The Distortion of Drug Copay Reimbursements

Published by clickbroker.blogspot.com.

The largest pharmaceutical companies have started a disturbing trend of fighting consumer incentives to control drug costs by subsidizing copayments and coinsurance. At the extreme these companies are even subsidizing the purchase of drugs by consumers without any coverage for pharmaceuticals.

The past few earnings calls from the large health insurers highlighted an unexpected reduction in demand for medical services from their insured members. This surprising source of profits could easily be attributed to the economy, but I see it as fundamental shift in the insurance market to discourage care through higher deductible plans, copays and coinsurance. This trend won’t stop until the healthcare reforms are fully implemented in 2014.


Previously, the pharmaceutical companies complained that they could not sell drugs to consumers that avoided routine doctor visits. Now The Wall Street Journal’s “More Balk at Cost of Prescriptions” reports that consumers are leaving their prescriptions at the pharmacy counter when they find out how much their insurance company expects them to pay. The new word for deductibles, copays and coinsurance is the consumer’s “responsibility.”

Ten percent of brand-name prescriptions are being abandoned at the counter. The WSJ quotes a consumer with high deductible insurance saying “I can’t afford that” to a $335 bill. She then chose to buy her son’s prescription and skip her own. The average copay for Pfizer’s (PFE) Lipitor rose 87% to $28 since 2000. The Journal reports that prescription copays are reaching toward $100.

Bloomberg’s “Novartis MS Program Guides Patients to New Pill, Covers Out-of-Pocket Cost” reports that the company will reimburse up to $800 in copays and $600 in testing and monitoring expenses for its new multiple sclerosis drug Gilenya. The non-Medicare consumers must be covered by commercial insurance for the $4000 per month drug to qualify. Novartis (NVS) will also offer full reimbursement to consumers below 500% of the poverty level.

WellPoint (WLP) and UnitedHealth (UNH) have placed Gilenya in their top copay and coinsurance tiers. Medicare part D restricts reimbursements to consumers.

While persons receiving legal remedies for injuries or medical malpractice must reimburse their health insurers for medical costs, this does not appear to be the case with drug reimbursements from pharmaceutical companies. The drug companies are freely advertising on television that that your prescription is free after they reimburse your copay. So why not select the most expensive drug?

These practices are disturbing because they further distort the free market for drugs. First, drug companies helped the poor by raising prices for everyone else. This created a form of faux good corporate citizenship to maintain the current healthcare system. Now, when the middle-class majority can no longer afford their drugs, the companies are addressing consumer “responsibility” by raising prices to insurers. The net prices, insurer cost minus the consumer reimbursements, continue to rise.

Our good corporate citizens are not so secretly pushing up insurance costs. This form of cost shifting should be outlawed; it simply perpetuates the current system of Americans paying the highest drug costs in the world. The hidden cost of free is the worst form of deception.

Disclosure: Author is long PFE.

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