The tragic irony of pharmaceutical coupons

As a primary care physician in private practice, I have my own little taste of celebrity.

Every day attractive people come to my office seeking time to speak with me and collect my autograph.  They fawn over my partners and I, and bring us food for lunch, and will invite us to the nicest restaurants in town for dinner.   These people also used to bring gifts, until they were barred from doing so a couple of years ago.  I must admit, they are not doctor-groupies.  They are pharmaceutical marketing representatives. Rather than stalking me, they are just performing the job they are paid to do.

Each year, the pharmaceutical industry and its army of salespeople spend billions of dollars marketing brand name patented drugs.  Annual estimates range from $20-60 Billion every year.    Sadly, this represents almost 30% of their sales revenue, while they invest about 11% on research and development of new pharmaceuticals.

Marketing practices of pharmaceutical companies should not be news, but you may not be noticing the building battle between insurers and pharmaceutical companies unless you are being “detailed” every day like me.

The formularies kept by private insurance companies are a great source of pain for pharmaceutical marketing professionals.  These are lists of available drugs, categorized into tiers. Tier 1 drugs are often generics: very inexpensive, and therefore offered to patients at very low copayments.  Tier 2 drugs are brand name drugs without generic alternatives, and at the other end of the spectrum are Tier 3 drugs – typically brand name drugs that may be new to market, and have several alternatives both generic and brand name. As you advance up the tiers, the copayments rise.  In order to force more generic medication usage, insurance companies are rapidly increasing these copayments to reduce their expenditures.

So begins the battle.  Pharmaceutical companies know that high copayments are effective ways to encourage patients to ask their doctors to prescribe generic drugs.  So pharma lobbies the insurance companies to reduce the tier status of their drugs.  In some cases, this leads to drugs being switched tiers, sometimes quite often.  A tier 3 drug that gets bumped down to tier 2 becomes a marketing highlight.  And it always leaves those of us with prescription pads guessing and rather frustrated.

The latest trend I have observed: coupons.  Pharmaceutical representatives will provide physicians coupons to give to patients for their new product.  The most generous of these coupons will actually cover the entire copayment of the drug, thereby eliminating the incentive designed by the insurance industry to encourage generic drug use.

Coupons may be great for individuals with higher copayments set by their insurers, but they do nothing to lower our national health care expenditures.  In fact, coupons encourage higher costs for pharmaceuticals.

The tragic irony of the coupon scheme devised by pharmaceutical marketing is that Medicare Part D patients cannot use them.  The government by regulation prohibits any inducement that would directly or indirectly cause the government to spend money. Hence these coupons are not permitted to be split billed with Medicare or Medicaid.  Those who need help to defray their prescription costs the most cannot use them, but in some way I am glad.  This forces me to choose generic prescriptions more often.

The pharmaceutical industry lobbyists have been successful thus far in avoiding regulations that would hurt their profits.  But this is leading to skyrocketing costs.  In both the inception of Medicare Part D and in the passage of the Affordable Care Act, Congress neglected to provide the authority to Medicare to negotiate the prices of prescription medicines, leaving it to the private insurers who administer Medicare Part D.  This has led to greater profits for pharma at the direct expense of the consumer and taxpayer.

A study conducted by a prominent health care economist, funded by the Robert Wood Johnson Foundation, found that if Medicare adopted the Veterans Affairs (VA) drug formulary, America would save $14 billion a year on drug costs.  The VA directly negotiates drug costs with manufacturers, and its evidence-based formulary is able to keep drug costs down.

If any politician were bold enough to advance the proposal of allowing Medicare to negotiate drug prices, I can imagine the demagogue’s argument: “Don’t allow government to restrict your choices of drugs!”  Except that the facts point to health care consumers much preferring to have lower drug costs than infinite choices of expensive brand name drugs.  Polls show 80% of Americans would choose generic medicines in order to save money.

Between pharmaceutical marketing costs and the inflated prices of brand name medicines, there are tens of billions of dollars to be saved in health care expenditures each year.  I am confident the pharmaceutical industry will fight for those billions with vigor, but will we?

Chris Lillis is an internal medicine physician who blogs at Progress Notes.

