UCLA Anderson Professor Explains Why Drug Prices Are So High
When drug prices go through astronomical price surges, a lot of blame goes around.
Is it a product of overt regulation? Excessive corporate greed? The answers always seem mixed, depending on who is giving an answer. But Matt Schmitt, an assistant professor at the UCLA Anderson School of Management, alongside Harvard and Northwestern professors Leemore Dafny and Christopher Ody, think they found the answer: coupons.
Their study—“When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization”—finds that insurance companies like Horizon and Novum use coupons to purchase drugs at discounted rates and then increase the costs when the drugs are provided to patients.
“The success of Horizon and Novum using this strategy demonstrates how America’s convoluted and opaque system of paying for prescription drugs enables executives to set extraordinary prices on modest medicines that have been around for years,” writes LA Times reporter Melody Petersen. “The coupons keep patients and doctors from seeing the medicine’s true price tag.”
Schmitt, Dafny and Ody found that the mammoth drug prices increased rates by billions more than their original value.
“By boosting prices, companies can bolster revenue without spending more on research to discover new medicines,” Petersen writes. “Horizon, for example, has increased the price of Vivomo eight times in the last two years. The price hikes lift the corporate bottom line, and often executives’ compensation.”
The process of allowing insurers to purchase drugs—which are often older and already established—was intended to lower the overall costs in the U.S. healthcare system. But through the trio’s research found many companies simply took advantage of the situation. Much of the increased rates result in higher premiums and co-pays; the fixed cost on the consumer.
Petersen talks to Steve Miller, chief medical officer at Express Scripts, who mentions that this isn’t saving anyone money. “This is raising the cost to everyone,” Miller says.
Read the rest of Petersen’s enlightening, in-depth article on the LA Times website.
About the Author
Matthew Korman
Matthew Korman is a writer on MetroMBA. Since graduating from Rowan University with a degree in journalism and political science, Matthew has worked as a music industry writer and promoter, a data analyst, and with numerous academic institutions. His works have appeared in publications such as NPR and Sports Illustrated.
