Co-Pay Cards & the Stalling of Drug Rebate Growth Part II – The HIE ‘Test Case’

Richard

Drug benefits on the health insurance exchanges (HIEs) are far less generous than under employer-sponsored insurance (ESI); in many cases HIE beneficiaries will not fill prescriptions without generous support from manufacturers’ co-pay card programs

If manufacturers allow their co-pay cards to offset HIE beneficiaries’ larger out-of-pocket (OOP) costs, they may betray a willingness to offer similarly large subsidies to ESI beneficiaries in the event ESI fixed dollar co-pays rise, and/or are replaced by percent co-insurance. Because co-pay card subsidies directly reduce manufacturers’ effective net pricing, the potential adoption of less generous benefit designs in ESI is a serious threat to US brands’ pricing power

Of the 50 largest US prescription brands (by $ sales), 42 offer co-pay cards. Of these 42, 35 can be used by HIE beneficiaries (only GSK and MRK specifically exclude use of their cards on the HIEs). Of the 35 cards that can be used on the HIEs, 19 have terms and conditions that result in much larger subsidies (and thus lower net pricing to manufacturers) for patients with co-insurance than for patients with fixed dollar co-pays

These 19 cards that give larger subsidies to patients with co-insurance (a typical HIE drug benefit design) are for brands that represent 56% of the total sales across the 35 brands that allow their cards to be used on the HIEs. The typical subsidy given by one of these 19 cards to a patient with a fixed $100 co-pay reduces the manufacturer’s net realized price by an average of 12% (max 19%); the typical subsidy given to a patient facing 50% co-insurance reduces the manufacturer’s net realized price by an average of 25% (max 61%)

More manufacturers allow their co-pay cards to be used on the HIEs than not; and, (within the 50 largest US brands) the 19 co-pay card programs that allow larger subsidies to patients with co-insurance are for brands representing just over half (56%) of total dollar sales for the 35 brands covered by ‘HIE-usable’ copay cards

Allowing co-pay cards to be used by HIE beneficiaries, and offering larger subsidies to beneficiaries with higher (e.g. co-insurance) OOP costs is, at least for now, the most common approach. We suspect manufacturers that do not allow their cards to be used on the HIEs, or that do not offer larger subsidies when co-insurance determines OOP costs, are under substantial competitive pressure to join the majority

Thus at this early point in the HIE ‘test-case’, on net, manufacturers are betraying a willingness to give larger co-pay card subsidies to beneficiaries that have OOP costs higher than those typically faced by ESI beneficiaries. This plainly raises the odds that more aggressive drug benefit designs (e.g. higher co-pays and/or co-insurance) will find their way into the far larger ESI market. We see this as the single most important risk to US brands’ pricing power

For our full research notes, please visit our published research site

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