Drug-company coupons that promote brand-name medicine over cheaper alternatives could hike drug costs by $32 billion over the next decade, according to a study from the industry that manages pharmacy benefits.

The study adds to a debate over a system that eases the costs of some pricey drugs on consumers, but pushes them on to employers and health insurers.

Drug makers have used so-called co-pay cards in recent years to give patients a break on higher payments health plans require for expensive pills. The manufacturers say the discounts help patients access treatment, which can lower overall health costs.

But the pharmacy-benefit industry sees something different: a cost-inflating marketing tool that steers patients away from less-costly drugs. The industry is raising flags over the issue as the number of co-pay promotions skyrockets, and as Pfizer Inc. (PFE) gears up to use co-pay cards to battle generic competition for Lipitor, its cholesterol-lowering blockbuster.

With co-pay cards, "people get lured to high-priced drugs for no reason," said Mark Merritt, president and chief executive of the Pharmaceutical Care Management Association. The group represents pharmacy-benefit managers and paid for the co-pay card study.

Health insurers and big employers hire benefit managers, known as PBMs, to handle drug programs and control costs. The PBMs believe co-pay cards help drug makers circumvent strategies health plans use to encourage cost-effective treatment.

Health plans typically require lower copayments for generic drugs as well as for branded drugs secured through deals with drug makers, and higher copayments for expensive alternatives. This creates an incentive for patients to fill prescriptions for cheaper drugs, the PBM group's study says.

The co-pay coupons erase that incentive, allowing consumers to get brand-name drugs at a lower cost to them. However, because insurance companies and employers bear roughly two-thirds of drugs' costs, they get hit behind the scenes with having to pay the higher prices for branded drugs when the co-pay cards are used.

These incentives aren't allowed under the federal Medicaid and Medicare programs or in Massachusetts, noted consulting firm Visante, which studied the cards for the PBM association.

Visante estimated the added cost of co-pay cards by factoring in their fast rise in popularity--the firm anticipates 15% annual growth in prescriptions linked to co-pay cards--against government projections Visante says don't factor in these incentives.

Drug makers, not surprisingly, have a different view of the situation. Karl Uhlendorf, vice president of trade group Pharmaceutical Research and Manufacturers of America, said insurers require patients to pay a far higher share out-of-pocket for medicines than for other health services. He said high co-pays can cause patients to not fill prescriptions or to stop taking their medicines, which can boost overall health costs.

"Coupons and vouchers provide an important benefit to patients by defraying the cost of out-of-pocket payments, breaking down barriers to access and encouraging better medication adherence," Uhlendorf said. He added that most companies have longstanding financial-assistance programs to provide drugs to uninsured and financially struggling patients.

Visante didn't factor co-pay cards for expensive specialty drugs in its analysis, because it said co-pay programs for these drugs don't undermine cheaper offerings the same way as other drugs.

The pharmacy-benefit managers can't easily tell when co-pay cards are used, but can take some steps to mitigate the impact, such as requiring use of generics first. Also, health plans can stop covering high-priced drugs altogether. "We're seeing more of that," said Everett Neville, chief trade relations officer at big PBM Express Scripts Inc. (ESRX), in a recent interview.

He indicated co-pay cards are a nuisance for insurance payers, but not a very successful tool for driving market share.

But drug makers are boosting their card offerings nonetheless. Cleveland Research estimates there were 310 co-pay card programs in July this year, a 260% increase from two years earlier, for a wide variety of medicines including heartburn pills, blood-pressure drugs and skin-care treatments.

Pfizer is set to raise the stakes when Lipitor loses U.S. market exclusivity Nov. 30. Pfizer, which already offers a $4 co-pay card for the drug, plans to keep the incentives going when Lipitor faces generic competition.

Pfizer Chief Executive Ian Read said Tuesday that the incentives aren't intended to boost overall health costs. The company has struck deals so that insurers won't be "disadvantaged" in reimbursing for branded Lipitor, compared with paying for its generic equivalents--at least in the near term.

Longer term, when more generic manufacturers enter the market, sales of branded Lipitor are likely to decline more steeply. The economics for offering co-pay incentives will likely become tougher then.

Still, Pfizer's effort could help frame the co-pay card debate as other big drugs face generic competition in coming years. "It definitely is something that both sides will learn from," Express Script's Neville said.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

-By Peter Loftus, Dow Jones Newswires; +1-215-982-5581; peter.loftus@dowjones.com

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