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Insurance companies are increasingly emphasizing value-based plans to align consumer spending with the value generated by a service or drug. However, pharmaceutical makers are seriously undermining these efforts by issuing “copayment coupons.”
Insurance companies are increasingly emphasizing value-based plans to align consumer spending with the value generated by a service or drug. However, pharmaceutical makers are seriously undermining these efforts by issuing “copayment coupons.” With coupons, the consumer’s cost for a higher-tier brand-name drug may actually be less than it would be for a lower-tier generic. In fact, experts say, with a coupon, an expensive drug may even cost the patient nothing.
The lead author of a 2016 New England Journal of Medicine (NEJM) article about copayment coupons, Leemore S. Dafny, Ph.D., explains that consumers view coupons as a discount. At the moment of the purchase, they seem to benefit patients. Still, as coupons increasingly shift spending toward pricey brand-name drugs, the net effect is greater pharmaceutical spending and higher health insurance premiums, which hurt those same consumers. Coupons also further the upward spiral in healthcare spending, according to Dafny Furthermore, coupons do not help those patients who need help most. The coupons are not means-tested, and they generally don’t work for uninsured people.
Insurers try to encourage patients to choose lower-cost medications through the use of formularies. With formularies, patients have higher copayments for higher-priced medications and lower copayments for lower-priced ones. These approaches have been helping insurers increase the use of lower-cost drugs, mostly generics.
Dafny explains that copayment coupon programs were expressly designed to undermine such cost-sharing by cutting or eliminating the patients’ copayments. When a patient uses a coupon to buy a higher-cost brand name drug instead of an equally effective lower-cost generic, the insurer is stuck paying its share of the cost for the expensive brand name drug. The coupon has reduced the patient’s immediate costs, but the insurer is paying a large percentage of the cost of an expensive medication when, if the patient had not used a coupon, the insurer would have paid its share of the cost for a more economical drug.
In the NEJM article, the authors wrote that “the number of coupons has skyrocketed,” and that “they have increased the percentage of prescriptions filled with brand-name formulations more than 60%.” A report issued by the Office of the Inspector General within the U.S. Department of Health and Human Services describes the mechanics this way: Pharmacies implement the coupons at the point of sale in such a way that their use is actually invisible to health insurers. When a patient buys a drug with a coupon, the pharmacist first processes the patient’s primary insurance. That insurance company responds to the pharmacist and tells them the amount of the patient’s copay. The pharmacist then processes the copayment coupon. A third party called a coupon vendor processes the coupon on behalf of the drug manufacturer, and responds to the pharmacist with the patient’s final copayment amount, if the patient does still have to pay any portion of the copay.
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Processing drug coupons entails some extra work for the pharmacist, who receives a small additional fee for their trouble from the third party coupon vendor, on behalf of the drug company. This additional fee acts as an incentive to the pharmacist to process coupons.
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It’s hard for organizations besides manufacturers to recognize coupons as they are being processed at pharmacies because the coupons are usually processed as secondary insurance claims, after the patient’s primary insurance claim has been processed. This approach keeps insurers from blocking coupon use. The reason that it can be impossible to distinguish a coupon claim from a secondary insurance claim is that both manufacturers and insurers use banking identification numbers (BINs) to direct claims through a pharmacy’s claims transaction system. Manufacturers do not reveal the BINs that are tied to coupons to outside organizations, such as insurers.
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Say a certain patient usually has a 20% copayment for prescribed medications. That patient might buy a generic drug that costs $600 and is just as effective as a brand name drug costing $1,000, for which the patient has a coupon covering the full copayment. For the generic drug the patient copayment would be $120, at 20%, and the insurer would pay the remaining 80%, or $380. By using the coupon, the patient avoids what would have been a $200 copayment (20% of $1,000), and the drug maker pays that $200 to the pharmacy. Meanwhile, the insurer is left to pay $800, or 80% of the cost of the $1,000 branded drug. That $800 copay is $420 higher than the amount that the insurer would have paid with the generic drug. Multiply that $420 in extra spending by, say, 5,000 transactions, and you get a total of $2.1 million in additional spending on the part of the insurer, who passes the costs on to patients as higher premiums.
Martin Derrow, MD, who practices internal medicine in Maitland, Florida, says that he usually writes prescriptions for generic drugs, which generally work well for patients with the chronic diseases that he often treats: diabetes, high blood pressure and coronary disease. Coupons just are not valuable in those cases, he says.
Pharmaceutical manufacturers generally issue coupons for costly, newer drugs. Derrow says that he usually explains to a patient who arrives with a coupon that the generic may be a better choice overall.
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“I tell them that I use medicines that have solid evidence to support their use,” he says. He explains that the use of generics is often supported by long-term outcomes data. Such data shows real improvements in measures such as mortality or, in the case of diabetes, the likelihood of having nerve damage or kidney failure. In contrast, for newer drugs, such outcomes data is often unavailable. The data that is available for expensive, new drugs may reflect markers only-something like an A1C level, rather than kidney failure or blindness, in the case of a diabetes drug.
Derrow will, at times, prescribe a branded drug, for which a patient has a coupon. He said that he does so when the drugs he normally prescribes are not working well, and he needs an alternative.
Mark Puffenberger, MD, a partner with the InterMountain Medical Group in Kingston, Pennsylvania, reports that few of his patients ask to use coupons. When it has happened, he says, he has generally written the prescription for the drug the patient requested.
“Honestly, if they want it and can get it for zero copay, I would prescribe it even if the generic is available,” he says. “It may be the wrong answer for the healthcare system as a whole, but when it’s just me and the person in the room, I am going to do what’s best for them.”
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Federal law prohibits the use of copayment coupons by participants in Medicare and Medicaid, treating them as kickbacks. Nonetheless, according to Dafny, about 6% of Medicare enrollees do redeem coupons despite the illegality.
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Manufacturers are supposed to make clear through prominent warnings on the coupons themselves that their use is forbidden for Medicare and Medicaid recipients. Manufacturers can be prosecuted for failure to include such clear warnings. Pharmacies can also be held liable for such misuse of coupons.
In 1988, the state of Massachusetts banned use of copayment coupons, but the state repealed that ban in 2012 due to consumer pressure. In recent years, scores of organizations representing consumers, seniors, labor unions, nonprofit health plans and other interest groups have aligned themselves with health insurers to oppose coupon use. Meanwhile, despite that opposition, the use of coupons in the healthcare marketplace has continued to expand. According to Managed Care magazine, 86 copayment coupon programs existed in 2009, and by 2012 coupon programs existed for more than 370 drugs. In 2016, the NEJM authors describe the availability of coupons as “rampant.”
In each clinical encounter, a physician has an opportunity to act in the best interests of an individual patient in a particular situation. Sometimes, in the short run, it seems that may mean condoning the use of a copayment coupon.
However, Derrow, who rarely uses coupons, says that because coupon use leads to higher premiums over the long haul, he ordinarily talks with his patients who would do well on low-cost, high-value drugs about using them instead of a costly new medicines. Choosing high value medications, he says, is usually best for his patients, and also saves the system as a whole a lot of money.