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  • Easton, MD

    Some of the “new” derm drugs are the most egregious examples of the coupon vs. actual cost game. My wife saw the dermatologist and they prescribed Solodyn. This included a coupon card, so it would only cost around $30. I called our pharmacist and asked the retail price. It was over $600! And Solodyn is just a slightly different dose of Minocycline, a very inexpensive drug. Our clinic is self-insured, so the other $530 would’ve come out of the clinic’s insurance costs, rather than $10-25 for generic Minocycline.

    As a non-dermatologist, the Solodyn rep has never come into my office. I wish they would, as I have a few questions for them.

    • George Zorbas

      Dr Easton, while you may look favorably or even longingly upon generic minocycline, if the brand name product Minocin was not developed and marketed, there would be no generic minocycline today.
      Having spent my early years promoting Minocin, we were accused of marketing an expensive tetracycline. When Beecham (now part of GSK) introduced amoxicillin they were accused of marketing an expensive ampicillin. The list goes on of branded products that are now generics. If they were not permitted to market with a premium price, we would have no generics today. The Pharma model has enabled new product development which would not have been possible otherwise. A highly published economist at Carnegie Mellon University states that for every $1 that pharma industry spends on R&D $3 are returned to society.

      • elmo

        And for every one dollar pharma spends on R and D it spends 3 dollars on marketing. Think about that. All the reps, advertisements, TV ads, etc, etc. I saw a area with an imperial roman theme at ASCO. Must have cost 10′s of thousands of dollars. All for a product that requires a prescription from an MD who has spent 10 plus years training to figure whether the prescription is appropriate. What i see is a amazing waste of money by pharma that could be plowed into R and D, to bring even more return to society and of course make money for the company.

        • George Zorbas

          The promotion of products be it pharmaceuticals, samrt phones, i-pads, computers, automobiles, soap, beer, medical or legal services, all are part of the model to increase share. Market share is key to profitability. If the pharmaceutical sector becomes an unattractive investment vehicle, capital flows will cease in that industry. While we are passionate about reducing health care costs, it is important to be cautious about the facile solutions. Often in such discussions we are concerned only with the immediate result. As in chess, we must project several moves ahead and the consequences of those moves.
          It serves no constructive purpose to simply bash or hurrange against an industry (possibly vent). There have been promotional abuses in the past, and I agree that these must be elliminated. Pharma industry is adapting to the changed environment, and it is not business as usual. In order to remain credible and viable, pharma has to first and foremost place the interests of the patient, secondly provide a valuable service to the provider and institution (hospital), thirdly provide a benefit to public health, and fourthly as a result of the three above factors earn a reasonable return on their investment.

          • elmo

            Two paragraphs and you didn’t even come close to addressing the issue.
            Very simply, why George do we need DTC advertising, reps, trinkets and what not when pure and simple it should be the DOCTOR prescribing treatments based on medical need and response. A doctor prescribing a medication based on his or her opinion what is the right/best/appropriate medication or medical treatment has nothing to do with marketing iphones, cars, soap, beer, widgets, etc, etc. Do you understand how your anaolgy completely falls aprt in this setting? You are completetly missing the point. The only issues should be the best medication for an ailment and if equal then cost. IF pharma reversed the 3:1 ratio marketing:R and D , we as a society would be better off and I highly suspect pharma would make more money off new drug discovories. The only losers would be the unemployed reps and advertisers losing largely worthless DTC advertising. There is a reasons why few other countries allow this idiotic DTC advertising.

      • Easton, MD

        I see your argument. However, patients needs to understand the cost of their care. If they pay a flat $20 no matter what, then they may not care about the true costs, which are passed on to their insurer and ultimately back to the employer and employee.

        If patient’s know and feel the true costs, they can make informed decisions. For example, Pfizer is aggressively pushing a $4 Lipitor card. Lipitor actually costs around $100/month. Simvastatin costs $10-15/month. It doesn’t lower cholesterol quite as much as Lipitor. However, if patients were paying directly for their care and seeing the money going out of their account, they could decide if they want to pay the premium for Lipitor, or get an almost-as-good drug in Simvastatin. If I, as a doctor, recommend Lipitor, the patient could justifiably ask me if the potential increased benefit of Lipitor over Simvastatin is worth it. The coupon/voucher shell game shifts responsibility away from the patient.

