Big Pharma Uses Coupons to Squeeze Payers

In the Harry Potter series “muggles,” ordinary people without magical powers, are unaware of a war happening all around them between two groups of wizards. Bloomberg News recently reported on a similar shadow war happening in the US healthcare industry between insurance companies and pharmaceutical companies. In this story patients and doctors are the muggles. But unlike in Harry Potter, these muggles are not bystanders, but the rope in a giant corporate of tug-of-war. Pharmaceutical companies are hooked on profits and are doing everything they can to get payers to pay more for prescription drugs. People going to pharmacies to fill their prescriptions are caught in the middle, often not knowing what is happening around them.

When Insurance companies introduced copays on prescription drugs, they were making the patient more connected to the cost of treatments. Expensive name-brand drugs would have a higher copay than a generic alternative, so the copays introduced incentives and disincentives for patients and doctors choosing between treatments. The drug companies have countered these efforts with an explosive proliferation of coupons that are used to steer patients into treatments favored by the manufacturer; read more expensive. The coupon alleviates the copay burden for the patient but leaves the insurer to pay the large remaining cost.

The use of coupons is not a new sales strategy for Big Pharma which have used samples, discounts and coupons for years. The only difference is that in the last few years the use of coupons by drug companies has exploded.

“In 2015 the pharmaceutical industry [spent] an estimated $7 billion (up from just $1 billion in 2010) to hand out coupons and discount cards to cover some or all patient copayments for drugs from fibromyalgia pain treatments to brand-name diabetes pills, according to data from IMS Health Holdings.”

Coupons are the latest weapon in manipulating doctor-patient outcomes. When a doctor or patient is aware of a coupon that eliminates out of pocket cost, they are drawn to that treatment. Before coupons were used so widely, insurance companies knew how to set the copay levels to encourage and discourage the use of certain drugs.

“Research shows that the amount of money consumers have to shell out for pharmaceuticals affects their willingness to buy a medicine. When patients have a copay above $50, they’re more than four times as likely to abandon a prescription at the counter than when they have no copay, according to a 2010 study published in the Annals of Internal Medicine.”

The coupons counteracted the chilling effect of a high copay would have on a patient’s likelihood of filling a prescription. The manufacturer is willing to pay the patient’s share because the returns are still excellent. The drug maker can expect, after discounts, a return to be 4-1 or as much as 6-1. This issue inspires little public outcry because coupons and copay discounts are not allowed in Medicare. This is another example of a public payer having a rational approach to counter abuses and monkey business set upon private payers and patients by drug makers. Private payers have no similar protections.

Not surprisingly, the $7 billion dollars worth of coupons last year were an explicit and targeted approach to get patients to take costly name-brand drugs. In many cases there are less expensive alternatives.

“The coupons are most controversial when used for everyday drugs. One 2013 analysis in the New England Journal of Medicine found that 62 percent of coupons studied were for brand-name drugs for which lower-cost alternatives were available.”

Providers have countered the drug companies by banning drugs outright or creating lists that exclude coupons as an option for higher cost specialty drugs. United Health began banning coupons in 2013 with a list that consisted of six specialty drugs. That list has expanded to 35 last year. This year two large Pharmacy Benefit Managers, Express Scripts and CVS, have banned drug lists that number 80 and 120 respectively. This war between the payers and drug makers is fueled by the unrelenting profiteering by Big Pharma.

This war for profit does nothing to help create a marketplace that favors value based treatments. Pharmaceutical companies use coupons as a cynical manipulation of patients and doctors, and they are succeeding. They have the advantage and can dictate terms as they produce the treatments, and their coupons, that are being fought over. There is no magic spell to lower drug costs. Without a governmental regulatory intervention, digital health approaches like the RxREVU platform are the only solutions to reduce prescription drug costs for payers. Tech solutions are what muggles do best.

Rest in Peace Alan Rickman.