To lower costs and encourage the use of generics, most insurance programs have a tiered copay system, where the consumer is free to choose a more expensive drug covered under the plan, but must shoulder some of the extra cost in the form of higher copays. To recapture market share for branded drugs from generic competition, drug companies offer consumers incentives in the form of rebate coupons. Consumers who buy their drugs though private insurance are reimbursed for the copay on a branded drug to bring the copay cost near to, or in some cases lower than, that for the generic competition. A report released this week by The Pharmaceutical Care Management Association (PCMA) takes aim at this practice, claiming that it will raise health care costs for employers, unions, and state governments by as much as $32 billion.

The report, commissioned by PCMA and prepared by Visante, analyzed the consequences of coupon use.  For the consumer, consequences are benign—branded drugs at lower cost.  However, according to the report, lower cost to the consumer comes at the expense of payers, who must cover more expensive drugs.  The report also claims that costs incurred by the drug companies by offering rebates are simply rolled into the cost of the drug, and passed back to consumers and payers. The report notes that the use of rebate coupons has risen by 260% in two years, and estimates extra costs associated with coupon use to reach $32 billion over the next 10 years.

The use of rebate coupons is barred in Medicare and Medicaid programs, where the government is the payer, according to the report. Alone among US states, Massachusetts, which has a mandatory health insurance law, bans the use of coupons.
This is yet another instance in which drug pricing does not adhere to the rules applied to consumer products. Cereal manufacturers have been using coupons for decades to retain market share and encourage brand loyalty. The difference here is that the cost of a drug is shared between the insurer and the consumer, with the insurer often paying the lions share. If those rebate coupons were being offered to the payers, I doubt PCMA would be as vocal in their opposition. But generics manufacturers would still have something to say.