Drug companies love to say coupons are helping offset rising costs, but new research shows that's not always true

When Mylan was facing a fury over the price of its EpiPen this summer, it touted a new savings card — increasing the assistance if offered some consumers to $300 per two-pack.

It meant some of Mylan’s customers — like those with huge insurance co-payments — just got an extra $200 toward the $600 cost of buying EpiPens.

That’s basically like a price cut, right? Well, when it comes to drug prices, nothing is ever that simple.

Savings cards and coupons like Mylan’s are presented by drugmakers as a solution to high drug prices, but their critics say they’re actually contributing to the rise in healthcare costs in America. They benefit a small number of people who need them, while other, bigger parts of the system — notably insurance companies (and their customers) — wind up bearing the brunt of the price hikes that they’re meant to offset.

“When you first hear about coupons, you think, how could this be bad?” Matt Schmitt, a professor of strategy at UCLA told Business Insider. “The key realisation is that the co-pay is a small fraction of the total costs.”

Schmitt is one of the authors of research recently published in the New England Journal of Medicine that illustrates the downside of coupons. The researchers looked at how co-pay coupons affected spending on 23 branded drugs that started to face generic competition between 2007 and 2010. Drugmakers facing generic competition commonly use coupons to make their branded drugs more appealing in comparison to the new, cheaper, alternative.

By the researcher’s estimates, coupons actually led to increased spending on those 23 drugs anywhere from $700 million to $2.7 billion in the first five years that generic competition was out there.

Here’s how that happens: Say you have a prescription you need to pay for and you have commercial insurance.

Either because you haven’t hit your deductible (the amount of money you’re on the hook for paying before your insurance starts picking up most of the tab), or because there’s a high co-pay assigned to the drug, you’re stuck paying $50 for a month’s supply.

If the branded drug has a co-pay assistance program, it might cover $40 of that co-pay, so all you have to pay is $10 to the pharmacy. This does have its benefits: if you only have to pay $10, you’re likely going to comply and take the medication, instead of leaving it at the pharmacy counter.

But the insurer still has to pay what it would if the drug had cost the patient $50.

So if the reason you had a $50 co-pay was that your insurer is trying to encourage you to choose the generic version, basically that didn’t work and the insurer is left paying for the more expensive — yet identical — drug.

Insurers aren’t going to eat that cost. They will just pass it back on in the form of higher premiums, or larger deductibles.

“Insurers use co-pays to steer customers to different drugs,” Schmitt said. “That ability to steer allows them to negotiate good prices for the drug.”

Not everyone allows coupons these coupons to be used. Medicare, for example, doesn’t allow them. Massachusetts banned them in instances where the branded drug has a generic alternative.

The research didn’t cover other scenarios, like when a drug has a co-pay savings card but generic competition isn’t out there yet. That’s the grey area the EpiPen falls slightly in: there are other options that are cheaper, but there’s no direct generic version out yet.

In these less-straightforward cases, there’s a possibility that a co-pay card could help that patient adhere to the medication, but Schmitt said, it’s an important area to try and understand better. That’s what the researchers are going to work on next.

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