As Ontario's former deputy minister of health, Helen Stevenson was responsible for controlling the cost of drugs to government. Her new report argues the private sector must also work to keep costs down. Handout photoThe woman who led the fight to lower the price of prescription drugs for Ontario’s insurance plan says private drug plans need to lower their costs as well.

In a report titled An End to Blank Cheques: Getting More Value Out of Employer Drug Plans, Helen Stevenson calls for reforms that would lower the cost of drugs paid for by companies and employees.

Stevenson was the Ontario health ministry's assistant deputy minister and executive officer of the Ontario Public Drug Programs. She’s now president and CEO of a company called Reformulary Group that works with companies to lower drug costs.

Stevenson says the title is deliberately provocative because, in essence, employers are cutting blank cheques for escalating drug costs.

"I say it with the greatest of respect. There's no blame. It's just the way the system has evolved. Employers are writing blank cheques. They’re hesitant to make changes."

And what’s worse, says Stevenson, is that the cost of drugs in private plans will increase at an even faster rate once a new generation of biologics to treat illnesses such as rheumatoid arthritis enter the market.

According to statistics the market research company IMS Brogan provided to CBC News, the number of prescriptions dispensed in Canadian retail pharmacies for biologics used in treating rheumatoid arthritis has increased 18.4 per cent from 2009 to 2010.

That is more than triple the growth rate for private-sector drug plans spelled out in the most recent drug expenditure report of the Canadian Institute for Health Information.

Employers feel 'powerless' to control costs

"Drug plans and extended benefits have always been difficult for businesses to afford," says Dan Kelly, vice-president of the Canadian Federation of Independent Business.

"The prescription drug coverage has really gone through the roof. And many firms feel quite powerless about what to do about it."

For people who have workplace insurance, rising drug prices can affect potential wage increases. For consumers, the problem means potentially higher prices for goods and services.

"The private sector really does need to take action," says Stevenson. "Maybe they could go another year without doing anything, but when you see the growth rates of some of these biologic drugs, it's going to put so much pressure on their employer plan, which ultimately flows back into the economy."

Stevenson notes that drug costs have always been substantial. When she was in charge of controlling public drug costs, Ontario's annual bill was about $4 billion. Her effort to cut the costs of generic and name-brand drugs exposed her to a lot of pressure, including, she says, death threats.

"Indeed, my time at the ministry had some very unpleasant moments, however it was a great privilege to work in the public service," she said in a follow up email when asked about the pressure she endured while at the ministry.

While Ontario was able to drive down the cost of drugs, prices kept rising in the private sector, which is mostly made up of insurance plans mostly paid for by employers.

Once Health Canada approves a drug, it can become part of the list of drugs private plans cover, even if the higher-priced, name-brand drug is no more effective that cheaper products already on the market.

Stevenson concedes that doctors may be justified in prescribing the newer drugs for certain patients for whom the generic equivalents have proven to be ineffective.

"There will be 90 per cent who can take drugs that have been on the market for some time, and 10 per cent who may respond to the new ones. But a (private drug plan) can reflect that. We certainly did in Ontario."

Stevenson recommends several ways for employers to bring costs down, including promoting the use of cheaper drugs judged to be at least as effective as more expensive medication.

"The main thing that this report does is flag that employers should feel like they do have some levers of control and exercise them whenever they can," says the CFIB's Kelly. He says many small- and medium-sized businesses — which comprise about 95 per cent of the workforce — want to cut costs. For instance, some are putting caps on the amount of money they reimburse employees for drug costs. If the bill exceeds the cap, then employers pay out of their own pockets.

Kelly says an increasing number of employers who work for very small companies — 75 per cent of companies have five or fewer workers — may be unable to offer any benefits at all.

"We have to remember that there are a number of small firms that are trying to get into the game of offering employee benefits. And what this does is make it even more out of reach. So if you’re in a really small business, working in a restaurant or a small retailer, you’re unlikely to be offered any kind of prescription drug plan at all."

David McKie can be reached at david_mckie@cbc.ca