        The current healthcare financing system has far too much moral hazard. People simply aren’t responsible (in a direct and visible way) for the cost of their care. Doctors aren’t responsible for the cost of their recommendations, so they continue to prescribe expensive drugs and therapies that may or may not be justified.

        This is unsustainable.

        • George Zorbas

          Dr. Easton,
          No argument with your point that the patient should be aware of true cost of meds. The couponing and other methods to extend the productive life of a branded drug, whose patent is due to expire or has expired, is an economic necessity for pharma in order to remain viable.
          In the past life cycle management of an expiring patent had a predictable follow up agent to replace the expiring one. This dynamic has been placed in serious jeopardy due to a lack of new product introductions, which is contributing to the continued consolidation of the pharma industry. This can have profound long term health consequences for society in general.

  • Easton, MD

    Oops. Should’ve been “the other $570″

  • Norm

    At least the pharmaceutical companies are not leaching off the taxpayer like G.M., Chrysler, American farmers, the ethanol industry and a host of other parasites.

    • sktaz

      I would say price gouging on drugs paid for by Medicare comes under the heading of leaching off the taxpayer, IMHO.

      • Norm

        You say it’s price gouging, I don’t. A pharmaceutical company has 10-15 year to make back the cost of a new drug, pay their expenses and make enough revenue to fund future research. If you think a drug is too expensive, I have a solution for you, don’t take it.

        • Primary Care Internist

          it doesn’t take 10-15 yrs of research to come up with the fifth statin on the market, or the 7th ace inhibitor, or the 11th beta blocker. that absolutely is price gouging, and medicare part D was a back-door lobbyist-designed piece of legislation ripping off the taxpayer. One-time representative billy tauzin from corrupt ole louisiana put this together while in office. wouldn’t you know it? he retired from office to become president of PhRMA! You just can’t make this stuff up, it’s so crazy.

          • Norm

            Please read my post. I never said it takes 10-15 years to develop a new ACE inhibitor etc. What I said is the company has 10-15 years to make back the cost of developing a new drug (patent life).
            We did not go from the Model T to the technologically advanced auto of today, the advances in technology were incremental. The same as drugs, Tagamet was the first H2 blocker and Prilocsec was the first PPI both of these drugs have saved billions of dollars in reducing surgery and related medical cost.
            So are You saying, that after the development of Tagamet, Glaxo should not have developed Zantac? While Tagamet is a good drug I personally believe Zantac is a significant improvement in this class.

          • Primary Care Internist

            well i’m glad you personally believe that zantac is better than tagamet. but that is not data. and PPIs are a different class than h-2 blockers, so i don’t think it follows that PPIs like omeprazole are an “incremental improvement” on h2 blockers – totally different mechanisms of action.

            as far as saving billions in surgical costs, what data is there to support that? on the contrary what i see in practice is that everyone with a tummy ache gets put on a PPI, either for a short while when they didn’t need it at all, or for life when they may’ve benefited from 4-6 weeks of treatment.

          • elmo

            Of course the majority of REAL scientific advances were not done by pharma rather university centers who then sold their fruits to pharma. Nothing wrong that put to use the “poor pharma has to make money while on patent” argument rings false. Anybody who invests in stocks now the pharmaceutical industry is a way to make money. There is a reason for that.

  • Evil Sales Guy

    I’m glad you feel great about generics, but some of us don’t. I won’t except a generic unless I must. I’m taking one now. I’m on the same drug as last month but by a different manufacturer. It’s inferior to last month’s by far, in all facets.

    Honestly, my doctor isn’t my financial advisor, and I’d appreciate it if he’d stay that way. I expect my doctor to practice evidence based medicine rather than formulary based medicine.

    If you’re interested in writing as many generics as possible, I suggest you work in rural healthcare or inform your patients that you abide by the WHO guidelines.

    It pisses me off when “generic advocates” scream about healthcare costs and then drop an Rx for losartan, which, only a short while ago was Cozaar.

    If healthcare costs are so high, drop your fees. What’s that? Student loans? Compensation for your time in school? Sorry, you’re out now and your preparation time isn’t billable. That’s what you want of pharma, lead by example.

    • Justin

      Calm the rabble rousing.

