If given the choice between a name brand drug and its generic version, which would you pick?  Of course, you would first have to consider a number of factors, one of which would likely be the price.  If you have health insurance, chances are you would only be on the hook for the copay, with your insurance company footing the rest of the bill.  In such a system, insurance companies typically charge their customers less for generic drugs when they are available, as the cheaper generic leaves the insurance company with a smaller bill on their end.

Makers of name brand drugs are aware of this situation, and try to sweeten the deal for the consumer through the use of so-called “copay cards.”  These can be in the form of cards or rebate forms that are given to consumers, frequently in exchange for detailed personal information that the companies use for marketing purposes.  Upon purchase of the name brand drug, the discount automatically takes effect and covers some or all of the consumer’s copay for that drug, often making it a cheaper option than the generic from the consumer’s point of view.  Insurance companies see the situation differently because the benefit to the consumer does not reduce the burden on the insurance company, which now finds itself paying for a typically expensive name brand drug instead of a cheaper generic drug.

There are both short-term and long-term consequences of copay cards and similar instant rebate systems.  For the consumer, immediate costs are reduced as they receive the name brand drug for less than they would have paid for the generic.  However, insurance companies are businesses first and foremost and if their costs go up from paying for name brand drugs instead of generics for their insured, they simply pass that cost along to the consumer in the form of higher premiums, turning the system into a cost-shifting vehicle.  Since most consumers receive their insurance through their employers, the amount the insurance company charges the employers goes up, and they in turn either pass the costs on to their employees or eat the costs and trim the budget in other areas.

The use of copay cards has increased exponentially in the past few years, with analysts expecting the practice to grow at an even faster rate in the next ten years.  Copay cards and other such programs are banned in the government funded insurance programs Medicare and Medicaid.  In those programs, the use of the copay cards would violate the Federal Anti-Kickback statute by inducing the consumer to purchase something they wouldn’t otherwise purchase under the federal healthcare programs.  Analysts expect costs for prescription drugs to increase as much as $32 billion over the next ten years if the practice of administering copay cards grows as expected.

Some insurance companies are fighting the practice by filing lawsuits against the drug makers, claiming that the copay cards are a means of commercial bribery.  The drug companies retort that they are simply trying to help the consumer follow their prescribed therapies by reducing the costs of the drugs that their doctors believe they need.  One way to solve this dilemma is for the state legislature to simply ban the practice, as Massachusetts did, claiming the system was in violation of a MA anti-kickback law.  The practicality of such a ban will be brought into question as Massachusetts recently overturned their ban on copay cards, including a carve out excluding copay cards from the prohibition on illegal kickbacks.

All we know for certain at this point is that copay cards are a relatively new addition to the ever-changing healthcare market.  Unless insurance companies and drug makers find a happy medium, the price of insurance could be on the rise in the near future.