Why is insulin so expensive? Big Pharma is not the only player influencing prices

Announcement by Eli Lilly & Co. to reduce the price of its core insulin products could make life easier for some diabetic patients and ease the pressure on big pharmaceutical companies.

It also sheds light on the speculative practices of drug industry price intermediaries—pharmacy benefit managers, or PBMs—at a time when Congress turned its attention to them.

Insulin has become epitome of the perversity of the US health care system as the list prices for a century-old drug on which 8.4 million Americans depend for survival have quintupled in two decades to over $300 per vial. The fact that Lilly, which sells about a third of insulin in the US, is lowering the price doesn’t mean all patients will pay less even in the long run.

Lilly capped out-of-pocket spending on its most popular insulins at $35, effective immediately, and said later this year the list price of its “authorized generic” Lispro, which is identical to Humalog, its best-selling branded insulin, will drop to $25. dollars per bottle. This followed President Joe Biden’s address to the US Congress and subsequent speeches in which he blamed the “Big Pharmaceutical Company” and its “record-breaking profits” for the incredible spending on insulin.

David Ricks, CEO of Lilly, in an interview on March 1 called on other manufacturers to join his company to “remove the affordability issues” of diabetes.

Despite promoting her altruism, Lilly says the move could save her money. healthcare analyst Sean Dixon. A federal rule coming into effect next year penalizes companies that charge high Medicaid prices, especially for older branded drugs. Lowering Humalog’s list price will 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, or even the main, perpetrators of the insulin price scandal. The three companies that make almost all of the country’s insulin — Lilly, Sanofi and Novo Nordisk — have reported stagnation or decline in revenue from their versions of the drug in recent years, despite the steadily rising list prices they have charged. They even informed investors that they no longer see selling insulin as a high-margin area.

But while Lilly is lowering the “wholesale purchase price” or list price of its widely sold insulin products, “can other ‘players’ raise that price before it hits my pharmacy?” asked Rebecca Kelly of Richmond, Kentucky, who has type 1 diabetes and advocates for lower drug prices.

Those parties include giant pharmacy benefit managers owned by CVS Health and insurance giants UnitedHealthcare and Cigna, which aggressively pitted insulin makers against each other, mostly by increasing their own bills, as revealed in a scathing 2021 Senate Finance Committee report. . .

In theory, when pharmacy managers contract drug manufacturers on behalf of insurance companies, they pass on savings to patients. In practice, while persistent bargaining may benefit the well-insured, it can hurt fixed-income patients and others less able to afford insulin.

According to the report, in order to compete for access to insured patients, the three insulin makers steadily increased rebates and fees in the 2010s paid to powerful PBMs that are owned or affiliated with major insurance companies. This prompted drug makers to keep raising list prices because the more they paid in rebates—calculated as a percentage of the list price—the better their place on insurance formularies, the complex lists of drugs that insurers cover for patients.

In other words, the more insulin manufacturers compete, the more consumers can pay—at least the unfortunate ones.

“Insulin is a commodity, so the position in the formula is everything,” said David Cliff, editor of the Diabetic Investor website. “It’s like location in real estate.”

Novo Nordisk was considering a 50% cut in 2018, amid public outrage at rising insulin prices, according to the report. But the company’s board decided against it, noting that “many in the supply chain will be affected ($) and may retaliate.” The company also feared angry insurance companies might retaliate against diabetes blockbuster Novo and weight loss drugs like Ozempic, which compete with Lilly’s Mounjaro.

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

Lilly declined to answer a question about how the list price cut could affect negotiations with insurers who expect big discounts on drugs at competitively high list prices.

For example, according to a Senate report, Sanofi paid discounts ranging from 2% to 4% off the list price of insulin in 2013, but 56% in 2018. During this period, Sanofi tripled the price of its Lantus insulin to about $275 a bottle. A 2018 study estimated that the vial of analog insulin used by most patients costs approximately $2 to $4 to manufacture.

Much of the increase in the list prices of insulin went to PBM, the intermediary companies. For example, Lilly was making about $25 per Humalog pen from 2013 to 2018, and the list price increased from $57 to $106. According to recent financial reports from Sanofi and Lilly, net prices have remained stable over the past few years, while revenues from insulin production actually declined last year.

Trade secrets make it difficult to know how much of the kickbacks end up as profits or savings for pharmacy managers, insurers, pharmacies or patients. But patients who are uninsured, underinsured, or paying high deductibles can end up with whopping insulin bills because their co-payments are tied to the drug’s list price.

“The system shifts financial resources from sick patients to healthy, premium-paying beneficiaries, which is the opposite of what insurance should be doing,” said Erin Trish, co-director of the University of Southern California Schaeffer Center for Health Policy and Economics. Hearing before the Senate Commerce Committee February 16.

For example, according to a KFF study, in 2020 Medicare participants paid $1 billion for their insulin out of pocket, more than four times the amount they paid in 2007. Like many others.

Kelly, a 48-year-old personal trainer, received insulin from her husband’s insurance but had to pay out of her own pocket until she reached a deductible of $5,000 a year. Therefore, in 2019, the Kellys abandoned this policy and decided to risk the open market. They eventually traveled to Canada, where Kelly told KHN that she spent $256 on eight vials of insulin, which would cost $2,616 at her local pharmacy. During the pandemic, she used Lilly coupons, which allowed her to buy Humalog for $35 a bottle, which lasted about two weeks.

Coupon programs notwithstanding, surveys conducted since 2017 have shown that up to a quarter of US patients reported saving on insulin due to its cost. Some patients have died trying to ration the drug.

The contrast with other developed countries is stark. Germans with diabetes pay about $5 for a monthly course of insulin. In the United Kingdom, patients pay nothing.

A federal law passed last year capped out-of-pocket insulin spending at $35 a month for Medicare recipients. At least 22 states and the District of Columbia have also placed limits on private plans.

The three major insulin manufacturers struggled with competition that could drive prices down across the board. For example, they did this by introducing their own, somewhat less expensive “legal generics” that 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 hasn’t changed much. Viatris, which has since sold its product to Biocon Biologics, did win access to one formulary by creating a substantially identical product, tripling its list price and offering PBM a big discount.

This behavior is increasingly attracting the attention of Congress, and drug makers are attacking advertising campaigns.

“Imagine a world where a cheaper but equally effective product is hard to sell,” Senator Chuck Grassley (R-Iowa) said at a Feb. 16 Commerce Committee hearing. “It’s the prescription drug industry.”

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

California funded a plan to manufacture and distribute its own insulin. Separately, Civica, a nonprofit drugmaker, hopes to sell insulin made in India by the end of 2024. According to senior vice president of public policy Allan Cockell, Civica will bypass benefit managers and put the drug in any pharmacy that promises to sell it for no more than $30 a bottle.

Civica plans to produce enough insulin for a third of all US patients, he said.