Manufacturer drug coupon programs reduce or eliminate out-of-pocket costs for specific drugs and are typically available to privately insured patients regardless of income. Drug manufacturers provide these discounts to patients through several mechanisms. For example, manufacturers may provide patients with debit cards to be activated at the point of sale. Alternatively, manufacturers may pay the patient’s coupon discount amount directly to a provider, who would reduce the patient’s out-of-pocket cost accordingly. Manufacturers inform patients and providers of coupon programs in a variety of ways, such as distributing promotional materials, operating program websites and patient hotlines, and sending field representatives to communicate program information to providers. The effect of coupon programs on patients can differ depending on whether programs are associated with single-source or multi-source drugs, and changes in patient behavior may in turn lead to increased drug sales by manufacturers. For single-source drugs, which are only available from one manufacturer and may not have lower-cost, pharmaceutically equivalent alternatives, such programs can help patients afford their medications and have been shown to improve patient adherence to specialty drug regimens. For multi-source drugs, which are available from more than one manufacturer, coupon programs may encourage patients to request, and providers to prescribe, more expensive drugs instead of generics and other lower-cost, pharmaceutically equivalent alternatives. These changes in patient behaviors could benefit drug manufacturers financially while potentially increasing costs for health insurers. Specifically, manufacturers gain revenue from the sale of drugs received by patients who might have quit a drug regimen or chosen a lower-cost alternative in the absence of a coupon program. Additionally, manufacturers may be able to charge higher prices to purchasers than the market could sustain without these programs. Although the use of drug coupon programs to induce or reward use of certain drugs is unlawful in federal health care programs such as Medicare, beneficiaries who cannot afford their medications may be eligible to obtain financial assistance from other sources. For example, Medicare beneficiaries may be able to receive medications or assistance with out-of-pocket costs from independent charity patient assistance programs. Medicare beneficiaries with low income may also be eligible to enroll in Medicaid, the joint federal-state program that finances health insurance coverage for certain categories of low-income and medically needy individuals. Medicare Part B covers drugs and biologicals that are generally administered by a physician or under a physician’s direct supervision, including drugs administered in a physician’s office or hospital outpatient department. Drugs covered under Part B include injectable drugs, oral cancer drugs if the same drug is available in injectable form, and drugs infused or inhaled through durable medical equipment. Medicare and its beneficiaries make payments for Part B drugs to providers, such as physicians and hospitals, which first purchase the drugs from manufacturers or other sellers. Medicare generally pays 80 percent of a set payment rate for a drug, while beneficiaries are responsible for the remaining 20 percent. For most Part B drugs, Medicare sets payment rates at a drug’s ASP plus an additional 6 percent. To set these rates, CMS collects quarterly data from drug manufacturers on the volume of sales and ASP for each drug. Sales data that manufacturers report must be net of all rebates, discounts, and other price concessions to purchasers, including physicians, hospitals, and wholesalers. Manufacturers are not required to report sales net of coupon discounts or other financial assistance provided by manufacturers directly to patients. CMS, as part of its ongoing efforts to evaluate Medicare’s methodology for setting Part B drug payment rates, recently issued a proposed rule to test alternatives to this payment method. Various studies have pointed out that Medicare’s current methodology for setting Part B drug payment rates as a fixed percentage above ASP may give providers a financial incentive to prescribe more expensive drugs. This is among the shortcomings of the current ASP-based payment method that CMS’s proposed payment model is designed to address. The first phase of the proposed payment model would change the payment rate for drugs paid based on ASP from ASP plus 6 percent to ASP plus 2.5 percent plus a flat fee. The second phase would implement value-based pricing strategies, such as varying prices based on drugs’ clinical effectiveness and decreasing beneficiary coinsurance for drugs deemed high in value. In 2015, drug manufacturers offered coupon programs to privately