NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization

Leemore Dafny, Christopher Ody, Matthew Schmitt

NBER Working Paper No. 22745
Issued in October 2016
NBER Program(s):Health Care, Industrial Organization, Public Economics

Branded pharmaceutical manufacturers frequently offer "copay coupons'" that insulate consumers from cost-sharing, thereby undermining insurers' ability to influence drug utilization. We study the impact of copay coupons on branded drugs first facing generic entry between 2007 and 2010. To overcome endogeneity concerns, we exploit cross-state and cross-consumer variation in coupon legality. We find that coupons increase branded sales by 60+ percent, entirely by reducing the sales of bioequivalent generics. During the five years following generic entry, we estimate that coupons increase total spending by $30 to $120 million per drug, or $700 million to $2.7 billion for our sample alone.

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Document Object Identifier (DOI): 10.3386/w22745

Published: Leemore Dafny & Christopher Ody & Matt Schmitt, 2017. "When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization," American Economic Journal: Economic Policy, vol 9(2), pages 91-123.

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