Friday, June 01, 2012

What Fresh Hell is this?

As Mark Twain once said, "Life is just one damned thing after another."

The May 31, 2012 Wall Street Journal contained this tiny article buried on Page B6 that said (subscription required):

“CVS Caremark Corp.'s pharmacy-benefit business is prepared to escalate a campaign against drug-industry coupons that the company says encourage unnecessary use of expensive brand-name drugs.”

CVS Caremark has an obvious interest in promoting generics because of its enormous mail order business, in which dispensing generic drugs is quite profitable.

Oh the other hand, manufacturers make more money from brand-name drugs. So naturally a battle is escalating. But there's more to the story.

The effect of manufacturer’s coupons is that people aren't required to pay the full retail price. The manufacturer is giving a price reduction to the coupon holder. Therefore insurers and self-funded plans could decide their benefit plans will only allow, or cover, the lower price - after the coupon is applied. This would reduce the benefit payable by the plan.


Say the plan has a brand drug copay of 50%, and say a brand prescription retails at $200. The manufacturer’s coupon is worth $100 (equal to the 50% copay). If manufacturers' advertising suggests their coupons mean prescriptions are “free” that's what people will expect. In this example, they will expect the coupon to pay half the cost, and their insurance to pay the other half. But wait. What if the insurer or self-funded plan says the price the member is required to pay, net of the coupon, is only $100? If that happens, the expense covered by the plan is $100 and insured person's copay is $50. Not zero. Not what people will expect.

That’s still a better deal than 50% of $200 .. . but people expecting to pay nothing won’t get that prescription for free.

Why might insurers and self-funded plans decide to do this? Simple - it reduces their cost - in the example, from $100 to $50. So is this what will happen? We'll soon see.

Fun fun fun boys and girls.

Game on.
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