The negative effects of coupons have long been suspected, but a pair of new papers, one published Wednesday in The New England Journal of Medicine and one that will be published by the National Bureau of Economic Research next week, are the first to precisely measure the effect.
A research team from Harvard, Northwestern and the University of California, Los Angeles, looked at brand-name drugs that also had generic equivalents. When drug companies offered a coupon for the brand-name version, more patients stuck with the more expensive brand-name drug, and the company raised the prices on such drugs faster than it did for drugs for which no coupon was available.
Altogether, the researchers estimate that coupons for 23 such drugs with a generic alternative resulted in an extra $700 million to $2.7 billion in spending on drugs over five years. (Because generic drugs are required to be biologically identical to their brand-name cousins, the more expensive brand-name version doesn’t make patients any healthier.)
“These are wolves in sheep’s clothing,” said Leemore Dafny, a professor at Harvard Business School and a co-author of the research. “These efforts to help consumers bear the cost of their drugs are actually driving higher spending without commensurate health benefits.”
When it comes to drugs like the ones in the study, your insurance company tries to steer you toward generics by giving the generics very low co-payments, and charging higher fees for the brand-name version. But the co-payment doesn’t cover the whole cost of the drug, of course. It’s just a signal that insurance companies use to steer you toward the cheaper product. The coupon can reduce the portion of the drug that you pay yourself, but it doesn’t do anything to lower the share paid by your insurance company, which can be hundreds or thousands of dollars more.
Insurance companies use co-payments when they negotiate with the makers of competing brand-name drugs. When your insurance company negotiates with a drug company to get a good price, its main leverage is the co-payment. Imagine two similar drugs for the same ailment. The insurance company can offer a drug maker lots of business if it steers patients to buy its product. The promise of all that business gives the drugmakers an incentive to offer a good discount.
In that situation, an insurance company might charge a $10 co-payment for a $300 drug and a $50 co-payment for its competitor, which costs $500. A coupon for the pricier drug will make it less expensive for the patient at the drugstore, but won’t change what each drug is costing the insurance company. If coupons cause patients to prefer the $500 drug, then the maker of the cheaper drug will have no incentive to keep offering a better price, and both drugs might end up costing $500.
Steve Miller, the chief medical officer at Express Scripts, which negotiates drug benefits for health plans around the country, said coupons have forced his company to sometimes refuse to cover expensive drugs at all, since the coupons are designed to work only when the insurance company picks up part of the tab. “It’s one of these things where what superficially sounds like a good thing — giving patients discounts — actually in the long haul ends up costing patients more money,” he said.
The federal government bans the use of coupons when buying drugs through Medicare health insurance. Massachusetts also bans the practice for drugs with a generic equivalent. Those bans created what economists call a natural experiment and allowed the researchers to measure how much of a difference coupons made. They looked at a database of health claims for everyone employed by a New Hampshire-based company, then compared the drugs bought by customers in New Hampshire, where coupons were allowed, with those in Massachusetts, where they are not.
To make sure the differences didn’t reflect some other difference between the states, they also looked at Medicare recipients in both states, and found similar drug-buying habits among people in both places.
Professor Dafny and her colleagues suggest that more states may want to follow the lead of Massachusetts in banning the coupons. Some individual patients would end up paying more for drugs, but average costs would probably go down. She and her co-authors also warned that the practice of offering co-payment discounts might also start spreading to doctors’ offices and hospitals, and could cause similar distortions in negotiations between health care providers and health insurance companies.
But there are downsides to discount bans. Health plans have been asking patients to pick up a larger share of their health care bills, and many plans now ask customers to pay a percentage of their costs, not just a co-payment. Those kinds of policies can put important medications out of reach for some patients on limited budgets.
The EpiPen is a good example: Mylan could make the drug more affordable by lowering its price, but, until recently, there was no good, cheaper generic version that patients could choose instead. That meant people with high co-payments had no way around a high price at the drugstore. There is evidence that, with coupons, patients may be more likely to keep taking prescribed drugs.
“When conflicts get difficult in health care between the different entities, we too often let the consequences of that conflict spill over onto sick people,” said Peter Bach, a physician and director of the center for health policy and outcomes at Memorial Sloan Kettering Cancer Hospital. In a recent paper, he and a co-author argued for an array of policies that would get financial help to patients while avoiding some of the coupons’ more distorting effects. Ultimately, he argued, the country needs a better way to price and pay for drugs.