(Rachel Orr/The Washington Post)

A battle for profits between two arms of the health-care industry has made privately insured patients into pawns, offering them a growing number of discounts on their drug co-pays while ultimately leaving them with fewer drug options overall, according to a new analysis.

The research, funded by Pfizer, found that the number of coupons that drug companies offer to help defray the portion that insured patients pay for their drugs has exploded. At the same time, the companies that provide prescription coverage have increased the number of drugs they refuse to cover, in an effort to gain leverage with drug companies in price negotiations.

In the report released on its website, researchers at the Tufts Center for the Study of Drug Development illustrate how two profitable, behemoth industries — with drug companies that sell and develop treatments on the one side and with companies that negotiate prices and pay for drugs on the other — make shifting alliances with patients to protect their own interests.

Each industry has its own seemingly pro-patient move: Drug manufacturers offer coupons to reduce co-pays that people are faced with at the pharmacy counter. Pharmacy benefit-management companies, hired by health-insurance companies to manage drug benefits, negotiate aggressively to secure rebates that lower the cost of drugs.

The study shows how these tactics are actually parries and counterattacks in both industries' attempts to make money.

"There is a definite battle going on, and it’s very unclear in May of 2016 who is winning this battle," said Joshua Cohen, a health economist at Tufts. "It’s a friendly battle --  it’s not war --but it is a battle between two industries, one the insurance and PBM [pharmacy benefit management] industry that’s trying to rein in costs, and the drug industry that's trying to sell its wares."

The deceptive generosity of coupons

The drug industry has increasingly relied on coupons to sell its products during the past five years: There were fewer than 100 brand-name drugs with coupon programs in 2009; Today, there are nearly 750 coupons to help patients pay for their drugs.


What could be better than a coupon? Patients who pay $0 instead of $100 are grateful and get access to a prescription that they might otherwise have hesitated to fill. The coupon, however, might mean a pricey brand-name drug costs less for patients than a cheaper generic — not the best outcome for the health-care system. Even though the drug company appears to be altruistically giving money to the patient, the company still gets the full amount insurance will pay.

A 2013 New England Journal of Medicine study found that more than half of coupons were for brand-name medications with a cheaper, alternative medicine available.

That irks the companies that cover prescription-drug benefits, which call this the "dark side" of coupons, which aren't even legally allowed in government health plans like Medicare because they're considered a kickback. Pharmacy benefit-management companies carefully design their coverage, putting drugs on different tiers -- with brand-name drugs and those that give unfavorable rebates typically on higher tiers that require larger co-pays and with cheaper generics or other alternatives on lower tiers with smaller co-pays.

Fighting coupons by playing hardball

But as the number of coupons increased, pharmacy benefit companies haven't stood still, the report found. Over the past few years, they have begun to play hardball by refusing to cover certain drugs altogether to win more favorable rebates and discounts from drug companies. Using the threat of exclusion, pharmacy benefit companies have gained more leverage in price negotiations with drug makers.

The Tufts analysis shows how the number of excluded drugs has increased in recent years:


One such battle went very public recently, as the nation's largest pharmacy benefit manager, Express Scripts, excluded pricey hepatitis C drugs from coverage and won a more favorable price with a competing therapy. That means drug spending may go down, but because of the secrecy shrouding price negotiations, it's not clear how much of the savings are passed to health plans and patients.

"By opening up access to all clinically superior medications, and excluding a handful of 'me-too' products that have no clinical benefit beyond what’s provided by more affordable alternatives, we have leverage to negotiate more effectively with manufacturers and ultimately achieve lower drug prices for the clients and patients we serve," Express Scripts spokesman David Whitrap wrote in an email.

Excluding some drugs makes sense — if there's a cheaper equivalent or little evidence that one drug is more effective than another, a substitution is eminently reasonable.

What the analysis attempts to demonstrate is that exclusions are not being done with clinical superiority in mind. Instead, exclusions are made simply because the pharmacy benefit manager was able to negotiate a better price. As evidence of the arbitrariness of substitutions, Cohen of Tufts highlights 14 drugs that were excluded by one of the two big pharmacy benefit companies but included by another — which suggests the size of the rebates are driving the decisions.

CVS Caremark spokeswoman Christine Cramer said that, on average, patients whose plans used a selective formulary with restricted coverage of drugs saved almost $35 on each prescription and overall the approach has saved its clients $6 billion since 2012.

So far, the aggressive bargaining of pharmacy benefit companies seems to be increasing the secret rebates they win. Richard Evans, an analyst at SSR Health, compared it to musical chairs — when there are a few major brands with comparable drugs in a category, the pharmacy benefit companies can simply take away a chair and exclude the drug, using that leverage to negotiate deeper discounts.

A major report on pharmaceutical spending last month highlighted the success that rebates were having in tempering the ever-rising prices of drugs. Pharmaceutical spending in the United States, as measured by the prices written on invoices, increased in 2015 to $425 billion — or a little more than 12 percent — compared with the year before. But factoring in the rebates and discounts that drug companies provided, net spending was $310 billion — a little less than 9 percent increase, according to the analysis by IMS Health.

But there are reasons that this system might not be the most efficient — either for health care or for prices. Doctors don't tend to like these kinds of tactics — it can feel like a middleman overriding medical expertise, potentially discouraging the use of pricey but necessary medications by putting them on tiers with higher co-pays or making providers submit extensive paperwork to get a drug covered. And at least one insurer, Anthem, has gone on the attack, arguing that Express Scripts isn't passing sufficient savings on.

What's clear is that the two industries are jostling for advantages in a game of chicken where the patient is caught in the middle.

Correction: A previous version of the story incorrectly stated that CVS Health's savings using a selective formulary since 2012. The strategy has saved its clients more than $6 billion since 2012.