Image the predicament of drug company executives when patent protection runs out on their flagship drugs, forcing them to compete with products that are vastly cheaper, yet essentially do the same thing.
All things being equal, consumers will migrate to the generic alternative, instead of paying a large out-of-pocket co-payment for the brand-name version.
In order solve this dilemma, the ever-ingenious drug companies invented a solution to reduce or eliminate the costly co-pay for consumers. Now they simply provide patients with co-payment cards or coupons, according to a story in Sunday’s New York Times.
Pfizer just introduced one such card for its blockbuster drug Lipitor. Instead of a $50-plus co-payment, the card brings the price down to a little as $4, the same amount charged by Wal-Mart for a generic version of the statin.
On the surface it appears as a good deal for consumers, but to the extent it increases the costs that insurance companies pay for medications, the cards and coupons make insurance premiums that much more expensive. Both insurance companies and consumer groups call the coupons marketing gimmicks, that enrich wealthy drug companies at the eventual expense of the consumer, by driving up the cost of providing the prescription benefit.
Drug manufacturer Medicis uses the coupon scheme to push its product Solodyn, a once-per-day formulation of the antibiotic minocycline used to treat acne. A month’s supply of the medication runs about $700, instead of about $40 for the generic version. The only difference is that the generic version of minocycline must be taken twice per day.
The company’s website offers a discount card to consumers, reducing the cost to under $10 per month, providing that patients have health insurance. Good for the consumer, but the insurance company gets stuck with a bill in the hundreds of dollars, instead of the $40.
The Times reported that in a presentation to investors, the company said that the majority of patients use the co-pay card to purchase Solodyn, which recently helped double the number of prescriptions to 26,000 per week.
When insurance companies are presented the bill for brand-name drugs over the generic alternative, the impact on premiums can be exceedingly high.
Take for example the costs paid by the health plan at District 37, a union representing public employees in New York City. During the year ended June 2009, the cost of cholesterol-lowering statins was $17.3 million for 59 percent of such claims, and only $179,000 for the generic version of similar statins representing the other 41 percent of claims.
While drug cards and coupons are freely available and used frequently by patients for expensive drugs, the companies are barred for offering them to patients in federal programs such as Medicare, since they are considered an inducement to use the product and violate anti-kickback laws.
Insurance companies and pharmacy benefit management companies would like to somehow eliminate the coupons and cards, but say that there is little they can do at the moment. The existing system isn’t able to provide them with information on whether the patient or the drug company was responsible for the co-payment.