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Coupons Lead to Big Increases in Drug Spending: Researchers

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What You Need to Know

  • Medicare Advantage plans ban drug coupons.
  • Most commercial health plans do not.
  • The economists conducted their study by comparing what commercial plans and Medicare Advantage plans paid for multiple sclerosis drugs from 2014 through 2017.

Coupons work a lot better for prescription drug manufacturers that want to increase revenue than for health insurers that want to hold down spending, economists conclude in a new study.

The economists looked at the effects of manufacturers’ coupons on the U.S. market for multiple sclerosis drugs, based on drug claims data collected from 2014 through 2017 by a large pharmacy benefit manager.

PBMs typically negotiate discounts that reduce the true price of a drug far below the list price.

The economists found that coupons increased the true discounted prices of the couponed drugs by more than 7%, increased sales of the couponed drugs by 21% to 23%, and weakened insurers’ ability to bargain for lower prices.

Those effects could increase insurer spending by about 30% for couponed drugs with no generic equivalents, the economists estimate.

Leemore Dafny, an economist at Harvard Business School, conducted the study along with Edward Kong and Kate Ho. They have posted a working paper version of the study, behind a log-in wall, on the website of the National Bureau of Economic Research.

A working paper is a version of an academic research study that has not yet gone through a full round of reviews by the researchers’ peers.

Drug Pricing Mechanics

Many health insurers impose large copayments, or large flat fees, when patients buy expensive brand-name drugs.

Insurers may also impose coinsurance requirements, or charges equal to a set percentage of the full cost of the drug, when patients use especially expensive drugs. Insurers see that as a way to give patients “skin in the game,” and to keep them from using drugs that might cost more than $10,000 per year without having an urgent need to do so.

Cash-strapped patients with hard-to-treat health problems see manufacturers’ coupons or other forms of financial support, such as grants from charities, as a way to try drugs that would otherwise be unaffordable.

Groups for people with serious health problems and lawmakers in some states have agreed that patients should be able to use coupons and grants to pay their share of the cost of expensive drugs.

The National Council of Insurance Legislators recently approved a model bill that would let patients use cash from any source, not just from their own resources, to pay any deductibles, copayments, coinsurance amounts or other amounts associated with prescription drugs.

But analysts at the Congressional Budget Office noted in a recent review of the issue that Medicare, Medicaid and California all ban drug coupons, because of the belief that coupons drive up health care “payers’” spending on prescription drugs.

The Study

Dafny — a well-known health policy researcher — and her colleagues were able to measure the effects of coupons because the Medicare Advantage program bans coupons and most commercial health insurance plans do not.

The economists compared the commercial plan and Medicare Advantage plan prices for brand-name multiple sclerosis drugs such as Aubagio, Avonex and Tysabri.

The economists note that one tool commercial plans can use to persuade manufacturers to offer bigger discounts is to threaten to put a drug in a tier with a higher copayment.

In addition to increasing the prices of couponed drugs and sales of couponed drugs, coupons hurt insurers’ ability to bargain for lower prices by threatening to put a drug in a different tier, the researchers write.

The economists estimate that banning drug coupons saves insurers $4 for every extra dollar that the patients end up having to pay.

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(Image: Adobe Stock)