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Manufacturer Safeguards May Not Prevent Copayment Coupon Use for Part D Drugs

Melissa Baker, a team leader for the Office of Evaluation and Inspections in Chicago, is interviewed by Laura Kordish, Deputy Regional Inspector General for Office of Evaluation and Inspections.


[Laura Kordish] I'm Laura Kordish, Deputy Regional Inspector General in Chicago for the Office of Evaluation and Inspections. I'm speaking with Melissa Baker, a team leader from Chicago. We're talking today about your recently released report about pharmaceutical manufacturers' copayment coupons. First, what are copayment coupons?

[Melissa Baker] Drug manufacturers offer copayment, or copay, coupons to reduce the patient's immediate out of pocket cost for brand-name, prescription drugs.

[Laura Kordish] Ok, so coupons sound like a good way to save money for seniors who are on a tight budget.

[Melissa Baker] They can provide immediate savings. But over the long term these coupons can cost beneficiaries, Medicare, and, ultimately, taxpayers more money.

[Laura Kordish] How can coupons cost more money in the long term?

[Melissa Baker] Coupons may be offered on brand drugs that have lower-cost generic equivalents. While the coupon lowers the beneficiary's copayment for the brand drug, it does not reduce the higher cost of the drug, which is paid for by the beneficiary's insurance company. Paying for more expensive brand drugs, instead of less expensive alternatives, means that Medicare, and beneficiaries, could end up paying more for prescription drug coverage.

[Laura Kordish] Can you explain that a bit more?

[Melissa Baker] Sure. Here's an example. Let's say brand drug X costs the beneficiary's Medicare Part D plan $1,000 dollars. The generic alternative costs the Part D plan $100 dollars. When the beneficiary selects brand drug X, instead of the generic, it costs the Part D plan $900 dollars more.

[Laura Kordish] So when Medicare beneficiaries buy expensive brand drugs with coupons, instead of less-expensive alternative drugs, it costs the Part D plan more money.

[Melissa Baker] Right. Part D plans design copayments to encourage beneficiaries to select less expensive, equally effective drugs, such as generics. When more beneficiaries select the expensive brand drug, it costs more for the Part D plans and, ultimately, the Federal government, and the taxpayer.

[Laura Kordish] Is that why you did this evaluation?

[Melissa Baker] That's one reason, but we also wanted to know if manufacturers have safeguards in place to prevent coupons from being used for drugs paid for by Medicare Part D.

[Laura Kordish] Why would they have safeguards to prevent that?

[Melissa Baker] Under the Federal Anti-kickback Statute, it is illegal to knowingly and willfully offer or receive anything of value as a reward for referrals of Federal health care program business.

[Laura Kordish] Ok - how does that tie into copay coupons?

[Melissa Baker] Manufacturers may be liable under the anti kickback statute if they offer coupons to encourage beneficiaries to buy certain drugs covered by Medicare or other Federal health care programs. For this study, we looked at the safeguards that manufacturers have in place to prevent coupons from being used for Medicare covered drugs.

[Laura Kordish] So, what did you find, Melissa?

[Melissa Baker] Manufacturers' primary safeguard is notices to beneficiaries. Notices are usually found on coupons or on coupon materials and state that coupons may not be used in Federal health care programs. In addition, most of the manufacturers use prepay edits within the pharmacy computer system that stop a coupon from being processed.

[Laura Kordish] And what are prepay edits?

[Melissa Baker] In this case, prepay edits are pre-programmed checks in the pharmacy computer system that detect when a coupon should not be used. These manufacturer edits try to determine if the person using the coupon is a Medicare beneficiary. If they're on Medicare, they can't use the coupon.

[Laura Kordish] So are manufacturers taking appropriate steps?

[Melissa Baker] Well, although manufacturers have some safeguards in place, they may not stop all coupons from being used for drugs covered by Medicare's prescription drug program. Manufacturer notices can't necessarily stop coupons from being processed. And manufacturers that use prepay edits cannot tell for sure if a patient is on Medicare because they can't see the patient's Medicare insurance status.

[Laura Kordish] So the safeguards manufacturers currently have in place can't stop all coupons from being used for Medicare covered drugs?

[Melissa Baker] Right. The manufacturers that use prepay edits rely on other information, like a patient's age, to conclude that a patient is on Medicare.

[Laura Kordish] What else did you find?

[Melissa Baker] We also found that Medicare currently cannot identify coupons because pharmacy claims for drugs are typically processed before coupons claims are processed. This means that Medicare does not know if a coupon is about to be used with a Medicare covered drug. So it's almost impossible for Medicare or insurance companies to ensure the proper use of coupons.

[Laura Kordish] So, what can be done to solve this problem?

[Melissa Baker] We think the manufacturers will need to find a technical solution. OIG is also issuing a Special Advisory Bulletin to manufacturers that offer copay coupons. The bulletin states that manufacturers must take appropriate steps to ensure that patients are NOT using their coupons for drugs paid for by Medicare - or those manufacturers could face sanctions.

[Laura Kordish] Is it only up to the manufacturers to solve this problem?

[Melissa Baker] In our report, we recommended that the Centers for Medicare and Medicaid Services, or CMS, cooperate with industry efforts to create reliable safeguards.

[Laura Kordish] And how did CMS respond to your recommendation?

[Melissa Baker] CMS agreed, and said it will work with the industry to improve the reliability of safeguards. CMS specifically agreed to work with the industry to facilitate confirmation of Medicare insurance status and explore how to make coupons identifiable in pharmacy claims.

[Laura Kordish] Thank you, Melissa, for sharing this important work

[Melissa Baker] Thank you, Laura.