as low-income seniors).
Who’s who in private health insurance9
Plan member: A plan member is an individual, often but not necessarily an employee, who belongs to a drug benefits plan.
Plan sponsors: Many employers offer health insurance as part of their employee benefits. Such employers are called plan sponsors. The term “private payer” generally refers to the plan sponsor, who pays an insurer to reimburse plan members for drugs.
Insurers (or carriers): Canada’s 23 insurers, which include such giants as Sun Life, Manulife and Canada Life,10 develop insurance plans that employers can purchase. (Note: the term “private payer,” while technically reserved for plan sponsors, is sometimes used to describe insurers as well.) Private insurance plans offer a complex web of services, which typically include11:
- Maintaining and updating drug formularies
- Developing and maintaining a network of pharmacies
- Adjudicating and processing claims
- Coordinating services with provincial plans
Pharmacy benefit managers: Insurers often subcontract the claims-processing component of their services to third-party providers called pharmacy benefit managers (PBMs). Acting as intermediaries between insurers and pharmacies to settle claims, PBMs may also provide extra services ranging from formulary maintenance and claims analysis to negotiating discounts with drug manufacturers.11,12 Prominent PBMs in Canada include Express Scripts Canada and TELUS Health. Some insurers have created their own PBM capabilities, enabling them to act as both insurer and PBM for the group plans they administer.11
BALANCING ACCESS AND SUSTAINABILITY
From a payer’s point of view, specialty medications represent a class apart—and a growing share of drug costs. Throughout 2020, private payer costs for specialty drugs rose by 8.7%,5 over 6 times the corresponding cost increase (1.3%) for non-specialty drugs.6 By the time 2021 came into view, private payers were devoting close to a third (32%) of their drug-spend to specialty medications. 5 And while the average cost of a traditional drug claim decreased by 0.8% during 2020, the bill for a speciality drug claim went up by 2.5%. 6
While specialty drugs span all disease states, a few therapeutic areas stand out in the private payer space. In 2021, just three conditions—rheumatoid arthritis, inflammatory bowel disease, and psoriasis—accounted for 44.4% of the expenditures for high-cost drugs.30 Oncology has also emerged as a cost leader, with the average cost-per-claim doubling between 2010 and 2018. 7 (During the same period, the cost of non-oncology drug claims rose by a mere 5%.7) A notable trend within oncology is the shift to oral medications, which have not received consistent coverage from public payers and thus disproportionately strain the private payer system. 14 These medications, which continue to proliferate in the pipeline, currently account for 80% of the private-pay oncology drug cost pie. 7
The scenario looks much the same for rare diseases. The explosive growth of new medications for rare diseases has escalated private payer expenditures to the point that, in 2020 alone, insurers paid out over $650 million to cover these products for over 13,000 patients. 1
On the public side, concern about managing these rising costs has led the Government of Canada to develop a national strategy for rare disease medications. When consulted as a stakeholder in the strategy, the Canadian Life & Health Insurance Association (CLHIA) emphasized the importance of including private payers “to minimize the impact on patients and ensure the sustainability of the system.” 15
“A $1 million treatment with a 20% copay is obviously out of reach for most people.”
Like rare disease drugs, cell and gene therapies have the potential to treat the most challenging disorders. These sophisticated therapies aim to repair or reconstruct defective genetic material to produce a therapeutic effect, using technologies that require a substantial R&D investment.16 Though many of them only need to be taken once, their sky-high price tags still strain budgets. “Most health insurance has co-pays, so members also bear some of the burden,” notes Joan Weir, Vice President, Group Benefits at the CLHIA. “A $1 million treatment with a 20% copay leaves a bill of $200,000 to the patient, which would be obviously out of reach for most people.”16
All told, the rise in specialty drug costs shows no signs of slowing down, bringing private payers face-to-face with the question: how to contain costs while ensuring that patients have access to life-changing treatments?
Updated toolbox
With this question top-of-mind, private payers have explored a variety of strategies to balance access and sustainability. One of the simplest is the coverage cap: a limit on either annual or lifetime claims for each individual. Between 2013 and 2017, the number of private plan members with such caps grew by about 40%, and over a quarter of plan members have capped coverage today.2 Annual maximums typically fall in the $2,500-to-$5,000 range, while lifetime limits may range from $100,000 to $750,000.2 Plan members who reach their limit must pay for additional costs out of pocket or, if eligible, can move to a public drug program. As specialty drug costs continue to climb, the capping trend will likely accelerate.
