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When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization, American Economic Journal: Economic Policy

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.

Type

Article

Author(s)

Leemore S. Dafny, Christopher Ody, Matthew Schmitt

Date Published

2017

Citations

Dafny, S. Leemore, Christopher Ody, and Matthew Schmitt. 2017. When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization. American Economic Journal: Economic Policy. 9(2): 91-123.

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