Editor’s note: This op-ed was first published in MedPage Today on April 18, 2022.
A bill recently passed by the House and under consideration in the Senate caps insulin payments at $35 a month for individuals with Medicare or private health insurance. The legislation speaks directly to the crisis in affordability for a life-saving medicine, but in the long term it is just shuffling the deck rather than changing the game of insulin costs.
Like a lot of high stakes games, this one takes place in back rooms, and certainly out of view of patients and doctors. Many believe drug manufacturers run the game because it involves steadily rising list prices, which they set.
Human Rights Watch seems to agree. A new report on insulin costs by the international advocacy group charges that the human rights of people with diabetes are being violated when they’re unable to afford their insulin and that makes insulin makers complicit in human rights abuses.
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But our research reveals a different picture of who bears responsibility for driving up insulin costs. Manufacturers have been accepting lower and lower prices for insulin, while intermediaries in the drug supply chain have been demanding, and pocketing, more. To get a fair deal, much more attention needs to focus on pharmaceutical middlemen.
We are in the midst of a diabetes epidemic. In Medicare alone, about one-third of beneficiaries had diabetes in 2017, up from 18% in 2000. Beneficiaries’ mean out-of-pocket spending on insulin has nearly doubled over the last decade. In a recent study, we found that out-of-pocket spending increased considerably in the coverage gap for most users with Part D coverage, which was associated with a substantial reduction in adherence.
Meanwhile, the list prices of insulin products doubled between 2012 and 2019, putting insulin at the center of public outrage over high drug costs in the U.S.
Where the Money Goes
The three major manufacturers of insulin in the U.S. — Eli Lilly, Novo Nordisk, and Sanofi — set the list prices. Over time, however, they have been granting increasingly large discounts to middlemen in the distribution system, resulting in manufacturers pocketing steadily declining net prices, similar to what one might expect in a competitive market. Our research shows that between 2014 and 2018, the net price received by manufacturers decreased by 31%, driven down by pharmacy benefit managers (PBMs), the intermediaries who negotiate with drug companies on behalf of insurance companies and employers. Currently, three large companies dominate the PBM landscape: Express Scripts (owned by insurer Cigna), CVS Caremark (part of CVS Health, which also owns health insurer Aetna), and OptumRx (a subsidiary of UnitedHealth Group, another insurer).
During that time period, total expenditure per 100mL of insulin hasn’t budged, meaning that even though PBMs are negotiating discounts from manufacturers, they are not passing those savings on to patients. For every $100 in spending on insulin in 2014, manufacturers received $70 and middlemen in the supply chain, including PBMs, received $30. By 2018, the manufacturer share had declined to $47 and middlemen share had increased to $53.
An investigation by the Senate Finance Committee found that PBMs are complicit in efforts to raise prices and rebates, noting that “PBMs spur drug makers to hike list prices to secure prime formulary placement and greater rebates and fees.”
Time to Redirect Discounts
The legislation capping monthly insulin payments at $35 will substantially reduce cost sharing for people who use insulin in the Medicare coverage gap and likely improve insulin adherence. But as Senators take up the bill, they should also consider some fundamental questions about the insulin market:
- Why aren’t patients benefitting more from those discounts off list prices? Cost sharing provisions such as co-insurance or payments in the deductible phase are often based on list rather than net prices. And the current legislation, which applies only to insured patients, would not help uninsured patients.
- Why should intermediaries, such as pharmacy benefit managers, make so much money on insulin sales, and why is their take increasing? If manufacturers — which we rely on to develop new treatments — are taking less for insulin, why aren’t intermediaries taking less as well?
- Are we just going to keep spending the same amount on insulin in perpetuity, or do we want insulin costs to decline over time, thereby freeing up economic resources to spend on other things like, say, a cure for diabetes?
- What goes on in those back rooms where the deals are cut? The longer we focus on manufacturers and list prices and ignore the net price-setting game, the longer we give cover to PBMs and other middlemen while they siphon billions from taxpayers and premium payers.
The cost sharing cap alone won’t fix what is wrong in the insulin supply chain. It’s time to rescue patients with diabetes from a game that claims to hold down prices, but in the end, simply enriches middlemen.
Karen Van Nuys, PhD, is executive director of the Value of Life Sciences Innovation Project at the USC Schaeffer Center for Health Policy & Economics and a research assistant professor at the Price School of Public Policy. Erin Trish, PhD, is co-director of the Schaeffer Center and associate professor in the USC School of Pharmacy. She has served as a consultant and litigation expert on matters in the hospital, health insurance, health information technology, and life sciences sectors. Neeraj Sood, PhD, is a senior fellow at the Schaeffer Center and a professor at the USC Price School of Public Policy. He has served as a consultant for several firms in the supply chain including manufacturers, wholesalers, and health plans.
Untangling the Price of Insulin