Recent laws in several states that protect drugmakers’ contributions toward patients’ prescription copays are highlighting an escalating battle in the larger war on drug pricing.

In the past month, Arizona, Virginia and West Virginia became the first states to enact laws restricting insurance companies from excluding most drug manufacturer coupons or other financial assistance from a patient’s cost-sharing responsibilities. Similar bills are pending in a host of other states, including Connecticut, Illinois, Indiana, Kentucky and North Carolina.

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The issue reveals a fundamental problem in the drug pricing system. While insurance companies pay for the lion’s share of a drug, the remaining copay can still be extraordinarily high. Patients seek out financial aid as a result, which often comes in the form of a manufacturer coupon or assistance from a pharma-backed charity.

A manufacturer might offer patients a coupon that would reduce their copay from $200 to $10, for example. Under the newly passed state laws, an insurance company would have to count the full $200 toward a patient’s deductible or out-of-pocket maximum costs, even though the patient only paid $10.

By protecting patients’ wallets, drug manufacturers can circumvent insurance controls designed to steer patients to cheaper alternatives, all while keeping their list prices high. But while clamping down on the practice might benefit the system and lower the nation’s overall drug spending in the long run, lawmakers are keen to shield patients from rising health care costs.

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“How do you deal with this, with people who just can’t afford their drugs?” said Trish Riley, executive director of the National Academy of State Health Policy. “It’s a terrible catch-22.”

The prevalence of copay assistance has grown over time, particularly with the rise of high-deductible plans. According to a report from research firm IQVIA, patients abandon roughly one out of every four prescriptions at the pharmacy if they have not yet met their deductible. Coupons were used in 19 percent of commercial brand name prescriptions in 2016, the report said, compared with 13 percent in 2013.

Employers and insurers are responding accordingly. A growing number of large employers now exclude the coupons from a patient’s out-of-pocket maximum in some way, said Chad Brooker, a consultant with Avalere and a former official in the Centers for Medicare and Medicaid Services.

Those include Walmart and Home Depot, both of which recently adopted strategies to limit the impact of third-party financial aid. A “copay accumulator” program excludes coupons from cost-sharing responsibilities.

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The idea has become “increasingly popular,” Brooker said.

“We’re talking about some of the largest employers in the country adopting copay accumulators,” he told CQ.

Several states are attempting to strike a compromise as a result.

In Arizona, a new law bans insurers from excluding the discounts only when a brand-name drug lacks a generic alternative, or if the patient obtains permission from his or her insurer to use the branded version.

A 2017 California law prohibits manufacturers from offering coupons at all if a generic is available, but allows copay assistance from independently controlled charities.

A 2012 Massachusetts law prohibits drug manufacturers from offering coupons or other assistance when a generic is available. The generic provision is scheduled to sunset soon, so coupons would be outlawed entirely.

A bill in New Hampshire follows California’s law, and also grants an exemption to patients who obtained their plan’s permission for the branded drug.

A New Jersey bill would outlaw discounts from drug manufacturers but doesn’t mention charities.

Another bill in Rhode Island would require drugmakers to offer the same discounts to uninsured patients while also disclosing if a generic is available.

But other states, like the new laws in Virginia and West Virginia, are prohibiting insurers from limiting third-party assistance at all.

Spencer Perlman, a partner at investment firm Veda Partners, said that limiting copay assistance in instances where there is no generic makes sense, because regulators are not “declawing” health plans. But blocking insurers from restricting drugmaker aid outright is a bad idea, he said, and could result in higher premiums.

“Lawmakers stepping in and prohibiting copay accumulators is perfectly understandable from a political perspective, but I think it’s shortsighted from a policy perspective,” he said.

America’s Health Insurance Plans also warned about potentially higher premiums if patients buy expensive drugs with help from coupons. The trade group pointed out that the exemption for generic competitors won’t help in instances of drugs that have multiple brand-name options but no generic equivalents.

“It should be noted that this type of system gaming is only seen from drugmakers,” AHIP spokeswoman Cathryn Donaldson said. “Patients don’t receive coupons for other equally important treatments and services such as infusion chemotherapy or hospitalizations. Additionally, the federal government already considers copay coupons to be an illegal kickback if used by an enrollee in Medicare or Medicaid.”

