Co-pay coupons, armor-piercing bullets and radar detectors

In the olden days pharmaceutical companies boosted sales through detailing, advertising and other sales and marketing techniques aimed at physicians. With open formularies, low co-pays, and an accessible physician audience, it was the way to go.

But times have changed. Multi-tier formularies with high co-pays are the norm, which means patients pay a lot more for drugs that aren’t in the most attractive tier. The high co-pays for less favored drugs help health plans offset some of the added expense they incur, but the main purpose is as a signal to the patient to choose a product from the favored tier. When a patient chooses a product with a high co-pay the health plan isn’t pleased. The patient might pay $50 more but the health plan could end up paying hundreds extra, or even thousands.

Pharmaceutical companies are smart and have figured out that it’s well worth their trouble to pay consumers’ co-pays, because the net revenue lift can still be very high once health plan spending is factored in. What’s more, if the companies are clever they can position their coupons as prescription assistance rather than marketing. As FiercePharma explains, Co-pay help boosts drugs, scares payers. It should scare payers because it effectively wipes out the price signals payers are trying to send. It could also drive up pharmacy costs and premiums, too, so this is not an automatic win for consumers or employers who purchase insurance.

This issue is not exactly new. Here’s what I wrote about the topic on the Health Business Blog five years ago, justifying Massachusetts’ position as the only state to outlaw such coupons:

Some states outlaw radar detectors. Why? To preserve the effectiveness of radar guns as a law enforcement tool.

Some jurisdictions outlaw armor piercing ammunition. Why? To preserve the effectiveness of police officers’ bullet proof vests.

Same deal here. Differential co-pays help health insurers and purchasers –including governments– achieve their cost and quality goals. Outlawing drug coupons helps preserve the effectiveness of this tool. It’s a conscious tradeoff against consumer freedom.

That logic still stands as far as I’m concerned.

January 3, 2011

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