Drug Coupons Hide True Costs From Consumers

As he makes his case for overhauling the American health care system, President Obama has used the analogy of patients getting a choice between a blue pill and a red pill. The blue pill is just as effective as the red pill, but costs half as much. If everyone would just choose the blue pill, the analogy goes, we could save our health care system a lot of money.

In the real world, that battle over blue and red pills is decades old and involves billions of dollars, but it's invisible to most of us.

Ted Serra stumbled onto the battleground because he's got pimples -- and a Solodyn Patient Access Card. "It looks like a little credit card," Serra says.

That white-and-blue piece of plastic is also a kind of weapon. It's the drug company's way of getting a patient like Serra to choose its name-brand product, even when it costs more, by subsidizing his high copay.

Solodyn's maker, Medicis, wouldn't answer questions, but you can see how the system works from Serra's experience.

Serra, a paralegal, went to his doctor a few months ago for help with acne. She prescribed Solodyn. Serra told her he'd previously taken a generic drug called minocycline that worked well. The doctor told him that the two compounds are basically the same, but that you have to take the generic version in the morning and the evening. With Solodyn, you take one dose a day.

Serra told her that if the name-brand medicine was going to cost a lot more, he'd prefer the generic. "And then she presented this card," he says. She explained that it was a coupon, and that he should give it to the pharmacist for a break on his insurance copay.

Without the card, Serra's copay would have been $154.28. But when he got to the pharmacy, he presented his card. "They went to ring it up at the register," he remembers. "And when it came up, the price was $10."

Insurance Companies Win A Round

Eileen Wood is situated on one side of this war over red and blue pills. She works as vice president of the Capital District Physicians' Health Plan, an insurance company in Albany, N.Y.

Ask Wood about the war, and she'll open the drawer in her file cabinet where she keeps zippered pouches of her least-favorite brand-name drugs. Among them is Minocin, an acne drug. She says a generic version of it costs about $50 a month. But a newer brand-name drug, Minocin Pac, costs $668.

The difference? "It has these lovely calming wipes, so that when your skin's all red you can pat this on," Wood says. "It's basically stuff you can buy over the counter." She says the marketing is very slick.

Minocin Pac may be an extreme example, but Wood says the only reason for such a disparity in prices is that insurance executives are the only people who see the full cost of the drugs. Patients don't know or care, because the majority of patients have health insurance.

Wood and her insurance colleagues went on the attack over copays. They instituted higher copays for expensive drugs with generic options as a way to encourage consumers to choose the cheaper option. In essence, they told customers that they could choose a drug like Minocin Pac and that insurance would even pay most of the cost -- but with a $40 copay. If you choose the generic, you would pay only $10.

The copay strategy worked so well that in 2003, more than half of all drugs picked up at pharmacies were generics.

Drug Companies Fire Back

The drug companies quickly caught on. They made a counterargument: that insurance companies shouldn't be steering patients' care.

"We want treatment decisions to be based on what the physician feels is best for the patient, not just the cost to the patient or what another player may decide is in their interest," says Sally Beatty of Pfizer, which makes Lipitor, the world's most popular drug.

Facing tight competition from generic drugs, Lipitor saw its sales drop after the insurance industry raised copays for name-brand drugs. By July 2007, sales were down 13 percent from the same quarter the year before.

In the case of Lipitor, there is no approved generic substitute, no drug that is chemically identical. There are generics in the same class of cholesterol-reducing drugs, but tests show a small group of patients respond better to Lipitor. For some of those patients, a $40 copay stops them from getting the medication.

By 2007, the pharmaceutical industry had mounted its counterattack: coupons to subsidize the cost of copays for consumers, like the one Serra used to buy his acne medicine -- the one that brought his copay down from $154.28 to $10.

Serra's insurance company ended up paying $514 a month for his once-a-day Solodyn. Minocycline, the twice-daily generic, costs $109 a month.

But Serra never saw those numbers. He saw a deal, and he likes deals.

An investigation by Wall Street Journal reporter Jonathan Rockoff found that in the past year, drug manufacturers have broadly expanded their subsidy programs as copays and drug costs have risen. The Journal notes that copays do affect consumer behavior. Every 10 percent rise in copays seems to lead to a 6 percent decrease in spending on drugs.

Wood says she understands the allure of the manufacturers' coupons, but she says those coupons come with a consequence. If everyone started using coupons to get the more expensive drugs, "we'd have to raise premiums," she says. "There's no question about that."

Consumers like Serra don't want to see premiums go up. But they're caught between enormous insurance companies and enormous drug companies.

Obama talks about choosing the blue pill over the red one, but the coupon cards make it hard to know which is which. It's uncomfortably clear that these cards are not the biggest weapons in this war. Drug consumers are.

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