Like using that drug coupon? Its days may be numbered

Co-pay coupons offered by drug makers are controversial.

Where patients see a way to reduce or eliminate the out-of-pocket cost of their medications, health plans see a menace that pushes patients to take more expensive drugs.

The issue has prompted U.S. government scrutiny, led federal health programs to bar those they insure from using the coupons, and even caused states to limit or consider limiting their use.

Health insurers are also firing back, with new programs that target co-pay coupons for pricey drugs. The changes should help health plans achieve a long-desired outcome: curbing rising drug costs.

And, because the programs take advantage of co-pay coupons, they could become a lot more expensive for drug manufacturers to offer, potentially changing or even endangering the coupons themselves.

Though the new coupon-curtailment programs are in their early days, patients are already paying the price, patient advocates charge. Many of the affected drugs don’t have lower-cost alternatives, they say, and are financially out of reach without co-pay coupons.

“This is potentially catastrophic for a lot of rare-disease patients,” said Kollet Koulianos, the National Hemophilia Foundation’s senior director of payer relations. “The cost could prevent them from accessing their medications, period,” which could put at risk the medications’ required regular use.

Read: The real reason drug makers offer discount cards (you’ll pay eventually)

A contentious history, and a solution

Co-pay coupons have been offered for at least a decade, experts say, and the growth of coupon programs has accelerated in recent years.

To some extent, the co-pay coupons work just like any other coupon, by reducing how much a consumer pays at checkout. They can be found in such places as a doctor’s office, online or even in an advertisement.

But co-pay coupons also differ in an important way. Because of health insurance, most patients only see a fraction of the cost of their medication. A co-pay coupon works only on that piece, not the drug’s total price tag.

Drug makers say that coupons play a critical financial role, especially as health plans increasingly shift costs to consumers. Under a high-deductible health plan, for example, a patient might have to pay $6,000 out-of-pocket before his or her health plan picks up the tab.

But others, including industry players and a growing body of research, say that the coupons instead elevate health-care costs.

Generally, the more expensive a drug, the more a patient’s wallet feels it. By cutting down or eliminating out-of-pocket costs, coupons subvert those financial incentives to choose the cheaper drug, health insurers and others argue.

When co-pay coupons were offered on 23 drugs facing generic competition for the first time between 2007 and 2010, total drug spending increased an estimated $700 million to $2.7 billion more than it would have without coupons, according to a New England Journal of Medicine article published last year.

Related: Why did these generic drugs’ prices jump as much as 85%?

Coupons are a marketing expense for drug makers — and one that’s intended to cheat health insurers and employers — in the view of Adriane Fugh-Berman, a professor of pharmacology and physiology at Georgetown University.

“It’s a great investment for pharmaceutical companies. If your drug costs $1,000 and the co-pay is preventing patients from getting it, then paying $50 still means you’re making $950 off that prescription,” Fugh-Berman said. “It’s very cost-effective for pharmaceutical companies.”

Coupon use also makes it appear that a consumer has met his or her deductible or out-of-pocket maximum. For example, a consumer who uses a $6,000 coupon may appear to have met her $6,000 deductible, though she has in reality paid nothing out of pocket.

Related: This is what your health insurance looks like this year

Usually processed through separate systems, coupons are “very hard for us to study,” said Chad Murphy, vice president of pharmacy and strategic programs for Premera Blue Cross, a nonprofit health-insurance company based in Washington state. “We’ve been looking for a solution [for years],” he said.

(Premera Blue Cross hasn’t implemented a program to rein in coupon use but is evaluating them, Murphy told MarketWatch.)

All of this comes at a time when drug spending is “increasing at a greater rate than any other health-care cost that [employers] have,” said Ellen Kelsay, chief strategy officer at the National Business Group on Health, which represents large employers on health-policy issues in Washington, D.C.

That trend is especially true of costly brand-name drugs, she said, many of them specialty drugs that treat complicated or chronic diseases.

Companies have previously tried blocking the use of co-pay coupons for certain medications and at certain pharmacies. But the latest approaches have taken a very different tack by instead taking advantage of the coupons, just not to the benefit of consumer out-of-pocket costs.

New programs offered by Express Scripts Holding Co. ESRX, -0.05% UnitedHealth Group Inc.’s UNH, +0.55% OptumRx and CVS Health Corp. CVS, -0.09% — among the largest U.S. pharmacy-benefit managers — seem poised to take off industrywide, experts told MarketWatch.

The most promising program targets high-cost specialty drugs, using the co-pay coupon to offset the drug’s total cost instead of the consumer’s co-pay. Pharmacy-benefit managers are able to do this, and to offer the program for free, by requiring that health plans exclusively deal with a certain specialty drug pharmacy.

Before the program, a patient using a coupon would very quickly meet her health plan’s out-of-pocket requirements, at which point the coupon would no longer be necessary.

Under the change, however, the coupon could be used many more times and the patient would pay more out of pocket, making the co-pay coupon more expensive for the drug maker and reducing the health plan’s total drug costs by an estimated 1% to 3%.

The program has attracted a good deal of health-plan interest, experts told MarketWatch.

See: Drug stocks surge on report that President Trump plans to ease industry regulations

Prime Therapeutics, a pharmacy-benefit manager owned by 14 Blue Cross and Blue Shield plans, began rolling out such a program at the start of this year across several states, according to Chief Clinical Officer David Lassen.

“That deductible is meant to be applied. That member is meant to pay something out of pocket,” he said. “By ensuring that that coupon does not apply to the out-of-pocket max, we’re helping to ensure that we’re lowering overall health-care costs.”

But for some individuals with rare diseases, this has made it harder to afford their medications.

Koulianos, of the National Hemophilia Foundation, said that she knows of about 50 people affected, and that the number is growing. “While we agree that this is in theory a good mechanism to help patients consider, ‘I better take the lower-cost drug’… in this case there is no lower-cost drug,” she said. If patients can’t afford their medications, they could end up in the hospital, or worse, she said.

Another new co-pay coupon-circumvention program has a similar goal — taking advantage of drug makers’ coupons — but approaches it differently.

The manufacturer coupons are often valued at far more each year or per drug than patients pay out of pocket. So pharmacy-benefit managers adjust the co-pay amount patients pay for certain drugs up to coupon thresholds, to take advantage of the coupon’s total possible value.

Only certain drugs will be affected, with expensive cancer and hepatitis C drugs likely targeted, amounting to estimated drug-cost savings of 2% to 4%. But because the program requires making changes to a health plan, it’s expected to have reduced or limited interest.

It also raises questions about how those who don’t use co-pay coupons might be affected.

Still, some say that, like an endless game of whack-a-mole, the battle over co-pay coupons is unlikely to end anytime soon. “While there may be countermeasures put into place, it will just continue to evolve,” said Premera Blue Cross’s Murphy. “I don’t know if we’ll ever fully solve the issue.”

Express Scripts declined to make a representative available for comment. UnitedHealth did not return MarketWatch’s request for comment.

The Health Car Select Sector SPDR exchange-traded fund XLV, +0.51%  has gained 14.5% in 2017, while the S&P 500 SPX, +0.64%  has gained 8%.

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