How Do Copayment Coupons Affect Branded Drug Prices and Quantities Purchased?

Drug copayment coupons to reduce patient cost-sharing have become nearly ubiquitous for high-priced brand-name prescription drugs. Medicare bans such coupons on the grounds that they are kickbacks that induce utilization, but they are commonly used by commerciallyinsured enrollees. We estimate the causal effects of coupons for branded drugs without bioequivalent generics using variation in coupon introductions over time and comparing differential responses across enrollees in commercial and Medicare Advantage plans. Using data on net-of-rebate prices and quantities from a large Pharmacy Benefits Manager, we find that coupons increase quantity sold by 21-23% for the commercial segment relative to Medicare Advantage in the year after introduction, but do not differentially impact net-of-rebate prices, at least in the short-run. To quantify the equilibrium price effects of coupons, we employ individual-level data to estimate a discrete choice model of demand for multiple sclerosis drugs. We use our demand estimates to parameterize a model of drug price negotiations. 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%. ∗Dafny: ldafny@hbs.edu. Ho: kate.ho@princeton.edu Kong: edwardkong@fas.harvard.edu. We are grateful for comments from Hanming Fang, Alex Olssen, David Ridley, Benjamin Handel, and seminar participants at Wharton, the American Society of Health Economics Annual Meeting, and the American Economics Association Annual Meetings for helpful comments. We thank Amina Abdu, Teresa Rokos, Olivia Zhao, and Ran Zhuo for excellent research assistance. We especially thank Chris Ody for insightful comments and data contributions.