Brand Drug ‘Copay Coupons’ Undermine Generics, Raise Health Costs by $2.5 Billion in California

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The proliferation of brand drug “copay coupon” promotions, which lure insured consumers from generics to more expensive brands, will increase costs by $2.5 billion in California over the next decade for employers, unions, and state employee plans, according to new research from Visante and released by the Pharmaceutical Care Management Association (PCMA). The use of these promotions by state and local government workers alone will cost California taxpayers an extra $388 million over ten years.

The proliferation of brand drug “copay coupon” promotions, which lure insured consumers from generics to more expensive brands, will increase costs by $2.5 billion in California over the next decade for employers, unions, and state employee plans, according to new research from Visante and released by the Pharmaceutical Care Management Association (PCMA). The use of these promotions by state and local government workers alone will cost California taxpayers an extra $388 million over ten years.

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Unlike groceries and other goods that are purchased directly by consumers, 2/3 of prescription drug costs are paid by the employers, unions, and government agencies (i.e., taxpayers) that provide coverage, not consumers themselves. Though banned as illegal kickbacks in federal health programs, copay coupons are unregulated in the commercial market (except Massachusetts).

To minimize premiums and reduce costs, those who offer prescription drug coverage assign higher copays to expensive brands and lower copays to more affordable drugs that treat the same condition. In response, drug companies now offer coupons that cover the higher copays but not the cost of the actual drug. By covering a $50 copay to sell a $150 brand, drug companies extract an extra $100 from the employer, union, or government agency that offers coverage. This helps explain why copay coupons target only those with insurance (i.e., those who pay copays), not the poor or uninsured.

“Brand copay coupons lure patients from generics to expensive brands and stick employers, unions, and government employee health programs with the extra costs,” said PCMA President and CEO Mark Merritt. “In California, taxpayers will pay an extra $388 million just to cover the use of brand copay coupons by government workers in state and municipal employee health programs.”

Drug companies profit from coupon promotions in several 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.

Coupons can also increase consumer costs in several ways:

  •     To help cover the $4 billion spent annually on copay coupons nationally, 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.

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