A while back I wrote about drug company copay assistance programs. The purpose of these is to entice patients to use higher-cost brand drugs by blunting health plan incentives for enrollees to choose lower-cost drug options. Here is what the May 2022 NBER Digest has to say:
Coupons that reduce copayment costs for brand-name drugs undermine insurers’ efforts to promote more cost-effective drug therapies.
Copays on brand-name drugs are often a function of the drug’s price. It’s cheaper for drug makers to reduce the cost to patients by reimbursing their copays than reducing the cost to both patient and health plan with lower drug prices. By the way, it is illegal to offer Medicare drug plan members copay assistance because it runs afoul of antikickback statutes.
Now it turns out drug makers aren’t the only ones profiting from copay assistance. It was reported in the Wall Street Journal that a drug-benefit middleman exploited a copay assistance program designed to benefit patients. Johnson & Johnson Healthcare Systems says it lost at least $100 million to the scheme. A drug benefits middleman would inflate patients’ copays in order for patients to qualify for higher copay assistance. It would then take a cut of the copay assistance and forward much of the savings to the health plan payer. Johnson & Johnson alleges its copay assistance costs were not only inflated but being used to lower drug costs for the payer rather than going entirely for the patient. More about this here.
Past research has shown that copay assistance increases utilization of brand-name drugs by 21% to 23%, when private insurance is compared to Medicare Advantage plans (MA). Medicare Advantage is a good control group since copay assistance is not allowed in government programs. Copay assistance also boosts prices and total expenditures. This is from a February 2022 National Bureau of Economic Research (NBER) working paper.
For this category of drugs, we estimate that coupons raise negotiated 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 percent.
In the quarters after a copay assistance coupon is introduced, use of the drug by commercially insured patients rises compared to MA plans. A graphic that illustrates this is available here.
3 thoughts on “Drug Maker’s Copay Assistance Ended Up in Drug Plans’ Pockets”
Interesting. If insurance is a contract of adhesion between the insured and the company. ( The insured is transferring risk to the company and the company agrees to assume that risk for a fee ). The insured must meet the agreed upon out of pocket thresholds like deductibles, co insurance and copays. Once the insured has met the agreed upon thresholds then the risk transfers to the company. In the article, the insureds are not meeting the agreed upon threshold in which the risk would transfer to the insurance company. Why are insurance companies paying if the insured has not meet the threshold obligation?
It’s really no different than a hospital waving deductibles or other out of pocket costs . Same as a roofer or auto shop waving deductibles and just taking what insurance companies will pay. In these examples the insured has never met the obligation so the insurance company isn’t obligated to pay.
One of the biggest problems with the Medicare Program is over utilization. People with traditional Medicare and supplements have no financial barriers to use the program. One of the reasons Medicare advantage is saving Medicare money is that small out of pocket costs help deter some of the needless over utilization.. The best way to end the over utilization in any program is to give insureds financial incentives to make wise rational decisions . The program best suited to give financial incentives to insureds to end over utilization exists today. Sadly not one politician, media outlet or policy wonk is talking about how powerful the Medicare MSA program is.
If every individual in America were allowed to participate in the Medicare MSA program things like this would not happen. The blue print to our nations healthcare reform the Medicare MSA!
“A drug benefits middleman would inflate patients’ copays in order for patients to qualify for higher copay assistance. It would then take a cut of the copay assistance and forward much of the savings to the health plan payer. ”
That’s fraud. The “middleman” defrauds the payer by inflating the true price, then keeping for itself a part of of the fraudently-obtained copay assistance.
Which also helps explain, btw, why the practice is outlawed by Medicare. It’s a kickback scheme. Or, in fewer syllables – fraud.
Yes, but it should be illegal in commercial insurance as well. I have little sympathy for the drug maker, who invented a means to sell high priced drugs to patients not paying the cost who then find they’re program is also subject to fraud.