In tandem with price caps, insurers are limiting access to specific medications through a mechanism called tiered listing. This approach has become especially popular within the biologic drug space, echoing the trend among provincial/territorial governments to prioritize biosimilars over the more costly originators. Specific listing criteria vary widely among private coverage plans: some create lists of preferred biosimilars, others insist on exclusive use of biosimilars, and still others require patients on originators to switch to a biosimilar.17 While tiered listing can bring down costs considerably, the added complexity of stocking multiple biosimilar products at pharmacies could create challenges in managing these drugs—a potential snag to watch for as tiered listing of biologics evolves throughout 2022.
For higher-cost drugs, private payers may also insert a step called prior authorization (PA) to ensure a good fit between product and patient. With criteria established by payers, the PA process requires patients or their physicians to submit medical evidence to justify the use of a drug.18
An insurer may also negotiate a pricing agreement with its preferred provider network (PPN)—a select group of pharmacies associated with that insurer. Participating pharmacies agree to lower the markup for a drug, receiving a predictable volume of business in return. Over the past decade, PPNs have emerged as an important tool for containing specialty drug costs. It should be noted that the patient support programs and service providers upholding many specialty medications have helped enable the successful management of both PAs and PPNs.
The same negotiation principle underlies the product listing agreement (PLA)—an agreement between a pharmaceutical manufacturer and payer to limit the budgetary impact of a high-cost drug.19 In a typical PLA, the payer agrees to list a medication on its formulary in exchange for a (generally confidential) price rebate from the manufacturer. Canada’s first-ever private-payer PLA took place in 2014, when Janssen Inc. negotiated a discounted price with SunLife for the biologic Remicade.20 Since that time, PLAs have entrenched themselves in the private payer sphere.21 These agreements can yield large savings on the payer side—tens of millions of dollars, according to one large insurer—while manufacturers enjoy a predictable volume of business.21
This shift reflects a general movement within the private system toward the health-economic, value-oriented focus observed in the public sphere. In recent years, insurers and PBMs have begun hiring their own professionals to evaluate the clinical and economic value of a drug and compare it to therapeutic alternatives. A 2020 study by TELUS Health, for example, explored how the perspective applied to a health-economic analysis can affect a drug’s incremental cost-effectiveness ratio (ICER), a metric that often informs reimbursement decisions. Specifically, the study found that applying a private-payer vs. public-payer lens yielded different ICER figures.22 Depending on the drugs considered in the analysis, these differences could be significant.
Coming soon
The relentless movement in the specialty drug world is prompting the private payer landscape to look at opportunities to innovate. Recognizing the need for greater efficiency and harmonization, stakeholders are considering ways to cut down on duplication of effort and bureaucratic complexity. A case in point: in an initiative called Simplify Prior Authorization, led by Connex Health Consulting, industry partners are exploring ways to increase transparency and standardization in the PA process, provide new online resources for stakeholders, including patients, to help them navigate PA, and are advocating for clearer reporting and metrics for payers.
18
According to Denise Balch, president and principal consultant at Connex, the initiative plans to educate the private payer community about gaps in the PA process and the need for change. Through podcasts, webinars, blogs and articles, “we will continue to highlight the challenges that arise from inefficiencies in the process and focus on the need for improvements,” she says.
High up on the priority list is digitization. In 2020, TELUS Health teamed up with Canada Life to develop the first electronic PA solution, which they tested in a pilot program.23 The digitized system allowed staff in patient support programs to initiate the PA process via a web portal and deliver digital outputs directly to payers. 23 Exploring and fine-tuning such systems could lead to vast improvements over the antiquated but persistent paper-and-fax model — as long as the digital solutions remain simple and accessible. “High adoption of electronic PA will depend on having a common platform for the industry,” says Karen Kesteris, Chief Product and Marketing Officer at Express Scripts Canada. She adds: “An ePA solution should be ‘agnostic’ to ensure it meets the needs of payers, pharmaceutical companies, patient support programs, prescribers, and of course patients.”
Such initiatives pave the way for a broader use of the PA process, such as using PA data to support real-world evidence (RWE) initiatives. In line with this thinking, the 2022 RWE & OBA Working Group has been studying the feasibility of applying PA-generated RWD to outcomes-based agreements (OBAs) in Canada. 17 (Stay tuned for research findings in late 2022.) Also known as value-based agreements, OBAs help facilitate timely access to potentially life-changing therapies while mitigating the high clinical or economic uncertainties associated with many of these treatments.