    • elmo

      Sales guy:
      Doctor’s account for 20% of medicare. There has not been a significant change in medicare rates in 10 years. What were you making in 2000? Then you want docs to drop fees? You are right doctor prep hours are not billable. I spend tens of hours each week doing right by my patients for no reimbursement. Enjoy your overpriced brand meds that are by and large chemically the same compound as the generic (wouldn’t have made it though the process otherwise) and do keep on drinking your employers kool-aid. Thank God I refuse to see you people in my office.

  • solo fp

    The big problem with coupons is that they usually are for Tier 2 or 3 drugs. To get the $10 copay instead of a $40-$60 copay often requires the doc to fill out a prior authorization form for free for a brand name combination drug taht would be cheaper to simply prescribe two generic prescriptions with the same drug. The FDA regulates generics, and generics are equivalent to brand name drugs.

  • Max

    The problem with coupons is that the patient may end up with a greatly reduced payment for his drug, but the physician is still on the hook for appearing to be a high cost provider by the insurance company and/or his physician group. They are still on the hook. So to come out smelling like a rose in those quarterly reports that grade your cost to the insurers and physician groups, don’t prescribe expensive drugs, even if they come with a coupon. Good for patient. Bad for doctor.

  • maggie kozel, MD

    I understand that pharmaceutical companies need to be financially viable, but is that what we are talking abut here? Pharmaceuticals are a huge growth industry – to the tune of over $800 billion /year and still growing vigorously in the midst of a recession. According to IMS, profits are expected to grow another $35 billion this year.. Meanwhile, 25% of US children are on chronic medication – a complex problem to be sure, but absolutely related to brilliant pharmaceutical marketing. Pharma marketing and lobbying is shaping US healthcare, perhaps even more than medical science shapes it. So just how much profit does the pharma industry have to acquire to be “financially viable?” And what drives all this “R & D” we hearing about? A world finally free of erectile dysfunction? Lets be honest about how much profit we are talking about, and how much R& D is specifically aimed at cost-effective therapies that we really need.

    • Molly Ciliberti, RN

      Funny until the little blue pill came along ED was not even a name you heard, rather it was a symptom of atherosclerosi, of peripheral arterial disease! The blue pill doesn’t help your PAD. I hope to god that Medicare doesn’t pay for the little blue pills.

  • George Zorbas

    Dr. Kozel,
    You and most of your colleague providers are conscientious and seek to further the patients’ interests. What you are seeking is not different from what pharma industry is striving.
    Accusations and name calling, as exemplified by Elmo’s tirades, do not provide an informed discussion of today’s health care costs, and the problems which face the pharmaceutical industry. The repetition of the simplistic factoid, that pharma spends twice as much on sales & marketing as it does on R&D, does not address the real underlying conditions of the ill health of the pharma industry.
    I recommend a study produced by Price Waterhouse Coopers, “Pharma 2020: The Vision Which Path Will You Take?”, 2007.
    Some data from the study are as follow:
    1) In 2006 US pharma spent $55.1 billion on R&D, which is 75% of the global R&D pharma expenditures.
    2) In 2006 the FDA approved only 22 new molecular entities (NME) & biologics, compared to 53 in 1996, or compared to 80+ NME’s in the mid 1960′s.
    3) 1995-2005 R&D costs rose from 15% to 17.1% of sales, while marketing costs rose from 28.7% to 33.1%.
    4) 2001-2007 the Dow Jones World Index rose 34.9%, while the pharma index rose 1.3%, and Total Share Holder Returns for pharma were -2.4%.
    The US pharmaceutical industry is only one of few industries in which the US is a world leader and a net exporter for this country’s global trade. Other exporting industries are aero-space, telecom, hardware & software computing.
    The illness of the pharma industry is the lack of productivity of the R&D. New products are the life blood (as in other fields) of pharma. When this fails, management seeks to expand utilization, and market share, through higher promotion of existing products. This can be, understandably, inflamatory or irritating to some providers. There are a number of policy recommendations, which are made in the study, that will have to be implemented in order to address the long term pharma and public health care needs.
    We view the medical profession as a partner in the health care delivery of this nation. Thus, it would be naive, ill informed, and unproductive on pharma’s part to postulate on physician fees. Similarly, when respected providers expound on pharma’s marketing practices, without a complete understanding of all the dynamics of the industry, displays a lack of understanding, and thus does not advance the discussion of the long term issues of the pharma industry and the public health.

