The Effects of Prescription Drug Coupons on Generic Drug Use, Adherence, and Competition: Evidence from Three Drug Classes

Prescription drug coupons—offers from pharmaceutical companies to pay a portion of a patient's out-of-pocket prescription cost—are the subject of a current and growing debate. Insurance companies and governments are concerned that coupons increase costs without improving health by shifting patients away from generic drugs and towards costly, brand-name drugs. Pharmaceutical companies allege that coupons improve medication adherence, thus improving heath and lowering overall healthcare spending. While the debate has continued, coupon use has increased to 18% of prescription claims in 2017 (IQVIA, 2018). I use insurance claims from 2007 to 2016 from a large, national insurer to estimate the effect of coupons on generic drug use, medication adherence, and brand-to-brand competition for drugs in three drug classes: statins, antipsychotics, and acne treatments. I take advantage of a law in Massachusetts that barred residents from using coupons, and was amended in 2012 to allow coupons only for drugs without a generic equivalent, to estimate difference-in-differences and triple-difference models. I find that coupons decrease generic drug use by shifting patients towards brand-name drugs and away from generic equivalents. I estimate a 6.1 percentage point (10%) decrease in generic drug use and a 9.3 percentage point (35%) increase in the use of "dispense as written" orders. I find no evidence that coupons shift patients away from older, generic drugs and towards newer, brand-name drugs. Additionally, I find no evidence that coupons affect medication adherence or brand-to-brand competition. A back of the envelope calculation suggests that coupons increase insurer spending by $25 million in my sample alone. These results are consistent with prescription drug coupons increasing costs without improving health.