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  • May 2017
  • Article
  • American Economic Journal: Economic Policy

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

By: Leemore S. Dafny, Christopher Ody and Matt Schmitt
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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.

Keywords

Brands and Branding; Insurance Industry; Pharmaceutical Industry

Citation

Dafny, Leemore S., Christopher Ody, and Matt Schmitt. "When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization." American Economic Journal: Economic Policy 9, no. 2 (May 2017): 91–123.
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About The Author

Leemore S. Dafny

General Management
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  • Do Policies to Increase Access to Treatment for Opioid Use Disorder Work? By: Eric Barrette, Leemore S. Dafny and Karen Shen
  • Falling Insulin Prices—What Just Happened? By: Leemore S. Dafny
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