  • Molly Ciliberti, RN

    Elmo, only $3 marketing to $1 for research?! After what I saw at the ADA meeting in San Diego I would say more like 5-1. They go whole hog at these shows and spend money lilke it was going out of style. I really resent this when people in this country have lost their jobs, their healthcare and their ability to buy the meds they need to stay healthy.

  • George Zorbas

    Molly in order to help you a bit with your resentment, some information may contribute to a better understanding of medical conferences and their dynamics:
    1) Conferences are totally funded from display fees from industry.
    2) Fees are proportional to the size of space occupied by the display booth(s).
    3) In addition companies contribute to the various medical societies according to the presence that they wish to have with that particular medical specialty. Hence, there are platinum, gold, silver, bronze, etc levels of contribution in addition to the display booth fees.
    4) Some smaller vendors, due to their limited marketing resources, will allocate a large part of their annual promotional budget to have a high visibility in a medical conference, which is relavent to their therapeutic category.
    5) Actually, medical conferences provide an important venu for industry to introduce a new product, indication, dosage form, dose, price, or any new development with a new or mature product.
    In summary, the promotional expenditures in medical conferences is a sound investment for industry because it provides high visibility of a product and new developments associated with that product. It is beneficial to the medical society because it provides a revenue stream, which enables the conference to be held. Thus, it is a win win for both parties, otherwise, the model would not have stood the test of time.

    • Molly Ciliberti, RN

      George, you are a big pharma apologist, I already knew everything you said, but I stand by my statements. Big Pharma especially waves money in physician’s faces and lavishly spends on medical conferences and “shows” using the money some poor little old man in Dallas pays for his diabetes medication to stay alive so he eats less this month. The conferences could be a bit less lavish and they could allow no booth larger than 100 square feet and still get their new drugs introduced. 99% of their huge think 2,500 square foot square booth is wasted on “splash” and not substance. Physicians (my husband is one and agrees with me) need less contact with the marketing arm of pharmaceutical companies. They need to make their prescribing decisions based on science not on who has the biggest and “bestest” booth! Sorry George, but you are wrong, our society doesn’t benefit from these extravaganzas we loose. Been going to symposiums for 20 years and the spending especially by big Pharma is obscene.

      • Easton, MD

        I tend to agree with Molly on this one. George, conferences are not TOTALLY funded by display fees, although some conferences certainly have a higher pharma presence than others. I just went to a conference in March in Salt Lake City. It cost $800 and didn’t have any pharma displays. It was actually quite nice.

        As you’ve pointed out, pharma is in big economic trouble. The pipeline of new, blockbuster meds is nearly empty. Again, as you pointed out, pharma has turned to different avenues to maintain and increase revenues. Any business does this. However, let’s not for one second delude ourselves that pharma does ANYTHING for the benefit of anyone other than their shareholders. Those patient education programs they do may have the side benefit of getting more patients to treat their disease. However, the main benefit to pharma is that people continue to refill their medicines.

        It may be true that 83% of health care providers get their info from industry, but that doesn’t make it ok, because the information is biased, one-sided and incomplete. I subscribe to the Prescriber’s Letter, which accepts no pharma advertising. They dissect pharma’s carefully crafted message, which often sidesteps the fact that their new super-drug is just a me-too, seventh in the category drug, and it’s not any better than cheaper alternatives.

  • George Zorbas

    Thank you for your response.
    You characterized me as a big pharma apologist, which begins the name calling process that does not contribute to a rational discussion. The pharma industry needs no appologists, and I am certainly not one. I am pointing out the economics of medical conferences, which are trade shows for the health care field.
    Just as the medical profession practices evidenced based medicine, the same is true for pharma, and indeed, all industries. Pharma does not want to misspend one promotional dollar. That is why every dollar spent has to be meticulously and arduously justified every year, every quarter, and every month.
    Trade shows for all industries all over the world serve a very important function of informing the market of developments within that industry. This information helps the market to evaluate the product and the adoption of it. All industries function the same way. 83% of health care providers obtain their information from pharma. That is not much different form other fields or disciplines.
    Affordability of health care to lower socio-economic segments of the population is a societal concern, and one which the pharma industry is totally in favor of addressing, and making it available to all.
    Affordability of health care is not at all related to the promotional expenditures of the pharma industry. That is misguided, uninformed, simplistic and does not contribute to a meaningful discussion of health care availability for all.

