Insulin’s high cost goes beyond drugmakers to industry’s price mediators

Notice of Eli Lilly & Co. that it is lowering prices for its main insulin products could make life easier for some diabetes patients while easing pressure on Big Pharma.

It also shines a light on the profiteering methods of the drug industry’s price middlemen — pharmacy benefit managers, or PBMs — at a time when Congress has shifted its focus to them.

Insulin has come to epitomize the perversity of the US health care system as list prices for the century-old drug, on which 8.4 million Americans depend for survival, have quintupled over two decades to more than $300 for a single vial. Just because Lilly — which sells about a third of its insulin in the United States — is lowering its price doesn’t mean all patients will pay less, even in the long run.

Lilly capped the out-of-pocket costs of its most popular insulins at $35 effective immediately, and said that later this year the list price of its “authorized generic” Lispro – which is identical to Humalog, the best-selling insulin of its brand – will drop to $25 per bottle. It followed President Joe Biden’s State of the Union address and speeches since, in which he has blamed “Big Pharma” and its “record profits” for the incredible costs of insulin.

David Ricks, Lilly’s CEO, in interviews March 1 called on other manufacturers to join his company in “removing the affordability challenges” of diabetes.

Although Lilly promotes its altruism, the move could save it money, said health care analyst Sean Dickson. A federal rule that takes effect next year penalizes companies that charge Medicaid high prices, especially for older brand-name drugs. Lowering Humalog’s list price would allow Lilly to pay significantly less in rebates to government Medicaid programs that buy the drug.

Drug manufacturers have long ceased to be the only, even the main villain of the insulin price scandal. The three companies that make almost all of the insulin in the country – Lilly, Sanofi and Novo Nordisk – reported stagnant or declining revenue from their versions of the drug in recent years, despite the continued increase in the list prices they charged. They have even advised investors that they no longer see insulin sales as a high-profit area.

But while Lilly is lowering the “wholesale price,” or list price, of its top-selling insulin drugs, “will the ‘other players’ raise that price before out at my pharmacy counter?” asked Rebecca Kelly of Richmond, Kentucky, who has type 1 diabetes and is an advocate for lower drug prices.

Those parties include giant pharmacy benefit managers — owned by CVS Health and insurance giants UnitedHealthcare and Cigna — that have aggressively pitted insulin makers against each other in a way that has largely fattened their bottom lines, it found. in a scathing 2021 Senate Finance Committee report. .

In theory, when pharmacy benefit managers negotiate contracts with drug manufacturers on behalf of insurers, they pass the savings on to patients. In practice, while hard bargaining may benefit the well-insured, it may harm patients on fixed incomes and others less able to afford their insulin.

To compete for access to insured patients, the three insulin makers in the 2010s steadily increased the rebates and fees paid to powerful PBMs, which are owned or allied with major insurers, according to the report. This encouraged drugmakers to keep raising their list prices because the more they paid in rebates—calculated as a percentage of the list price—the better they placed on insurance formularies, insurers’ complex lists of drugs cover patients.

In other words, the more insulin manufacturers compete, the more consumers—the unlucky ones, anyway—can pay.

“Insulin is a commodity, so the position of the form is everything,” said David Kliff, who edits the Diabetic Investor website. “It’s like location in real estate.”

In 2018, Novo Nordisk, amid public outrage over rising insulin prices, considered a 50% cut, according to the report. But the company’s board decided against it, noting that “many in the supply chain will be adversely affected ($) and may retaliate.” The company also feared angry insurers could retaliate against Novo’s successful diabetes and weight-loss drugs like Ozempic, which compete against Lilly’s Mounjaro.

Sanofi and Novo Nordisk did not directly respond to Lilly’s move to lower the price, but noted in statements that their rebate programs already provide cheap insulin to those who need it. Millions of Americans have used these coupons, but patients like Kelly say they come with red tape and can be unreliable.

Lilly declined to answer a question about how its list price reduction might affect negotiations with insurers, who expect steep discounts for drugs with competitive list prices.

For example, Sanofi paid rebates worth 2% to 4% of the list price of insulin in 2013, but 56% in 2018, according to the Senate report. During that period, Sanofi tripled the price of its Lantus insulin to about $275 per bottle. A 2018 study estimated that it costs roughly $2 to $4 to produce a vial of analog insulin, the type used by most patients.

Most of the increases in insulin list prices have gone to PBMs, the middlemen. For example, Lilly earned about $25 for each Humalog injection pen from 2013 to 2018, while the list price rose from $57 to $106. Net prices have remained stable in recent years, and insulin revenue actually fell last year, according to Sanofi and Lilly’s latest financial reports.

Trade secrecy makes it difficult to see what portions of kickbacks end up as profit or savings for pharmacy benefit managers, insurers, pharmacies or patients. But patients who are uninsured, underinsured or pay high deductibles can end up with big insulin bills because their co-pays are tied to the drug’s list price.

“The system transfers financial resources from sick patients to healthy, premium-paying beneficiaries, the opposite of what insurance is supposed to do,” said Erin Trish, co-director of the University of Southern California’s Schaeffer Center for Health Policy and Economics. Senate Commerce Committee hearing on February 16.

Medicare beneficiaries, for example, collectively paid $1 billion out of pocket for their insulin in 2020, more than four times what they paid in 2007, according to a KFF study. So did many others.

Kelly, a 48-year-old personal trainer, got insulin through her husband’s insurance but had to pay out of pocket until she met a $5,000 deductible each year. So in 2019, the Kellys ditched politics and decided to risk the open market. They ended up driving to Canada, where Kelly told KHN she spent $256 on eight vials of insulin that would have cost $2,616 at her local pharmacy. During the pandemic, she used Lilly coupons that allowed her to buy Humalog for $35 a bottle, enough for about two weeks.

Despite the voucher programs, surveys conducted since 2017 showed that up to a quarter of US patients reported not taking insulin because of its cost. Several patients have died while trying to ration the drug.

The contrast with other developed countries is strong. Germans with diabetes pay about $5 for a month of insulin. In Britain, patients pay nothing.

Federal legislation signed into law last year capped out-of-pocket insulin costs at $35 a month for Medicare recipients. At least 22 states and the District of Columbia have imposed restrictions on private plans as well.

The big three insulin makers have battled competition that could lower prices across the board. They have done this, for example, by introducing their own, slightly less expensive “authorized generics”, which discourage other companies from entering the insulin market. It wasn’t until 2021 that a competitor brought a “biosimilar” long-acting insulin to market — essentially a generic version of Lantus — and it’s barely made a scratch. The company, Viatris, which has since sold its product to Biocon Biologics, won access to a formulary by creating an essentially identical product, tripling the list price and offering PBMs a steep discount.

These types of behaviors have increasingly attracted the attention of Congress and drug manufacturing attack advertising campaigns.

“Imagine a world where a cheaper but equally effective product has a harder time selling,” Sen. Chuck Grassley (R-Iowa) said at a February 16 Commerce Committee hearing. “This is the prescription drug industry.”

Still, Lilly’s announcement could be a harbinger of better news for the most economically vulnerable people with diabetes.

California has funded a plan to make and distribute its own insulin. Separately, Civica, a not-for-profit drugmaker, hopes to sell insulin made in India by the end of 2024. Civica will bypass benefit managers and offer the drug to any pharmacy that promises to sell it for no more than $30 a bottle, said Allan Coukell, its senior vice president for public policy.

Civica plans to make enough insulin for a third of all U.S. patients, he said.