Coupons let consumers save money on brand-name goods and services. Stores use them to attract shoppers. Manufacturers use them to promote new products.
Pharmaceutical companies try to do the same, but unfortunately, the use of copay cards and coupons has a down side in the medical world. Although the price might be lowered for some, they lead to overall increases in the health care costs for everyone.
How can saving money actually drive up costs?
First, you’ve got to look at it from the perspective of the drug companies. After all, they research and develop new medications, and there is a huge up-front cost to that endeavor.
Not all discoveries lead to a marketable product, with an estimated 12% of medications making it through clinical trials. But all of those upfront costs have to be recouped somehow. For those drugs that do make it, the price for the product is often inflated to cover the costs of all of the others that didn’t.
That’s why the overall cost of medication is often much higher than would be expected. This is even true for brand-name medications that are copycats designed to mimic another drug already on the market.
The goal is to divert market share from the original and increase profits. But it’s rare that a new brand-name drug is priced significantly lower than the competition. Thus the number of choices might increase, but the overall price doesn’t go down much.
That’s where generics come in. These are medications that are required by the federal Food and Drug Administration to have the same active ingredients, and treat the same conditions as the original drugs, with no modifications in dose or delivery.
Generics are usually much cheaper than the original.
Once a patent runs out, usually after 15 years, any medication can be made by a generic manufacturer, and offered at a discount, since the cost for research and development isn’t there.
This represents a chance for everyone to benefit from lower prices for drugs and lower premiums for insurance. At least that’s the theory.
Realizing their ability to recoup costs is limited in duration, some pharmaceutical companies find ways to continue to profit by either buying the generic manufacturer, or in some cases, insuring that their drug is cheaper to patients at the point of sale by offering coupons or free copay cards to be presented at the pharmacy, versus a $5 or $10 copay for the generic equivalent.
More desirable than coupons, of course, would be lower overall prices for drugs in general.
Patients benefitting from those offers save money in the short run, but the insurance company has to pay for the brand name at a much higher cost than the generic. In some cases, this can run into the thousands of dollars per year.
Overall drug costs are factored into premiums for medical insurance. If more people are being induced to choose the brand-name medications, then the higher cost for medication has to be paid by everyone through premium increases — even those who don’t use any medication at all.
Medications that do have coupons also increase in price more than those without. This increase can be up to 12-13% per year, while no-coupon meds go up in price on average 7-8%. The higher costs might be the way companies can afford to offer the discounts in the first place.
And when patients’ coupons or copay cards expire, they pay much more if they stay on the same medication. They might stop taking any medication for their condition, possibly leading to serious health consequences.
Those coupons and copay cards also have the potential to encourage physicians to prescribe medication that might not be otherwise used, for example when older medications are available to treat the same condition.
If doctors and patients are more insulated from the cost considerations, other factors might sway decisions on care, like the number of pills per day, or the convenience of taking them with food versus without.
More desirable than coupons, of course, would be lower overall prices for drugs in general. If a brand-name drug costs more than a generic, rather than trying to lure patients to staying on the expensive medication, its maker could just match the generic price.
At that point the brand-name product with its built-in name familiarity might well outperform the generic.
Until that day comes, consumers might want to consider the hidden costs of those coupons and free copay cards and stick with generic alternatives when they’re available. This will lower the overall cost for everyone.
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Kathleen Kozak, M.D., is an internal medicine physician at Straub Clinic and Hospital. She is also a part-time medical director for UHA Health Insurance and is the host of “The Body Show” on Hawaii Public Radio.