“OBAs give us hard knowledge about how a drug performs, so we’re not speculating about its value.”
A 2021 survey of both public and private Canadian payers found that 31% had successfully implemented at least one OBA.24 Ned Pojskic, Leader for Pharmacy and Health Provider Relations at Green Shield Canada (GSC) and an adjunct lecturer at the University of Toronto, applauds this trend. “With OBAs, we can gain hard knowledge about how a drug performs in the real world, instead of speculating about its value,” he says,25 adding that “as stewards for plan sponsors’ precious healthcare dollars, [insurers] have a responsibility to ensure that every dollar yields maximum value.”9
As Canada marches toward an outcomes-based future, we can draw inspiration from the innovative OBAs in place in the US private payer sector, as exemplified by the Pfizer Pledge Warranty Program for the lung cancer drug Xalkori. As part of the agreement, Pfizer pledges to refund the entire cost of the medication (to the patient or health plan) if it fails to work within three months.26 Amgen has upped the ante still further for Repatha, a medication that significantly lowers LDL cholesterol: the company will refund the full cost of the medication for patients who suffer a heart attack or stroke while on Repatha for at least 6 months.27
Such ambitious agreements depend on a strong data-collection infrastructure and on mutually accepted definitions of clinical benefit. Canadian stakeholders appear ready to tackle these challenges, and a major private payer has recently established an internal working group devoted to exploring innovative reimbursement models.17
Whether applied to an OBA or not, RWE can help shape the reimbursement destiny of a specialty medication. Tasked with balancing medical advances and market forces, insurers and PBMs have ample motive to accelerate RWE collection and bring forth reimbursement agreements that ensure timely access to life-changing medications.
Helen Stevenson, founder and CEO of the Reformulary Group—a third-party Canadian formulary developer advised by a committee of medical experts—sees “tremendous value in aggregating and analyzing real-world data on specialty drugs, including measurements of both productivity and quality of life. We need such metrics to holistically assess the benefits of these medications.”
Shaping the future
The private payer space has a tradition of agility, putting it in an ideal position to explore opportunities in RWE, OBAs, and other forward-thinking approaches. With specialty drug innovation showing no signs of slowing down, all signs point to disruptive changes within the space. As the need for health-economic approaches to drug reimbursement continues to grow, stakeholders are laying the groundwork for a value-based future.
At the same time, insurers and PBMs have been expanding their scope of expertise to deliver more comprehensive health services. As an example of this future-oriented thinking, GSC has recently acquired NKS Health, a specialty pharmacy focused on complex disease management, as well as digital pharmacy leader The Health Depot.28 Zahid Salman, GSC’s president and CEO, expects the acquisition to help position GSC as an “integrated health services organization and Canada’s only payer-provider,” with the ability to “deliver healthcare services while also administering all types of health benefits plans.”
What happens next? Everyone with a stake in private drug reimbursement, including the 26 million Canadians who count on private payers to take care of their medical needs, will be watching with great interest.
References
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New Canadian Cancer Society report uncovers the hidden costs of take-home cancer drugs in Ontario and the urgent need for provincial funding. Canadian Cancer Society. https://cancer.ca/en/about-us/media-releases/new-report-uncovers-hidden-cost-of-take-home-cancer-drugs
Submission to the government of Canada on its consultation on a national strategy for high-cost drugs for rare diseases. Canadian Life and Health Insurance Association. https://www.clhia.ca/web/clhia_lp4w_lnd_webstation.nsf/page/1B599A06863E0C45852586A70051CA69/$file/Submission%20to%20the%20National%20Strategy%20for%20High%20Cost%20Drugs%20for%20Rare%20Diseases.pdf
Insights into the cost-effectiveness for cell and gene therapies. TELUS Health. https://plus.telushealth.co/blogs/health-benefits/en/insights-into-the-cost-effectiveness-for-cell-and-gene-therapies
20Sense original research.
Simplify prior authorization: report on private payer prior authorization in Canada. Connex. https://www.simplifypriorauth.ca/pdf/White-Paper-on-Private-Payer-Prior-Authorization.ConnexPangaea.11.2020.pdf
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Hello, we are Beneva, people looking out for people. https://ssq.ca/en/about/news/hello-beneva-people-looking-out-people
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