insured patients for 29 of the 50 high-expenditure Medicare Part B drugs in our analysis. Coupon programs were typically open to privately insured patients regardless of income. Programs for 3 of the drugs required patients to have incomes below a certain amount, with maximum annual incomes of approximately $100,000. Coupon programs varied in the discount amounts that patients could receive in 2015. Most programs had a maximum annual discount, which ranged across programs from $400 to $42,000 per year. Until patients reached that maximum discount, they could pay as low as $0 to $50 per coupon use. These amounts could represent a small fraction of patients’ full out-of-pocket cost for a prescription. For example, privately insured patients using the drug Yervoy were required to pay an estimated $571, on average, per prescription without the drug’s coupon program, compared to paying $25 under the coupon program. (See table 1 for examples of drug coupon programs and app. III for more information on out-of-pocket costs for drugs with coupon programs.) Factors that can affect privately insured patients’ use of coupons include patient out-of-pocket cost requirements and the extent of manufacturer outreach to patients and providers. For example, whether patients are required to pay out-of-pocket costs for a drug can affect whether patients use coupon programs, as patients without such costs do not need these programs. On average, across drugs in our analysis with coupon programs in 2013, we estimated that 50 percent of privately insured patients did not have out-of-pocket costs, and this percentage ranged from 8 to 76 percent, depending on the drug. The amount of patient out- of-pocket costs can also affect the discount amount patients receive, because coupon discounts are directly related to patients’ out-of-pocket costs. Other factors, including manufacturer outreach to providers and patients, could also explain variation in coupon program use. For example, some manufacturers told us that they reach out to patients directly regarding coupon programs, while others told us that they communicate directly only with providers. With respect to patients’ use of available drug coupon programs, we determined that 21 of the 50 high-expenditure Part B drugs had coupon programs in 2013, and these drugs accounted for 50 percent of Part B spending paid based on ASP. We were able to obtain data on coupon discounts from manufacturers for 18 of these drugs. An estimated 19 percent of the 509,000 privately insured patients who used these 18 drugs in 2013 also used a coupon program. The percentage of these patients who used a coupon program ranged from 1 to over 90 percent, depending on the drug, with coupon programs for all but 2 drugs being used by less than 40 percent of patients. Coupon discounts reported by manufacturers of the 18 drugs totaled $205 million in 2013. Individual patients who used coupon programs for these drugs received an average annual discount of $2,051. This discount ranged from $1,000 to over $7,000 per year for 13 of the 18 drugs and was $800 or less for the remaining 5 drugs. Medicare’s market-based methodology for setting Part B drug payment rates may be less suitable for drugs with coupon programs than for other Part B drugs that are paid based on ASP. Because ASP does not account for coupon discounts between manufacturers and patients, the ultimate consumers of these drugs, the ASP for drugs with coupons exceeds the effective market price a manufacturer receives for a drug purchase. For example, in figure 1, the ASP reported by the manufacturer was $1,000; however, the effective market price the manufacturer received for the drug—net of the coupon discount the manufacturer provided to the patient—was actually $300 less, or $700. We estimated that, for the 18 drugs for which we obtained coupon discount data in 2013, ASP exceeded the effective market price by an average of 0.7 percent. Medicare spending for these 18 drugs could have been $69 million lower if ASP had been equal to the effective market price manufacturers received. ASP exceeded the effective market price for some drugs by much more than the 0.7 percent average, which suggests that the ASP-based payment method may be even less suitable for these drugs. For example, for 5 of the 18 drugs, ASP exceeded the effective market price by an estimated 2.7 percent, on average, and ranged from 1.4 to 7.8 percent depending on the drug (see fig. 2). Part B spending for these 5 drugs combined could have been an estimated $50 million lower if ASP equaled the effective market price. The drugs for which ASP exceeded the effective market price by the highest percentage either had high rates of coupon use relative to other drugs, a high average annual discount, or both. For example, the drug in figure 2 with the highest percentage (Drug A) had the highest average annual discount per patient ($7,100) and the second highest percentage of patients who used a coupon (53 percent). (For more detail on the data and methodology for these estimates, see app. II.) Upward trends in the use of coupon programs suggest that drug coupons could have an even greater effect in the future on the suitability of Medicare’s methodology for setting Part B drug payment rates. A recent study found that coupon use more than doubled between 2011 and 2014. Several manufacturers we interviewed told us that the number of patients using coupon programs and the discount amounts that patients receive have increased over time. In addition, to the extent that drug prices continue to increase and translate into higher out-of-pocket costs for privately insured patients, this could increase patients’ use of drug coupons and the discount amounts they receive. CMS currently lacks data on coupon discounts, which are necessary for evaluating the implications of coupon programs for Medicare’s Part B payment rate methodology. CMS lacks the authority to collect data from drug manufacturers on coupon discounts to patients because the authority to collect information relating to ASP is based on manufacturer sales to purchasers. In addition, these data are proprietary and are not readily available from other sources. Standards for internal control in the federal government require agencies to have access to quality information to achieve their objectives, which for CMS entails having the information necessary to evaluate the implications coupon programs may have for Medicare’s methodology for setting Part B drug payment rates. Without data on coupon discounts, CMS lacks information that could inform its ongoing efforts to evaluate alternatives to this payment rate methodology. The high spending on Part B drugs based on ASP—approximately $20 billion in 2013—underscores the need to ensure that Medicare pays appropriately for these drugs. Various studies have noted previously that payments to providers under the current ASP-based payment methodology could lead providers to prescribe more costly drugs. Our findings in this report indicate that the shortcomings of this payment system go beyond problems with the incentives associated with payments to providers. In particular, even if Medicare Part B drug payments accurately reimburse providers’ costs and do not introduce inappropriate incentives, Medicare still may be paying more than necessary for drugs with coupon programs because the ASP for these drugs exceeds the effective market price that manufacturers ultimately received. Furthermore, upward trends in coupon program use and drug prices suggest that Medicare’s Part B drug payment rate methodology could become less suitable over time for drugs with coupon programs. These trends emphasize the need for regular monitoring of the implications that coupon programs may have for this methodology as CMS works to propose an alternative payment system. However, the agency lacks the authority to collect data on coupon discounts and therefore lacks important information that could inform its ongoing efforts to design and evaluate alternative approaches. To determine the suitability of Medicare’s Part B drug payment rate methodology for drugs with coupon programs, Congress should consider granting CMS the authority to collect data from drug manufacturers on coupon discounts for Part B drugs paid based on ASP and requiring the agency to periodically collect these data and report on the implications that coupon programs may have for this methodology. We provided a draft of this product to HHS. HHS provided us with technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Health and Human Services, and the Administrator of the Centers for Medicare & Medicaid Services. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. Aflibercept injection (ophthalmic) Injection, IVIG Bivigam (C9130) Gammaplex injection (J1557) Gamunex-C/Gammaked (J1561) Octagam injection (J1568) Flebogamma injection (J1572) Zoledronic acid (J3487) Reclast injection (J3488) Zoledronic acid 1mg (Q2051) Medicare expenditures paid based on ASP, 2013 (dollars in millions) Drug description(s) Healthcare Common Procedure Coding System (HCPCS) code(s) Darbepoetin alfa, non- ESRD (J0881) Darbepoetin alfa, ESRD use (J0882) Leuprolide acetate /3.75 MG (J1950) Leuprolide acetate suspension (J9217) Xyntha inj (J7185) Factor vii recombinant (J7192) Hyalgan/supartz inj per dose (J7321) Euflexxa inj per dose (J7323) Brand name(s) Adriamycin, Doxil Doxorubicin hcl injection Drug description(s) Healthcare Common Procedure Coding System (HCPCS) code(s) Medicare expenditures paid based on ASP, 2013 (dollars in millions) (J9000) Doxil injection (J9002) Imported Lipodox inj (Q2049) Doxorubicin inj 10mg (Q2050) Apligraf