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

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  • Leemore Dafny
  • Christopher Ody
  • Matthew Schmitt

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.

Suggested Citation

  • Leemore Dafny & Christopher Ody & Matthew Schmitt, 2016. "When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization," NBER Working Papers 22745, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22745
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    References listed on IDEAS

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    19. Leemore Dafny & Christopher Ody & Matt Schmitt, 2017. "When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 91-123, May.
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    1. repec:aea:aejpol:v:9:y:2017:i:2:p:91-123 is not listed on IDEAS
    2. Leemore Dafny & Christopher Ody & Matt Schmitt, 2017. "When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 91-123, May.
    3. Neha Bairoliya & Pinar Karaca-Mandic & Jeffrey S. McCullough & Amil Petrin, 2017. "Consumer Learning and the Entry of Generic Pharmaceuticals," NBER Working Papers 23662, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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