  • Molly Ciliberti, RN

    George, Sorry I miswrote I meant to say you are being a ….. not that you were. So I accidentally did some name calling for which I apologize. I know how recklessly Pharma and other international corporations like Medtronic, GE Medical, etc. spend their money both by my own experience and by the experiences of close friends. Marketing gets a huge chunk of their money. In addition to the extravagance of shows why do we need to have business to patient ads on TV, websites and magazines? This does nothing to improve patient care or to provide the physicians with better information about the medications available. I totally disagree with you that there is any justification for the unbelievably high prices for medications in the US. So I guess it is a draw.

    • elmo

      Molly why apologize for the truth?
      George quotes that “83% of healthcare providers get their information fomr pharm”. What does that statement really mean? Where is the reference? Do I get info from pharma? Of course, but when I have a clinical question on a drug I go straight to the MSL or PharmD who can answer the question, not a drug rep who has been spoon fed what to say from his/her superior. Any smart doc will do that. Also, I make my clinical decisions based on the peer-reviewed journal publications not a drug lunch. Most healthcare professionals will say the same thing. The problem here molly is george is clearly a businessman. Healthcare products are no different than any other type of widgets sold by companies in his eyes. It doesn’t matter that none of our widgets can be purchased without our signature and our professional agreement.. We are on the front lines of cost and access, Just today I had to deal witha 6 K copay on one month therapy. It took and hour to get it worked out, and hour of unpaid time. AS the end user of pharma products I say the waste is atrocious, but this is the status quo. It is more important to try to market the latest PPI than put money into R and D for truly novel agents such as new agents for multidrug resistant organisms.

  • George Zorbas

    Dr. Easton,
    You are correct, not all conferences are supported by industry. Those which are, regional (southwest), seasonal (winter meetings), small, highly specialized have little or no industry involvement.
    There are a number of important stakeholders in health care: regulatory(at all levels), patients, providers, insurers, industry, stockholders. Any policies or strategies which are implemented by pharma have to take the interests of all these entities into account. It is not even enlightened self interest which makes this a necessity. It is an operational imperitive to not focuss only on the interests of pharma! It is a matter of industry survival that all the above mentioned parties must be satisfied.
    Some of the policy recommendations made in the Price, Waterhouse, Coopers study of 2007, are worth considering.
    At present all products receive 20 years patent life regardless of level of innovation. One suggestion made is to give breakthrough or innovative products a longer patent life such as 40 or 50 years market exclusivity. The vaccines Gardacil and Prevnar could be such candidates. On the other hand, parity products such as the fourth or fifth statin or erectile dysfunction product may receive only 10 years patent life. By providing better incentives, there will be a shift in R&D by pharma to better reflect long term public health interests. This shift may be more technologically challenging, costly, and arduous, but if the incentives are present, industry will take up the challenge.
    It must also be kept in mind, that just as some of the best science students in academia go into medicine, similarly the best business and science students of the most prestigious universities pursue careers in pharma and biotech. We need to support this bright generation of talent with policies that move us out of mid 20th century, to that of today’s and of the near future public health interests.

  • George Zorbas

    The circumstance you site of wasting an hour of your time is very disturbing, because it points out a major dysfunction of today’s health care system, and that is unacceptable. Your problem is my problem, eventhough, it may not involve one of my products now, it will in the future.
    As I stated in a previous response, the interest of all the stakeholders in health care must be satisfied, otherwise, we are heading toward a continued decline in the quality and quantity of health in US.
    Regarding the information which healthcare providers obtain from industry, the percentage has not changed in decades. You are correct that now there are more channels from which to obtain the information, such as MSL’s and websites.
    As you are probably aware, the sales representatives must promote their products according to their package insert. If they digress from that guideline they will be dissmissed without severence or benefits. To your point, some reps may sound rehersed or canned, is because of compliance with regulatory guidelines. Despite that condition, however, they do not have to be robotic. If they do not bring value to your practice, are inconsiderate, and not interested in your and your patients needs, then they will, and should, lose access to your practice.

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