skin sub (Q4101) Dermagraft skin sub (Q4106) Graftjacket skin sub (Q4107) Also includes Flebogamma 10% DIF, Flebogamma 5% DIF, Gamunex, Gamunex-C, and Octagam. Also includes Kogenate FS BIO-SET, Recombinate, ReFacto, and Xyntha. This appendix describes the data and methods we used in our study. To identify coupon programs associated with high-expenditure Medicare Part B drugs, we used 2013 Medicare claims data—the most recent full year of data available at the time we began our analysis (2015)—to develop a list of the 50 highest-expenditure Part B drugs paid based on the average sales price (ASP) methodology. We identified drugs based on their Healthcare Common Procedure Coding System (HCPCS) codes. Each HCPCS code refers to one or more brand or generic products, which are identified by their national drug codes (NDC). The drugs we identified for our analysis had multiple HCPCS codes if the codes shared one or more NDCs for products that were pharmaceutically equivalent, defined by the Food and Drug Administration as those with the same active ingredient(s), dosage form, route of administration, and strength or concentration. Our final list of the 50 highest-expenditure drugs accounted for 85 percent of Part B spending in 2013 for drugs paid based on ASP. (For the complete list of these 50 drugs, see app. I.) We identified which of the 50 high-expenditure Part B drugs had coupon programs, either at the time of our analysis (2015) or in 2013, based on information from manufacturers and their websites. If we were unable to identify a coupon program for a drug and did not receive information from its manufacturer, we recorded that the drug did not have a coupon program. Some drugs in our analysis comprised multiple NDCs. As a result, some drugs we analyzed had a coupon program for one product but did not have programs for other products, while other drugs had multiple coupon programs. To describe the extent to which privately insured patients used coupon programs, we obtained data from Truven Health Analytics’ MarketScan® Commercial Claims and Encounters Database on the estimated number of privately insured patients nationally who used drugs with coupon programs in 2013 (to correspond with the year of available Medicare claims data) and the out-of-pocket costs these patients incurred. We also obtained data for 2013 from drug manufacturers on coupon use— specifically, the number of patients who used each program and the average annual coupon discount provided. We calculated the percentage of patients taking a drug who used a coupon program by dividing the number of patients who used a coupon program by the estimated total number of patients who used the drug. To calculate the average of this percentage across all drugs in our analysis for which we obtained data on coupon use, we weighted each drug’s percentage by the total number of patients who used the drug. We calculated the total amount of coupon discounts provided in 2013 for each drug by multiplying the number of patients who used the program by the average discount provided. To calculate the average annual coupon discount across all drugs for which we obtained data on coupon use, we weighted the average annual discount for each drug by the number of patients who used the coupon program. In addition to data on coupon use, we collected information from manufacturers on the mechanisms through which manufacturers provide coupon discounts to patients and on the ways in which manufacturers inform patients and providers about drug coupon programs. The ASP for a drug in 2013, as calculated above, is equal to the average of the quarterly ASPs in 2013 reported to CMS by drug manufacturers, weighted by the units of the drug sold in a given quarter. Total sales net of manufacturer price concessions to purchasers, as defined by ASP. We then calculated the percentage by which ASP exceeded the effective market price in 2013 for each drug and across all drugs with coupon discount data in our analysis. To calculate this percentage across all drugs in the analysis, we weighted the percentage for each drug based on the drug’s Medicare spending from July 2013 through June 2014, which is the time period during which changes in ASP in 2013 would take effect. Finally, to estimate what Medicare spending from July 2013 through June 2014 could have been if a drug’s ASP accounted for coupon discounts, we multiplied the drug’s actual Medicare spending during this time by the percentage by which ASP in 2013 could have decreased if it had equaled the effective market price. We then calculated the difference between this spending estimate and actual Medicare spending for the same time period for each drug and across all drugs in our analysis with coupon discount data. Average annual out-of-pocket cost among patients with out-of-pocket costs (in 2015 dollars) Actemra