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Why EpiPen coupons are a terrible idea

EpiPen savings card
Source: Mylan

A growing backlash against the skyrocketing cost of EpiPens has led the company behind the lifesaving injectable medication to announce that the drug will become more affordable.

EpiPen manufacturer Mylan didn't cut the price of its drug after a congressman's letter revealed Monday that it had crept above $500. Instead, it's said it will offer patients, who use the hormone for life-threatening allergic reactions, more financial help to obtain it. EpiPen users who have insurance (90 percent of the users) will get $300 coupons to cover the steep copayments. The other 10 percent without insurance will have more help buying the drug directly.

That's great news for patients who need EpiPens but have so far found them unaffordable. But it's also terrible news for the American health care system.

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Health economists argue that coupons like the ones Mylan will give out shield customers from the high prices of their medications — and ultimately help pharmaceutical companies squash generic competitors and continue to ensure sky-high drug prices.

"For Mylan, [the coupons] may help get them out of the glare of the spotlight, but they don't address any of the fundamental drivers of the soaring price of prescription drugs," says Caleb Alexander, co-director of the Johns Hopkins Center for Drug Safety and Effectiveness.

The way drug coupons work is complex, and it's a window into the maddening world of American drug prices. It shows how pharmaceutical companies can give consumers steep discounts while at the same time driving up the country's health care spending.

One way to understand it is through the story of how a father gets EpiPens for his 8-year-old son named Owen.

EpiPen coupons are a great deal for consumers — and keep the health care system expensive

Owen has a severe tree nut allergy that appeared after his mom gave him a bowl of cashews as a snack when he was 5.

"He had a very severe, violent allergic reaction," his dad Charlie Bacon told me over the phone recently. "He threw up, turned blue in the face, and had trouble breathing. It was certainly a life or death situation."

Owen's mom called an ambulance, and paramedics gave him an EpiPen injection before taking him the emergency room, where he received more drugs to quell the reaction.

Since then, Owen's parents have kept EpiPens on hand in the places where he spends the most time: home, school, camp, his grandparents' house. They usually buy about four or six EpiPens each year, because the drugs expire annually.

Bacon says he's watched the pens get more expensive. One year, the family insurance plan didn't cover prescription drugs, and they had to pay $500 for a package of two pens.

But today, they pay nothing for the pens. Bacon has prescription coverage. And he has a coupon from Mylan for Owen that makes the EpiPens completely free (Mylan had a coupon program prior to the one announced Thursday; a spokesperson did not respond to a question about how the newly-announced program is different). No charge, no co-payment, not a dime.

And because of the coupon, the family often ends up with extras. "If the co-pays were $50, we'd probably get 1 or 2 boxes instead of 2 or 3," he says. "We've gotten to the point where we store them in different locations, where we make it really convenient for us."

This is precisely what economists detest about drug coupons: they remove consumers completely from the costs of their medications. Bacon says he's not even sure how much the EpiPen would cost if he didn't have the coupon: "I don't know what the co-pay would be without it. We haven't ever paid it," Bacon says.

Coupons like this one also make it just as easy to pick a brand-name prescription when a perfectly good (and cheaper) generic already exists.

For example: there is a drug Adrenaclick that has the same active ingredient as EpiPen (the hormone epinephrine) but uses a different injector. A two-pack of AdrenaClick costs about $200 less than EpiPen, so it could, in theory, lure in customers fed up with higher prices.

Mylan doesn't want to lose customers to Adrenaclick. And one thing it can do to prevent that is offer coupons that offset their co-payments.

Insurance plans, meanwhile, still have to cover the high costs that the coupon doesn't get – and that means higher premiums for everyone else. Drug benefits firm Express Scripts estimates that the cost insurers pay for EpiPen two-packs has risen from $421 to $635 over the past 18 months, a 50 percent increase. Individuals' premiums, however, have remained relatively stable.

Mylan will earn about $1,500 off the six EpiPens that the Bacon family buys annually. Bacon knows this — he understands that the coupons he uses are likely contributing to higher premiums for him and the other people at his office. But they're also a great deal for him.

"I can get more EpiPens than I need as long as I have insurance," he says. "But if Mylan kept charging more, I'd keep bringing in the coupon and have no idea. But the reality is it costs our insurance company more, and there will likely be higher premiums as a result."

Drug coupons are a weapon in the war between pharma and insurers

The Bacon family is part of a much larger story of drug companies offering coupons to customers, as drug spending continues to skyrocket upwards.

Drug spending in the United States has climbed steadily in recent years. The United States spent $297.7 billion on prescription drugs in 2014, the most recent year for which federal data is available. The average American now spends $935 annually on drugs — up from $695 a decade ago.

