U.S. pharmaceutical manufacturers spend billions of dollars annually on special assistance programs to defray the consumer cost of prescription drugs. Many manufacturers offer prescription drug discount coupons that reduce or eliminate required out-of-pocket payments for consumers, including insurance deductibles, co-payments, and coinsurance. Likewise, pharmaceutical manufacturers, along with some state governments and independent charities, operate patient assistance programs (PAPs) that provide free drugs or financial aid to help eligible individuals pay for prescription drugs based on factors including income, medical necessity, and health insurance status. Many PAPs are set up as 501(c)(3) nonprofit foundations or charities. Pharmaceutical companies may qualify for federal tax deductions for the donation of inventory through their own manufacturer PAPs or for making cash donations to independent charity PAPs. Prescription drug assistance programs have increased in value and scope in recent years, even as the number of consumers with drug coverage has expanded. A study of retail pharmacy data found that enrollees in commercial insurance plans used co-payment coupons for one out of every five brand-name drug prescriptions in 2016. For some brands, coupon use was as high as two-thirds of filled prescriptions. Likewise, an analysis of Internal Revenue Service (IRS) data found that giving by 10 large manufacturer PAPs rose from $376 million in 2001 to $6.1 billion in 2014, accounting for 85% of all pharmaceutical giving and one-sixth of all U.S. corporate charity deductions in 2014. Giving by five of the main independent charity PAPs increased from $2 million in 2001 to $868 million in 2014, according to the study. Pharmaceutical manufacturers say their assistance programs are evidence of their commitment to ensure that prescription drugs remain affordable. They note that although more people have insurance, a growing number of insured consumers have difficulty meeting required prescription co-payments, deductibles, and other out-of-pocket costs. That is especially true for people prescribed high-cost specialty drugs . Manufacturers and drug marketers also view PAPs as a tool for creating brand loyalty and developing markets for new drugs. There is some evidence that coupons may be a useful tool in improving enrollee adherence to expensive prescriptions, thereby improving health outcomes. A 2014 Health Affair s study using data from Prime Therapeutics, a pharmacy benefit manager (PBM) owned by a group of Blue Cross and Blue Shield plans, found that coupons helped consumers save $6 of every $10 in out-of-pocket costs for specialty drugs, making the high-cost products more affordable for more patients and potentially improving adherence. However, the authors added that the increased use of coupons could increase costs for other beneficiaries in a health care plan if a payer decided to raise plan premiums, deductibles, or cost sharing to offset some of the expenses of the higher drug utilization. Health payers note that discount coupons can actually increase their costs by inducing individuals to use more expensive brand-name drugs in cases where generics or other lower-cost substitutes are available. Other studies by industry analysts and the Department of Health and Human Services' Office of Inspector General (HHS OIG) have found that although the assistance programs expand access to drugs, they also bolster prices of prescription products. A drug discount coupon may reduce the amount an insured consumer has to pay out of pocket for a drug, but it generally does not reduce the price an insurer or government program is charged for the drug. The same is true with cost-sharing assistance offered through certain PAPs. More broadly, when consumers are relieved of cost-sharing obligations, there may be less market constraint on drug prices. A recent study of coupons for brand-name drugs for which generics were available found the coupons reduced the rate of generic substitution. The brand-name drugs with coupon offers had 12%-13% annual price growth, compared to 7%-8% price growth for those without coupons. There are restrictions on the use of pharmaceutical assistance. Drug coupons may not be used in conjunction with federal programs such as the Medicare Part D prescription drug benefit because the coupons may implicate federal anti-kickback law. Manufacturer-sponsored PAPs may not offer cost-sharing assistance to enrollees in Medicare Part D and other federal programs. However, PAPs operated by independent charities (which are allowed to receive cash donations from drug companies) may assist federal beneficiaries, if the PAPs comply with certain conditions. In the private sector, some health care payers and PBMs have barred enrollees from redeeming manufacturer coupons for certain drugs. Others have decided not to include certain pharmaceuticals on their formulary, or list of covered drugs, if the products