Advate, Helixate FS, Kogenate FS, and various other brands Alimta Eligard, Lupron Depot, Lupron Depot-PED Faslodex Flebogamma, Gammaked, Gammaplex, and various other brands Gammagard Liquid 1,965 Values are based on 2013 data from Truven Health Analytics and have been adjusted for inflation to 2015 dollars using the Consumer Price Index for All Urban Consumers. In addition to the contact named above, William Black (Assistant Director), Ramsey Asaly, Namita Bhatia-Sabharwal, George Bogart, Muriel Brown, William A. Crafton, Kelsey Kennedy, Dan Lee, Maria Maguire, Lauren Metayer, and Beth Morrison made key contributions to this report. Medicare Part B: CMS Should Take Additional Steps to Verify Accuracy of Data Used to Set Payment Rates for Drugs. GAO-16-594. Washington, D.C.: July 1, 2016. Medicare Part B: Expenditures for New Drugs Concentrated among a Few Drugs, and Most Were Costly for Beneficiaries. GAO-16-12. Washington, D.C.: October 23, 2015. Medicare: Information on Highest-Expenditure Part B Drugs. GAO-13-739T. Washington, D.C.: June 28, 2013. Medicare: High-Expenditures Part B Drugs. GAO-13-46R. Washington, D.C.: October 12, 2012. Medicare Part B Drugs: CMS Data Source for Setting Payments Is Practical but Concerns Remain. GAO-06-971T. Washington, D.C.: July 13, 2006.

Summary: Use of drug coupons in the private sector has increased in recent years. GAO was asked to study coupon programs for drugs covered by Medicare Part B, including any implications for Part B spending. This report (1) identifies coupon programs associated with high-expenditure Part B drugs and describes the extent to which privately insured patients use coupons and (2) examines, for drugs with coupon programs, the suitability of the Part B drug payment rate methodology. GAO identified high-expenditure Part B drugs using 2013 Medicare claims data—the latest available at the time of the analysis—and collected information from manufacturers on coupon program characteristics in 2015. GAO also analyzed coupon use and patient costs for drugs using 2013 data from manufacturers and private insurers; estimated how Part B spending could have differed if ASP had accounted for coupon discounts in 2013; reviewed federal laws and regulations; and interviewed CMS officials. In 2015, manufacturers of 29 of the 50 high-expenditure Medicare Part B drugs GAO analyzed offered coupon programs, which reduce the costs patients incur for specific drugs. Part B drugs are typically administered by a physician. Coupon programs are prohibited in the Medicare program but are generally available to privately insured patients. GAO obtained data on coupon discounts for 18 drugs. GAO estimated that 19 percent of privately insured patients who received these drugs used coupons in 2013, but coupon use varied widely depending on the drug—from 1 percent to over 90 percent. Medicare's methodology for setting Part B payment rates to providers may be less suitable for drugs with coupon programs than for drugs without them. The methodology for most Part B drugs is based on the average sales price (ASP), which is defined by law as the amount physicians and other purchasers pay manufacturers for the drug, net of discounts and rebates to those purchasers. Medicare and its beneficiaries spent $20 billion on Part B drugs paid based on ASP in 2013. As ASP does not account for coupon discounts to patients, the discounts reduce the effective market price that manufacturers receive for drugs with coupon programs. GAO estimated that, for the 18 drugs for which it obtained coupon discount data, the ASP exceeded the effective market price by an estimated 0.7 percent in 2013. Part B spending for these drugs could have been an estimated $69 million lower if ASP equaled the effective market price. ASP exceeded the effective market price by more than 1.0 percent for 5 of the 18 drugs, suggesting that the ASP-based methodology may be even less suitable for these drugs. Upward trends in coupon program use and drug prices suggest that these programs could cause the methodology for setting Part B drug payment rates to become less suitable over time for drugs with coupon programs. However, the Centers for Medicare & Medicaid Services (CMS) lacks the authority to collect coupon discount data from manufacturers and thus lacks important information that could inform its ongoing efforts to evaluate alternatives to this methodology. To determine the suitability of the Part B drug payment rate methodology for drugs with coupon programs, Congress should consider (1) granting CMS authority to collect data from drug manufacturers on coupon discounts for Part B drugs paid based on ASP; and (2) requiring CMS to periodically collect these data and report on the implications of coupon programs for this methodology. The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.