How Do Copayment Coupons Affect Branded Drug Prices and Quantities Purchased?
Drug copayment coupons to reduce patient cost-sharing have become nearly ubiquitous for high-priced brand-name prescription drugs. Medicare bans such coupons on the grounds that they are kickbacks that induce utilization, but they are commonly used by commercially-insured enrollees. We estimate the causal effects of coupons for branded drugs without bioequivalent generics using variation in coupon introductions over time and comparing differential responses across enrollees in commercial and Medicare Advantage plans. Using data on net-of-rebate prices and quantities from a large Pharmacy Benefits Manager, we find that coupons increase quantity sold by 21-23% for the commercial segment relative to Medicare Advantage in the year after introduction, but do not differentially impact net-of-rebate prices, at least in the short-run. To quantify the equilibrium price effects of coupons, we employ individual-level data to estimate a discrete choice model of demand for multiple sclerosis drugs. We use our demand estimates to parameterize a model of drug price negotiations. For this category of drugs, we estimate that coupons raise negotiated prices by 8% and result in just under $1 billion in increased U.S. spending annually. Combined, the results suggest copayment coupons increase spending on couponed drugs without bioequivalent generics by up to 30 percent.
We are grateful for comments from Hanming Fang, Alex Olssen, David Ridley, Benjamin Handel, and seminar participants at Wharton, the University of Utah Eccles School of Business, the American Society of Health Economics Annual Meeting, and the American Economics Association Annual Meetings for helpful comments. We thank Amina Abdu, Teresa Rokos, Olivia Zhao, and Ran Zhuo for excellent research assistance. We especially thank Chris Ody for insightful comments and data contributions. Edward Kong received funding from NIA training grant (T32AG51108). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
1. I did not receive any financial support for my work on the paper referenced above.
2. I have received payments for economic consulting in the past three years from Bates White Economic Consulting, Analysis Group, and Cornerstone Research. To the best of my knowledge, none of these firms has any stake in the paper referenced above, although some clients have businesses that could be impacted by hypothetical policy reforms discussed in the article. I also have worked and continue to work on behalf of state and federal agencies on various matters in the healthcare industry. Otherwise I have no relevant material or financial interests relating to this research.
3. I am not an officer, director, or board member in a profit or non-profit organization that has a relevant relationship to the contents of the article referenced above.
4. None of my close relatives have received any financial support for my work on the paper referenced above. None of my close relatives have received any financial support in the past three years from a party that would have a financial, ideological, or political stake in the paper referenced above. None of my close relatives are an officer, director, or board member in a profit or non-profit organization that has a relevant relationship to the contents of the article referenced above.
5. The only parties that have had the right to review the contents of the paper prior to circulation are our data sources: the Health Care Cost Institute and the Pharmaceutical Benefits Manager described in the article. This was only to ascertain that the written paper does not disclose any confidential information, and in the case of the PBM, to “decide whether to grant or deny permission to reveal the organization’s name in the scholarly work.”
- Pharmaceutical companies have succeeded in boosting demand for high-priced brand-name drugs by offering coupons to offset patient...