If there’s one thing liberals and conservatives can agree on during these trying times, it’s that the price of insulin in America is way too expensive. This is a result of a totally broken system of perverse incentives and vicious cycles. According to a recent bipartisan report from the Senate Finance Committee, drug manufacturers, pharmacy benefit managers, insurance agencies and pharmacies all benefit from wildly escalating prices. Everyone benefits from higher prices, that is, except the patient.
Co-authored by Senators Chuck Grassley (R-Iowa) and Ron Wyden (D-Oregon), the reports hope to expose “how the opaque business practices of pharmaceutical manufacturers and PBMs have huge implications for patients.” The report is scathing, and should make for tear-your-hair-out reading for people with diabetes and their caretakers.
To begin with the big insulin manufacturers—there are only three of them—the report found that they:
- Aggressively increased insulin prices without improving their products
- Repeatedly increased insulin prices in response to competition
- Spent a mere fraction of total insulin revenue on research & development
- Spent less money on insulin research & development than on insulin marketing
- Reaped significantly higher profits on insulin than in previous decades
Capitalism is pretty simple, right? Companies are supposed to have a natural incentive to become more efficient and offer lower prices, benefitting the consumer. But in the world of insulin, literally the opposite occurs. The report found that, for example, whenever Sanofi raised the price of its insulins, Novo Nordisk would respond by raising its own prices by a similar amount. This is called “shadow pricing,” and it should be a national scandal.
However, the blame doesn’t by any means fall only on the big pharmaceutical companies. The other big baddies in this story are the pharmacy benefit managers (PBMs), who exert an immense influence on how the manufacturers price their insulin, and are helping to drive some of the apparently extortive techniques listed above.
A PBM is kind of a middle-man that negotiates deals between drug manufacturers, insurers, and individual pharmacies. Unfortunately, PBMs have their own warped incentives, and they want prices to be as high as possible. High prices, which mean high rebates and high administrative fees, is how PBMs get paid. These rapacious actors have a variety of techniques that they use to pressure insulin manufacturers to raise their prices. First and foremost, it’s the job of the PBMs get to decide which drugs insurance companies will and won’t cover. This puts the PBMs in a decisive bargaining position, from which they use the threat of exclusion to get what they want out of the drug companies.
The end result of this is that insulin manufacturers do compete with each other “fiercely,” but not to lower prices—they compete to offer bigger rebates, and the higher the price of the drug, the bigger the rebate that they can offer. Essentially every participant in this chain of events benefits from higher prices. Every participant, that is, except for insulin users. If you’re lucky enough to be covered by one of the insurance companies enjoying a hefty rebate, maybe this isn’t so bad for you. But if you aren’t, you’re an unintended victim of a vicious cycle, forced to pay prices that are so unnaturally high as to be ludicrous.
This just scratches the surface. If you want to read all 90 pages of gory detail, here’s the official press release, from which you can download a PDF.
Regrettably, the mainstream press has all but ignored the committee’s report. While one year ago the insulin pricing crisis was perhaps the most talked-about healthcare issue in Washington, that all changed with the coming of the COVID-19 pandemic. Or perhaps people are already fatigued by the issue affordability crisis, and take it for granted that the US healthcare system is an unfixable mess. Either way, it’s a shame that such a scathing report would elicit little more than a shrug.
Meanwhile, people with diabetes are struggling as much as they ever were, or more, to afford insulin. A survey conducted by Diabetes Daily over the pandemic summer and autumn showed that about two-thirds of people that take insulin alter their usage of the life-saving drug to save money; about fifty percent neglect basic necessities (food, rent, utilities), or refrain from filling their other medications, in order to afford insulin.
Multiple states have successfully enacted insulin price limits, some of which became effective this month. Unfortunately, there’s little reason to hope for a quick federal response to the woeful situation. Senators Grassley and Wyden, the co-authors of the report, were previously co-sponsors of a bipartisan drug pricing bill that hoped to redress the situation. That bill didn’t go anywhere, its hopes dashed amid partisan squabbling, each side blaming the other for failing to negotiate seriously.
The Committee report on insulin concludes not with calls to action, but with a promise that it will “continue to shed light on pharmaceutical pricing practices that cause financial harm and worse health outcomes for the American people.”