When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization

Leemore Dafny, Christopher Ody and Matt Schmitt

No 22745, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Branded pharmaceutical manufacturers frequently offer "copay coupons'" that insulate consumers from cost-sharing, thereby undermining insurers' ability to influence drug utilization. We study the impact of copay coupons on branded drugs first facing generic entry between 2007 and 2010. To overcome endogeneity concerns, we exploit cross-state and cross-consumer variation in coupon legality. We find that coupons increase branded sales by 60+ percent, entirely by reducing the sales of bioequivalent generics. During the five years following generic entry, we estimate that coupons increase total spending by $30 to $120 million per drug, or $700 million to $2.7 billion for our sample alone.

JEL-codes: I11 L40 L65 (search for similar items in EconPapers)
Date: 2016-10
New Economics Papers: this item is included in nep-ipr and nep-mkt
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Citations: View citations in EconPapers (2)

Published as Leemore Dafny & Christopher Ody & Matt Schmitt, 2017. "When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization," American Economic Journal: Economic Policy, vol 9(2), pages 91-123.

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