American drug spending is skyrocketing

One of the reasons drug prices go up so much in the United States is that we don't regulate drug prices, like nearly all other developed countries do.

In Europe, Canada, and Australia, governments view the market for cures as essentially uncompetitive and set the price as part of a bureaucratic process, similar to how electricity or water are priced in regulated US utility markets.

The upshot is that other countries have much lower drug prices than the United States. For example, Humira, an anti-inflammatory medication used to treat arthritis and other diseases costs $2,669 here — but $822 in Switerzland and $1,262 in the United Kingdom.

When insurance plans are confronted with such high drug prices, they'll typically charge patients a chunk of the bill to keep premiums affordable. These can range from low, $10 co-payments for generic medications to cost-sharing in the hundreds of dollars for especially pricey, brand name drugs.

A 10 percent increase in cost-sharing for drugs results in a 6 percent decline in prescriptions filled, according to the Journal of the American Medical Association.

This is where drug coupons come in. Its obviously bad for business when consumers fill fewer prescriptions. So pharmaceutical companies will issue coupons to patients that cover whatever the insurance plan won't.

Shoppers become less price sensitive. Like Bacon, they're more willing to pick up refills when those refills are free. Insurers end up paying for all those refills, and premiums ultimately rise.

Drug coupons, Alexander at Johns Hopkins argues, "shield patients from the burden of high out-of-pocket costs, and in doing so, paradoxically may actually worsen the problem of high cost prescription drugs."

In other words: there will be a lot fewer angry consumers now that Mylan is promoting these coupons. And that will ultimately make it easier for Mylan to keep charging high prices to insurance plans — prices that patients won't ever see directly, but will feel in their rising premiums.

"Ultimately," Alexander says, "they will drive up prices further and leave payers, if not patients, holding the bill."

What’s better than coupons? Actually lowering drug prices.

It is an undeniably bad situation when patients can't afford a medication like EpiPen, which can literally be the difference between life or death for those with asthma or severe allergies. And more patients will have better access to EpiPens because of the coupon program expanding.

But make no mistake, this is not a good development for the health care system writ large. The way Mylan has gone about guaranteeing accessallows the pharmaceutical company to charge sky-high prices while disarming insurers' tools, like charging high co-pays for expensive medications, to keep premium prices at bay.

"Mylan is using smoke and mirrors to appear empathic," says John Rother, executive director of the Campaign for Affordable Rx Pricing, a group that advocates for lower drug spending. "A real solution would be bringing the price down enough that people could afford EpiPens without a coupon."

I reached out to Mylan to ask why they decided to use coupons rather than lower their prices, but have not yet received a response.

Drug coupons have become an increasingly common part of the American health care system. One 2014 study that Alexander co-authored found that, in 2014, patients used $21.2 million in coupons to pay for specialty drugs (typically expensive drugs used by less than 1 percent of the population). This covered more than half (60 percent) of patient's $35.3 million in out-of-pocket costs.

There are some especially outrageous examples of coupons being used to increase drug spending. The podcast Planet Money had this one a few years ago, about Minocin, an acne drug. They talked to Eileen Wood, a vice president of a health insurance plan in New York, who keeps a big pile of drug coupons in her desk drawer:

Ask Wood about the war, and she'll open the drawer in her file cabinet where she keeps zippered pouches of her least-favorite brand-name drugs. Among them is Minocin, an acne drug. She says a generic version of it costs about $50 a month. But a newer brand-name drug, Minocin Pac, costs $668.

The difference? "It has these lovely calming wipes, so that when your skin's all red you can pat this on," Wood says. "It's basically stuff you can buy over the counter." She says the marketing is very slick.

Everything initially worked fine, when Wood's company charged a $40 co-pay for Minocin Pac and $10 for Minocin without baby wipes. But then the drug manufacturer started distributing coupons to make the two the same price — and consumers flocked to the more expensive one.

And why wouldn't they? If you're a patient like Bacon, it makes sense to stock up on as many EpiPens as possible when there aren't any costs associated with the medication.

"It almost sounds wasteful, but sometimes we replace the EpiPens months before they expire," Bacon says.

But now, with EpiPen in the news, Bacon is starting to think twice about how he'll many he'll purchase going forward.

"This story about the spike in the cost from Mylan has drawn my attention to the hidden costs of doing that," he wrote in a follow up email, after our talk. "We may re-assess if we do purchase so many boxes in the future."

Commentary by Sarah Kliff, a writer at Vox. Follow her on Twitter @sarahkliff.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.