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Federal scrutiny

The Centers for Medicare and Medicaid Services last week also finalized a rule permitting commercial insurance plans to exclude manufacturer coupons from a patient’s out-of-pocket cap, unless a generic alternative is unavailable or a state law prohibits it.

The rule could help the practice spread in the small group and individual markets, where Brooker said the extent is less pervasive.

The final rule “frankly, could change all of that,” he said.

The move follows crackdowns and scrutiny from other federal agencies — including the Justice Department, the Internal Revenue Service, and the Department of Health and Human Services’ Office of the Inspector General — particularly in relation to pharma-funded charities.

Recently, stricter federal guidance on communications between charities and drugmakers concerning Medicare beneficiaries prompted charity Patient Services Inc. to sue HHS last year. (While the use of manufacturer coupons is generally prohibited in government programs, charity assistance is permitted.)

The guidance “ushers in a brave new world of government censorship” and puts the charity in the “impossible position” of setting up new funds without the expertise of donors or their affiliates, Patient Services said in its complaint.

“OIG’s restraint on speech threatens access to life sustaining and other critically important treatments and other essential medical assistance,” the charity wrote.

But many experts see the industry’s patient assistance programs as an insurance runaround designed to enable high list prices. The Justice Department on Thursday announced settlements with two drugmakers over alleged manipulations of purportedly independent charities that almost exclusively covered the costs of the drugmakers’ own products. The drug companies did not admit liability.

The government alleged that Astellas Pharma coordinated with two charity foundations to set up funds for prostate cancer patients specifically taking androgen receptor inhibitors, or ARIs. Astellas is the maker of a major ARI, Xtandi, and was the sole donor to both funds.

The Justice Department also accused Amgen of setting up a charity fund that only benefited patients of its drug Sensipar — which lowers calcium in the blood — from 2011 to 2014, even though the payments exceeded the cost of simply providing the drug for free.

Amgen also settled allegations that Onyx Pharmaceuticals, which Amgen acquired in 2015, was the sole donor to a charity fund that covered travel expenses for multiple myeloma patients but almost exclusively benefited patients of Onyx’s product Kyprolis. The DOJ also alleged that Onyx adjusted its donations to another multiple myeloma fund based on expense reports from the foundation.

“Astellas and Amgen conspired with two copay foundations to create funds that functioned almost exclusively to benefit patients taking Astellas and Amgen drugs,” U.S. Attorney Andrew E. Lelling said in a statement. “As a result, the companies’ payments to the foundations were not ‘donations,’ but rather were kickbacks that undermined the structure of the Medicare program and illegally subsidized the high costs of the companies’ drugs at the expense of American taxpayers.”

Health plan rebates

The Trump administration has taken a similar view of drug manufacturers’ back-end rebates to insurance companies, which are often not shared with patients at the pharmacy counter.

A proposed rule would effectively eliminate those rebates in government programs, although it’s unclear what the effect would be in the commercial sector.

As public scrutiny of the drug pricing system continues to grow, the practice of both health plan rebates and consumer coupons might start to fade, said David Dross, who leads Mercer’s national pharmacy practice. The HHS rule would permit manufacturers to offer upfront patient discounts through a patient’s health plan, which could eliminate the need for coupons at the counter.

“I wouldn’t say it’s going to disappear, but it seems to be moving in that direction,” he told CQ Roll Call.

Dross noted that the rebate structure is partly to blame for the rise in coupon cards, since the difference between the list price and the rebated price is not reflected at the pharmacy register. Rebates used to account for roughly 5 percent of a drug’s list price, but he said now can make up as much as 40 percent.

“That whole dynamic has really changed things an awful lot and that’s part of the reason you see such a focus on it now,” he said.

The Pharmaceutical Research and Manufacturers of America, or PhRMA, also pointed to insurers keeping rebate savings from patients as a reason for coupons and charity assistance.

The lobby group subsequently condemned copay accumulator programs.

“These programs can result in patients facing thousands of dollars in unexpected costs and many patients may leave the pharmacy empty-handed,” spokeswoman Holly Campbell said.

The result is a dilemma for regulators and lawmakers, who are frequently faced with tough choices when it comes to untangling the web of health care industry payment schemes. But in lieu of a wholesale overhaul of the drug pricing system — which could come through the HHS rebate rule — states are left to their own short-term devices.

“Coupons are inherently inflationary and protect high list prices,” Riley said. “But absent reforms to deal with the list pricing, I think it’s all states can do.”