Drug Benefit Cost-Control Program Violated Collective Agreement

Background

Speciality drug costs have escalating rapidly in Canada over the last decade, resulting in increasing premiums to many benefit plans. Can a collective agreement limit what benefit cost-control measures may be available to a unionized employer unilaterally implement under a collective agreement? A recent British Columbia labour arbitration decision provides insight regarding permissible benefits cost-control measures in a benefits plan in a unionized workplace^.[1]

The Drug Cost-Control Program

Employers and benefits providers are grappling with rising drug costs, which often result in rising benefits premiums. In particular, speciality drug costs have been rising rapidly in Canada over the last decade. In 2018, speciality drugs represented 33% of Canadian drug spending, despite only comprising 2% of all drug claims. 

In this case, the employer’s benefits provider implemented an administrative cost- control program cost-control program under the benefits benefits plan to assess the cost-effectiveness of new prescription drugs provided to plan members. Prior to implementing the cost-control program, generally, all drugs approved by Health Canada and assigned a Drug Identification Number (DIN) were automatically covered under the employer’s benefit plan. What was different under the new cost-control program, is that select drugs with a DIN waswere not covered by the plan until the benefits provider had completed a cost-effectiveness review of athe drug (in the case of a new drug),, or reviewed existing drugs when approved by Health Canada for a new indication.  The goal of the program was cost containment of drugs benefits.

The union grieved, alleging the cost-control program violated the collective agreement because it would effectively result in a change, reduction or limitation to the benefits currently available to bargaining unit members and the union had not agreed to or been consulted regarding the change.

Collective Agreement and Drug Plan

In any case involving collective agreement interpretation and benefits plans, the specific wording of the collective agreement and plan is highly relevant and often determinative. In this case, the collective agreement specified the employer "shall not change benefit plan carriers or benefit plans without the agreement of the [union]," which agreement “shall not be unreasonably withheld.” The collective agreement also specified that there “will be no change to the level of health and welfare benefits without prior consultation between the local parties,” and that total lifetime prescription drug coverage would be unlimited and provided for 95% reimbursement of eligible claims. 

The terms of the group benefit policy provided that “reasonable and customary” expenses would be covered by the plan as long as they met the stated criteria, most relevant that they be “reasonable taking all factors into account” Prescription drug coverage was not subject to any monetary limit with the exception of anti-smoking and fertility drugs.

The Cost-Control Plan Violated the Collective Agreement

The arbitrator found the introduction of a requirement for additional clearance of a new drug by the benefits provider which delayed or denied all plan members access to a drug would effectively constitute a reduction in the level of drug coverage under the plan. This breached the requirement under the collective agreement to consult with the union prior to any changes in the level of benefits provided under the plan. The arbitrator ordered the employer to immediately discontinue its participation in the cost-control program.

The arbitrator commented that administrative authority and discretion by the benefits provider under the drug plan could not be exercised to change core elements of the plan without prior consultation with the union. The arbitrator noted that there will be differences over administrator exercise of authority and decision-making in individual claims, but administrative discretion could not be used to change the express terms and core elements of a benefit plan for all plan members.

Takeaways

Cost-control programs under benefit plans are becoming more common as employers and benefits providers grapple with rising drug costs and premiums. However, implementing cost-control programs in unionized workplaces may prove challenging depending on the language in the collective agreement.

Employers are advised to carefully review the collective agreement and existing benefits policy to determine if a similar cost control program introduced under a benefits plan couldviolate the collective agreement.

Employers are advised to carefully review, plan and seek advice regarding any core changes to benefits plans to ensure they will not violate the collective agreement.

If you have any questions regarding this subject, please contact the author or your regular Fasken lawyer.