How Copay Coupons Could Raise Prescription Drug Costs By $32 Billion Over the Next Decade

Visante

Much has been much written about the strategies that brand drug companies will use to combat the “generic wave” of medications becoming available. One answer can be found in the “copay coupon” marketing campaigns now flooding the marketplace. Much is at stake, as each one percentage point decrease in the generic drug dispensing rate raises the amount that employers, unions, state governments, and consumers spend on prescription drugs by $3 billion annually.

From cereal to detergent, consumer brands often use coupon promotions instead of price reductions to lure consumers away from lower-priced competitors. Recently, however, drug companies have started using copay coupons to increase sales of brand name drugs among those with prescription drug coverage. The difference is that two-thirds of prescription drug costs are not paid by consumers but by the employers, unions, and government agencies (i.e., taxpayers) that provide coverage. As copay coupons reduce the use of generics and more affordable brands, overall prescription drug costs increase dramatically.

By definition, copay promotions target only those who already have prescription drug coverage (i.e., those who pay copays). These programs are not means-tested or designed to help the poor or uninsured. Considered illegal kickbacks in federal health programs, copay coupons are banned in Medicare and Medicaid but are allowed in the commercial market (except in Massachusetts).

This report examines copay coupon marketing programs that encourage insured consumers to choose expensive brand drugs over generics and other, more affordable brands in the same therapeutic class. The potential costs of such programs are substantial:

• Copay coupons will increase ten-year prescription drug costs by $32 billion for employers, unions and other plans sponsors if current trends continue.

If the use of copay coupons were to expand into programs that currently ban them, costs would rise even more:

• If Medicare’s ban on copay coupons were not enforced, costs to the Part D program would increase by $18 billion over the 2012–21 period.

• If Massachusetts were to repeal its law banning copay coupons, prescription drug costs for employers and other plan sponsors in that state would increase by $750 million over the next decade.

Drug companies profit from coupon marketing programs in several key ways:

• Copay coupons induce consumers to choose higher-cost brands (despite higher copays) over lower-cost competitors (despite lower copays). When consumers redeem copay coupons, the drug companies process them through a “shadow claims system” that prevents employers and other plan sponsors from knowing when enrollees have used them.

• Drug companies often require consumers to submit confidential, personal information in order to redeem copay coupons. Manufacturers have long sought (but found difficult to obtain) such sensitive patient data, which enables them to identify and directly target individual patients with “brand loyalty” marketing programs.

Impact of Copay Coupons on Employers

Copay coupons undermine employers‟ ability to use different copay amounts to reduce drug costs. Employer costs rise dramatically when enrollees choose expensive brands over more affordable options. The economics of brand copay coupons are simple: each time a drug company can sell a $150 product by helping cover a $50 copay, it gains $100 in revenue, which is paid by the employer that offers coverage.

As one analyst puts it, copay coupons “warp the system,” “steer prescriptions to higher-priced drugs that would ordinarily be written for generics,” and “lead to higher overall costs.”1

Impact of Copay Coupons on Consumers

Coupons can also increase consumer costs in several ways:

• To help cover the $4 billion spent annually on copay coupons, manufacturers can simply raise prices. Manufacturers reportedly earn a 4:1 to 6:1 return on investment (ROI) on copay coupon programs.

• Copay coupons create “brand loyalty” to the most expensive products in each therapeutic class of drugs, even among newly diagnosed patients.

• Copay coupons do little to help the poor and uninsured. By definition, copay coupons target those who already have prescription coverage (i.e., those who pay copays).

As Consumers Union has noted, coupon marketers “know what they are doing” when it comes to copay coupons and are “not Santa Claus.”2

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1. CLSA, “Drug Companies: Let‟s Make a Deal,” January 19, 2011.

2. “Drug Coupon Use Soars, Prompting Safety and Spending Concerns,” Bloomberg, October 28, 2010.