Stop the war on drug coupons

State shouldn't block efforts that can lower patient expenses

THROUGHOUT HISTORY, some revolutions ended up turning on the very people they claimed to be defending.  With the calls to ban drug coupons, rebels against the drug industry in Massachusetts seem to be turning on patients themselves.

Massachusetts is again considering a ban on drug coupons that significantly reduce out-of-pocket costs for patients, a ban that would take effect on January 1 unless the Legislature acts to reverse it, which they should.

There are certainly situations where policymakers should look askance at the use of drug coupons. When a drug patent expires, for example, and an exact generic copy becomes available for pennies a day, policymakers may rightly want to prevent manufacturers from offering coupons that serve to retain market share for the expensive brand.

But coupon use to prevent generic substitution is already illegal in Massachusetts, so critics cannot point to this type of coupon as representative of the policy issue at stake. To make an informed decision about coupons, policymakers should dive deeper into the drug marketplace.

What some coupon critics fail to grasp is the monumental shift toward rebate payments to pharmacy benefit managers (PBMs) that determine which drugs a health plan will favor and which drugs will be discouraged. Recent data from the respected Pew Charitable Trusts indicate that rebate payments to PBMs grew from $39.7 billion in 2012 to an astonishing $89.5 billion in 2016. Those rebates are paid by manufacturers to influence PBMs’ decisions about how generously to treat a drug on a health plan formulary.

This explosion in rebate payments has been driven by massive consolidation of the PBM industry into three behemoths—Express Scripts, CVS Caremark, and OptumRx—that together control more than two-thirds of the market and whose formulary decisions may determine the overall success of particular drugs.  A manufacturer that does not reach deep into its pockets to pay rebates to these giants may find its drug put on the “4th tier,” where a patient may need to shell out hundreds of dollars in copays or coinsurance to access the drug, which could cause it to be a commercial failure.

The pervasive use of rebates means drug formularies may or may not offer the most therapeutically effective drug in each category with reasonable copays. The development of drug formularies by some PBMs takes on the aura of an opaque rug bazaar in which aggressive bidding by manufacturers may overwhelm clinical value. One recent study from the University of Southern California (USC) pointed out that, “legitimate questions have been raised recently about whether formulary tiering drives market share to the most cost-effective drugs, or if it may be used to drive share to products that offer the largest rebates or profits.” The same study pointed out that to secure greater rebate revenue, “the incentives PBMs are creating to use certain drugs and not others are becoming stronger and more forceful.”

Faced with this non-transparent process, how can patients obtain the drug that is most highly recommended by their own physicians? The answer: use a coupon. USC researchers pointed out that two-thirds of the couponed drugs they studied had “imperfect therapeutic substitutes,” meaning the coupon helped drive patients to the most clinically appropriate drug. When coupons are used to substantially lower out-of-pocket costs for patients who need a drug that has no acceptable substitute, how can policymakers argue for a sweeping ban?

The Massachusetts Health Policy Commission has been tasked with studying coupon use in order to inform the Legislature’s impending decision on a ban. What they are likely to find is that drug coupons do drive up drug costs as patients who could not otherwise afford the copay on a higher cost drug can use the coupon to make it affordable. What they are also likely to find is that most of this coupon use helps patients access the most appropriate drug for their particular condition. There are certainly situations in which a coupon may drive a patient away from a lower cost and effective drug. However, writing a law that captures these diverse therapeutic situations is all but impossible.

To avoid denying patient access to important drugs, the Legislature should permit coupon use in all cases other than generic substitution, and let commercial health plans craft prior approval requirements for drug classes where there are clearly cost effective—and therapeutically effective—options for patients.  Let the market decide whether these health plans make the best decisions about the drugs they provide.

Meet the Author

William Smith

Visiting Fellow, Pioneer Institute
William Smith, PhD, is Visiting Fellow in Life Sciences at the Pioneer Institute, a Boston-based think tank.