have coupon discounts. This report provides an overview of consumer spending on prescription drugs; explains the difference between drug coupons and PAPs; and outlines federal laws and regulations and private-sector policies relating to coupons and PAPs. Pharmaceutical assistance programs, in their current form, developed in the 1990s in response to public concern about high drug price inflation. The programs grew substantially in following decades despite a broad expansion of health insurance drug coverage and the widespread adoption of low-cost generic drugs. Millions of consumers gained prescription drug coverage through Medicare Part D (Medicare Prescription Drug, Improvement, and Modernization Act of 2003; P.L. 108-173 ) and the 2010 Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended). The ACA, among other things, caps total annual out-of-pocket spending in many commercial health plans, including drug spending; eliminates cost sharing for contraceptives in many health plans; and reduces annual cost sharing for Part D enrollees. Generic drug use now accounts for about 89% of filled prescriptions and 27% of total drug spending, according to the Generic Pharmaceutical Association. Largely as a result of these trends, consumer out-of-pocket spending—cash payments, health plan deductibles, coinsurance, and co-payments—declined from 57% of U.S. retail drug spending in 1990 to 14% in 2015. Spending by commercial payers and taxpayer-financed health programs rose from 43% to 86% of U.S. retail drug expenditures during this same period. (See Figure 1 . ) Likewise, per capita out-of-pocket spending declined from 56% of total out-of-pocket drug spending in 1990 to 14% in 2015. Looking forward, the National Health Expenditure (NHE) expects per capita out-of-pocket spending to rise by about 4% a year from 2016 through 2025. However, because cost sharing is not projected to increase as fast as total drug spending, out-of-pocket expenditures are expected to drop to 11% of per capita drug spending by 2025. (See Figure 2 .) It may seem paradoxical that manufacturer assistance has increased while out-of-pocket spending has moderated. There appear to be several reasons for continued growth of manufacturer aid. Individual consumers can face significant drug costs depending on the design of their health plan and their specific diagnosis. A small but rapidly growing share of individuals face high out-of-pocket spending for specialty drugs for hepatitis C, cancer, rheumatoid arthritis, and other serious ailments. Pharmaceutical deductibles have become more prevalent. (See " Distribution of Prescription Drug Cost Sharing .)" The development of independent charity PAPs in the early 2000s created a way for manufacturers to aid consumers enrolled in Medicare Part D without violating federal anti-kickback statutes. Part D enrollees with high drug costs can have difficulty affording their medications when they are in the deductible phase of the benefit and when they reach the coverage gap—the period in which they are required to pay a larger share of total drug costs. (See " Restrictions on Coupon Use .") Manufacturers and drug marketers often view PAPs and discount coupons as important tools for creating brand loyalty and developing markets for new drugs. (See " Financial Impact of Coupons and PAPs .") As noted, the recent expansion of health coverage has improved consumer access to pharmaceuticals. Studies show that uninsured or underinsured consumers who have obtained drug benefits through Part D and the ACA are using more drugs and paying less, on average, to fill a prescription. Likewise, the share of consumers deciding not to fill a prescription, or to skip a required dose due to cost concerns, has declined since the ACA took effect. At the same time, consumer use of high-cost drugs, including specialty drugs, has been growing. Individuals prescribed high-cost drugs may face significant cost sharing as health payers shift a greater share of drug costs on to enrollees by increasing co-payments, coinsurance, and plan deductibles. For example, employer-sponsored health plans have expanded the use of tiered pricing, in which enrollees are charged lower co-payments for generic drugs and drugs that are more expensive or deemed less effective are put on higher tiers with greater co-payments or coinsurance. A 2016 survey of employer-based plans found that 38% had four or more drug tiers, commonly including a specialty drug tier, compared to 26% in 2012. The share of health plans imposing a prescription drug deductible also has been rising. From 2012 to 2015, the share of commercial health plans with a drug deductible jumped from 23% to 46%. The result of these parallel trends—expanded insurance coverage coupled with more stringent cost sharing—appears to have been a decline in average out-of-pocket spending but an increase in spending for enrollees who may have chronic conditions or be prescribed high-cost drugs.