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How Do Copayment Coupons Affect Branded Drug Prices and Quantities Purchased?

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  • Leemore Dafny
  • Kate Ho
  • Edward Kong

Abstract

We estimate the causal effects of drug copayment coupons, which reduce consumer cost-sharing for branded prescription drugs, on net-of-rebate price and quantities sold. Focusing on drugs without generic substitutes, we show that coupon introductions increase quantity sold by 23-25% for the commercial segment relative to Medicare Advantage, where coupons are banned. To quantify the resulting equilibrium price effects, we estimate a discrete choice model of demand for multiple sclerosis drugs and simulate a model of drug price negotiations. We estimate that net-of-rebate prices are 8% higher due to the availability of coupons for most of these drugs.

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  • Leemore Dafny & Kate Ho & Edward Kong, 2022. "How Do Copayment Coupons Affect Branded Drug Prices and Quantities Purchased?," NBER Working Papers 29735, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29735
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    References listed on IDEAS

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    1. Gautam Gowrisankaran & Aviv Nevo & Robert Town, 2015. "Mergers When Prices Are Negotiated: Evidence from the Hospital Industry," American Economic Review, American Economic Association, vol. 105(1), pages 172-203, January.
    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. Ernst R. Berndt & Rena M. Conti & Stephen J. Murphy, 2017. "The Landscape of US Generic Prescription Drug Markets, 2004-2016," NBER Working Papers 23640, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Dubois, Pierre & Gandhi, Ashvin & Vasserman, Shoshana, 2022. "Bargaining and International Reference Pricing in the Pharmaceutical Industry," Research Papers 3889, Stanford University, Graduate School of Business.
    2. Tuba Tunçel, 2024. "Should We Prevent Off-Label Drug Prescriptions? Empirical Evidence from France," Post-Print hal-04758877, HAL.
    3. Lin Lin & Bo Wang, 2025. "Marketing Status and Brand‐Name Drug Prices: Evidence From Rx‐To‐OTC Switch," Health Economics, John Wiley & Sons, Ltd., vol. 34(6), pages 1064-1084, June.

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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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