When it comes to fixing the dysfunctional U.S. health care system, state Assemblyman Jim Wood, a Healdsburg Democrat, knows there are bigger fish to fry than drug-company discount coupons.
But, as he told me: “You’ve got to start somewhere.”
Wood’s anti-coupon bill, AB 265, was approved by the Assembly last month. The legislation is now making its way through the state Senate.
It’s a tricky business, this bill, because what it would do is prohibit pharmaceutical companies from offering discounts to patients for name-brand drugs if there’s a cheaper generic available.
“A lot of people won’t like that,” acknowledged Wood, a dentist who now serves as chairman of the Assembly Health Committee.
“When folks are offered a coupon, they’ll take it, and the drug companies know this,” he said. “What consumers may not realize is that this contributes to increases in insurance premiums.”
It’s a simple, and sneaky, marketing ploy. Rather than cut sky-high prices for name-brand meds, drug companies have found willing accomplices in patients who’d rather take the drugs they see advertised on TV than a generic equivalent with a long, unpronounceable name.
The catch is that while consumers may reduce their out-of-pocket expenses, the drug company is able to protect its overall revenue _ and keep shareholders happy _ by continuing to seek full reimbursement from insurers.
And that means we all pay for this dubious practice in the form of higher rates.
“This behavior is purely profit-driven,” Wood said. “The drug companies want to hold on to market share for as long as they can. But somebody has to pay for it.”
A recent study by researchers at UCLA, Harvard and Northwestern found that coupons enabled pharmaceutical companies to mask price hikes, allowing them to raise prices significantly faster than for drugs without coupons.
Spending on about two dozen drugs sold with coupons was as much as $2.7 billion higher over five years than it would have been if the coupons weren’t used, the researchers estimated.
Massachusetts prohibited use of drug coupons if a generic equivalent was available five years ago. Similar legislation is pending in New Jersey. Federal law forbids use of such coupons by Medicare and Medicaid beneficiaries.
Wood’s bill would bar drug companies “from offering in California any discount, repayment, product voucher or other reduction in an individual’s out-of-pocket expenses … for any prescription drug if a lower cost generic drug is covered under the individual’s health plan.”
Matt Schmitt, an assistant professor of strategy at the UCLA Anderson School of Management and co-author of the above study, told me that the legislation would help consumers by promoting use of generic drugs and eliminating at least one reason for insurance rate hikes.
He said drug companies have figured out that it’s cheaper and more beneficial for them to offer discounts for name-brand meds than to cut prices.
“That may be good for drug companies,” Schmitt said, “but insurers get stuck paying full cost for branded drugs, which drives up premiums for everyone.”
Not surprisingly, the drug industry has its knickers in a twist over Wood’s bill — and is expected to mount an aggressive lobbying campaign ahead of a state Senate vote. The industry’s official position is that if coupons save people money, what’s the harm?