How drug coupons 'undermine' payers' efforts to limit healthcare costs

Consumer drug vouchers for pricey pharmaceuticals--like Mylan’s EpiPen--may lead to market failures that dissolve the incentive for powerful pharmaceutical firms to reduce prescription drug prices, hurting payers' cost-control efforts.

Medicare Part D spending on EpiPens grew more than 1,150 percent over a seven-year period from 2007 to 2014 while the number of beneficiaries receiving the treatment increased a disproportionate 164 percent. The ensuing public frustration resulted in CEO Heather Bresch to testifying at a Senate hearing to defend the 400 to 500 percent price hikes.

Here are five ways, according to a article published in the Annals of Internal Medicine, that vouchers to help offset the cost of drugs like EpiPens interrupts the proper functioning of the market--and subsequently contributes to higher future healthcare costs:

  • Co-pay assistance placates “public outcry.” Public pressure, such as articles about the high cost of EpiPens, seemed to be correlated with a “reduction in the magnitude” of price hikes by Mylan, the authors note. Appeasing consumer anger can circumvent such processes, and therefore lessen pressure on companies like Mylan to reduce prices.  
  • The vouchers subvert insurers' strategies to limit healthcare utilization for low-premium, high-deductible enrollees. Low-premium, high out-of-pocket expense health insurance plans shift the burden of healthcare utilization onto consumers, nudging them to use fewer healthcare services--which lower total healthcare expenditures. The co-pay assistance programs “undermine” this effort, pressuring insurers to increase premiums across the board, the authors say.
  • They create an artificial price distortion. High prices are supposed to encourage consumer shrewdness in the marketplace, according to the authors, which theoretically should “include scrutiny” of product price and quality. The researchers thus conclude copay coupons “keep patients from acting as consumers,” reducing the incentive for consumers to factor price into their decisions and further decreasing the incentive for pharmaceutical firms to lower their prices.
  • The tactic handcuffs insurers’ leverage during negotiation with drug companies. Insurers that reach price concession agreements with drug producers reflect this in their formulary tiers with lower out-of-pocket costs--and vice versa for manufacturers that insist on high prices. Pharmaceutical companies like Mylan, which offered patients $300 coupons, are able to sidestep this mechanism by keeping out-of-pocket expenses lower for consumers when insurers aim to keep them high.
  • Co-pay assistance programs don’t live up to their promises. Pharmaceutical companies don’t provide financial assistance to all filled prescriptions, only for patients who haven’t hit their deductible to have their insurer prescription benefit kick in. Insurers can’t ascertain payments made by patients versus those covered by the co-pay coupons, ultimately helping patients hit out-of-pocket maximums quicker. For specialty drugs that can cost up to $10,000 per month, insurers can be left to foot the bill much earlier in the year.