October 3

Based on the research of Leemore Dafny, Christopher Ody and Matt Schmitt

Last year, the pharmaceutical company Mylan faced public outcry when it raised the price of the lifesaving allergy medication EpiPen to $609 a box.

In response to the furor, Mylan pointed out it offers copay coupons that can reduce consumers’ out-of-pocket cost to less than $100.

Copay coupon cards for prescription drugs have become increasingly common since they were introduced in the mid-2000s. They can be found online, in popular magazines, and even in doctors’ offices. While the cards might seem benign—what consumer doesn’t love a bargain?—their ultimate impact on the cost of healthcare is anything but, according to new research from Christopher Ody, a research assistant professor of strategy at the Kellogg School.

Ody and his coauthors, Leemore Dafny of Harvard Business School and Matt Schmitt of the UCLA Anderson School of Business, studied the effect of copay coupons on brand-name drugs for which a generic equivalent was available.

Their results show that the coupons are a boon to drug companies but come at a cost for insurers, who may pass that cost along to consumers by way of pricier premiums.

The researchers estimate that for brand-name drugs facing generic competition, these coupons boost retail sales by 60 percent or more. And they increase spending by anywhere from $30 million to $120 million per drug during the five years studied. That translates to as much as a $2.7 billion increase in spending for the 23 drugs they studied over five years.

“You think, ‘how much can this matter?’” Ody says. “It ends up mattering a lot.”