Big Pharma’s Jagged Little Pill

A class-action suit might halt marketing brand-name drugs via subsidy coupons

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As acting counsel of DC 37, a New York-based union health plan that covers 313,000 members, Audrey Browne is naturally hyperconscious of the rising cost of prescription drugs. “We monitor the money flying out the door,” she says, “and we watch every penny.”

Today, 75 percent of union plans’ pennies are being used to pay for brand-name medications—and many of these drugs are being purchased by members using drug company-issued coupons that subsidize their co-pays.

DC 37 isn’t just worried about this trend. It’s suing over it.

The union became a plaintiff in a class action filed March 7 in four federal courts against eight large drug makers —including Pfizer, Novartis and Merck—alleging that the coupons are tantamount to insurance fraud. Stakes are high for both sides. Health plans say that if Big Pharma keeps using this marketing tactic, they’ll be on the hook for as much as $32 billion in brand-name drug costs over the next decade. But the increased use of these coupons comes at a time when the industry is facing $95 billion in potential losses as the patents on some of their most profitable drugs expire.

“Given the widespread use of these [coupons] by the entire industry, I see this as a difficult legal battle that the industry will fight aggressively,” said Wells Wilkinson, staff attorney for consumer advocacy group Community Catalyst.

Co-pay subsidy coupons have proven very popular with consumers, who can present them at their local pharmacies to try a brand-name prescription drug for a fee that’s invariably far less than their usual prescription co-payment. The pharmaceutical company reimburses the balance and, in addition, gives the participating pharmacy a little something extra for its trouble. It’s a nifty piece of marketing—and one that’s cherished by pharma brands as they near the dreaded “patent cliff” at which point many of their most profitable drugs will have generic equivalents. “While the drug brands are replenishing their pipelines,” said Ed Silverman, a blogger for, “these coupons are a very important tool.” How important? In 2009, pharmaceutical brands used subsidy coupons to promote 86 different brand-name prescription drugs. By the end of last year that number had grown to 362—a 321 percent increase.

Plaintiffs in the class action maintain that use of the coupons is both sinister and illegal. The drug companies reimburse pharmacies through a closed channel, which means that insurance carriers have no way of knowing it’s happening. And that, said the lawsuit, violates the Robinson-Patman Act, a federal statute that prohibits undisclosed kickbacks to any party that purchases goods that another party must pay for. “Plaintiffs allege that this is a form of commercial bribery,” Wilkinson said. “It’s a serious charge.”

DC 37’s Browne also noted that health plans will be forced to pass along their increased costs to members in the form of higher premiums, but “people don’t realize that [using these coupons] will come back to bite them.”

The Pharmaceutical Research and Manufacturers of America maintains that subsidy coupons “play a valuable role in increasing access to medicines”–a position also taken by Amgen, which said in a statement: “Amgen believes it is critically important for patients to have access to medicines prescribed to treat their serious illnesses. We plan to vigorously defend against these allegations.” Abbott, Pfizer and Novartis did not respond to requests for comment for this story.

However, that argument isn’t convincing to Dr. William Jordon, a physician who treats low-income patients in the Bronx.

“We have a program for low-cost prescriptions at our health center, and it works,” Jordan said. “I don’t trust, or use, drug company coupons.”

@UpperEastRob Robert Klara is a senior editor, brands at Adweek, where he specializes in covering the evolution and impact of brands.