How Do Copayment Coupons Affect Branded Drug Prices and Quantities Purchased?

Citation:

Leemore Dafny, Kate Ho, and Edward Kong. Working Paper. “How Do Copayment Coupons Affect Branded Drug Prices and Quantities Purchased?” Conditional Accept, American Economic Journal: Economic Policy.
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Abstract:

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 negoti-
ated 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%.
Last updated on 03/20/2023