The companies that make branded pharmaceuticals have done extremely well selling them, with very high margins and profits. For many years rising drug costs were a leading contributor to rising health spending. The industry spent billions on persuading physicians and consumers to use their expensive drugs. As many blockbuster drugs went off-patent, however, and payers turned to innovative cost management strategies like tiered formularies, drug spending growth slowed. The response from the industry has been introduction of a pernicious new tactic, copay coupons. A recent paper analyzed the potential detrimental effects of these programs on spending. (Copay Paper)
The programs are targeted at commercially insured consumers, most of whom are covered by drug benefits that provide stiff financial penalties for using branded drugs when generics are available, or even a more expensive branded drug when a cheaper one could be used. The coupon programs have only one purpose–to undermine the economic incentive provided to the consumer by paying all or enough of the copay to induce use of the branded drug. These programs are illegal as kickbacks and bribery under federal law and so can’t be used for Medicare or Medicaid patients. The programs have spread like wildfire, estimates are that they now cover 340 drugs at a cost of about $4 billion to the manufacturers, but that spending has an ROI of as much as 6:1 for the companies. These programs are raising health spending by over $3 billion a year.
We are big free marketers, but in health care unfortunately there are many opportunities to interfere with the normal processes of a free market, most of which stem from the presence of third-party payment. There is no benefit to these manufacturer copay programs; they probably result in both consumers and payers spending more on drugs. There is no offsetting quality rationale for the programs. If the manufacturers won’t voluntarily stop subverting health plans’ drug benefit designs, then the federal government or the states will have no choice but to ban the practice. And drug manufacturer executives sometimes wonder why their industry has come to have such a bad image.