How to Explain Insulin Price Insanity in Just One Image. Or Several Images.

Insulin prices in the United States are insane. This isn’t exactly news—if you have insulin-treated diabetes, you surely already know it. And even those without a connection to diabetes should recognize that insulin affordability is one of the most talked-about healthcare topics in politics. It’s also the rare issue that finds widespread agreement across the political spectrum, at least with regard to the existence of the problem, if not the solution.

What’s less well-understood is exactly why insulin prices are so outrageously high. This one image may help you understand:

source: Drug Channels

Oh, what’s that? It didn’t explain everything?

Maybe one image wasn’t enough. Try this one. It’s a bit simpler:

Source: diabetespac.org

If you’re confused, well, that’s the point. It’s a total mess! But don’t worry, we’ll walk you through it.

These two images were bravely prepared by Dr. Adam Fein of Drug Channels and the Diabetes Patient Advocacy Coalition (DPAC), an influential nonprofit diabetes advocacy group. There are many other versions of this chart, and none of them is easy to understand.

The “insulin-payment journey” is a bizarre and complex path that is poorly understood by outsiders. A recent congressional investigation took two years to conclude, and relied on an immense volume of internal documents to tease out what the heck is going on.

The relationships are messy, but a couple of things are clear:

  • The amount of money that you fork over the pharmacy counter has essentially nothing to do with supply and demand.
  • The higher the price, the more everyone benefits. Everyone except for you.

The images above identify the many different players shoving their fingers into the pie. Here’s a look at who some of these different forces are, and how they conspire to push your insulin costs into the stratosphere.

The Drug Company

It’s probably safe to say that most people in the diabetes community tend to blame high insulin prices on the greed of the insulin manufacturers.

Just three companies—Lilly, Novo Nordisk, and Sanofi, each a multinational pharmaceutical giant—make 90% of the world’s insulin and 100% of the insulin approved for sale in the United States. It sure seems like the Big Three have locked down the market and can charge whatever the heck they want. Patients, especially those with type 1 diabetes, have little or no ability to shop around or reduce their reliance on the life-giving medication, and get stuck paying the price whatever it is.

Make no mistake—the insulin manufacturers have plenty to answer for. The Big Three engage in a variety of hijinks, such as “evergreening” patents and paying off (or suing) would-be makers of affordable biosimilars, to help keep their iron grip on the insulin market. The insulin makers tend to raise prices almost in lockstep. This image from Business Insider should cause outrage:

source: Business Insider

But it turns out that insulin manufacturers are by no means the only organizations pushing prices up. If you look at the first two images, you’ll see multiple other participants in the insulin-payment journey—insurance companies, pharmacies, pharmacy benefit managers and drug wholesalers—all of whom profit when insulin prices increase.

In a nutshell, everyone makes more money when prices go up, and patients have hardly anything that they can do about it.

The Pharmacy Benefit Manager

If there’s a second major villain in this story, it’s the pharmacy benefit managers (PBMs), perhaps the one source pushing insulin prices up even more forcefully than the insulin manufacturers.

The PBMs is a middleman that negotiates deals between the big pharmaceutical companies, health insurance companies, and pharmacies. And because PBMs determine which medications insurers will cover—deciding whether millions of patients will use this insulin or that one—they wield immense power. There’s another Big Three here: CVS Caremark, Express Scripts, and OptumRx combine to dominate the market.

PBMs like high prices because they take a cut out of every transaction, through administrative fees and insulin rebate programs. The higher the price, the higher the rebate, so PBMs are strongly motivated to choose higher-priced medications. The result is that insulin makers find themselves competing with each other to raise prices in order to offer higher rebates to PBMs. PBMs aggressively encourage this competition.

The size of rebates has increased “exponentially” in the last decade. For more detail on this ridiculous situation, check out this summary from Beyond Type 2.

The Insurer and the Wholesaler

Insurance companies also share some of the PBM’s bounty, as the PBM’s usually pass through a percentage of those big rebates. In theory, some of this value should get trickle down to individual patients in the form of reduced insurance premiums. In reality, it is still patients with chronic conditions like diabetes that bear the brunt of the system, especially those that can only afford to choose high-deductible plans.

There’s something similar going on with drug wholesalers, middlemen that purchase insulin directly from manufacturers and then sell it to pharmacies and other medical facilities.

Believe it or not, there’s yet another Big Three here—in 2018, just three businesses held over 95% of the American drug wholesale market—again facilitating the use of monopolistic practices. These powerful drug wholesalers can bully their suppliers and customers; the Senate report mentioned above reports that they use “aggressive disruption techniques” to secure favorable deals and boost their profits.

The Consumer

There’s a reason you come last: the consumer is an afterthought in this system. When insulin manufacturers set the list prices of their medications, they think an awful lot about how that price will impact their relationships with PBMs and drug wholesalers, and insurance companies, and somewhat less about the number that eventually hits the patient. After all, you have virtually no ability to “vote with your wallet”. Whether you had to pay $30 or $300, the manufacturer long ago made its profit.

Bottom Line

There’s a lot of blame to go around. Insulin prices are determined by a closed system of warped incentives, full of greedy middlemen that hike up the price with no discernible benefit to patients. It’s a vicious cycle in which higher prices make more money for everyone except the patient.

The inefficiencies and absurdities that drive up insulin prices are at work in many other ways throughout our byzantine healthcare system. Insulin is particularly plagued by these problems because there are no generic insulins available and because demand is inelastic.

You can help advocate for change, big or small. New laws in several states have capped insulin prices, and many similar grassroots efforts are underway throughout the nation. You can also advocate for yourself, your loved ones, and even your employees on a smaller scale: check out DPAC’s Affordable Insulin Project, which connects people with diabetes to patient assistance programs, and helps those with employer-sponsored insurance get the most out of their plans.

 

Source: diabetesdaily.com

How Insulin Rebates Work

This content originally appeared on Beyond Type 1. Republished with permission.

By Lala Jackson

A major contributor to high insulin list prices that is often misunderstood – because it is designed to be complex and opaque – is the Pharmacy Benefit Manager (PBM) and rebate system. Rebates are a percentage of the list price of a medication, given by a drug manufacturer to a Pharmacy Benefit Manager (PBM), in order to be listed on the health insurance plan formulary or placed in a pharmacy.

Essentially, rebates function a bit like a “broker’s fee” of sorts and can account for 30-70% of the cost a person has to pay at the counter for insulin if they don’t have insurance, or if they are paying the full cost of insulin until they hit their insurance deductible. The PBM takes a portion of the rebate as their own profit, then gives the remainder to their client, which can be the federal government (Medicare), an employer’s health plan, or a standalone health insurer.

Insulin manufacturers choose to participate in this system that drives list prices up because it benefits their business – by giving PBMs a large cut of their profits, their products get placed on insurance formularies more often, leading to more sales. This system creates up to 70% of the current list price of insulin in the US, and it doesn’t have to be this way.

Rebates – They Don’t Mean What They Sound Like

The math is infuriating, but here’s the heavily-simplified basics of how rebates work – if you made a product for $5 and wanted to sell it, you may set the price at $10, to create a $5 profit. With that $5 profit, you can invest back in your company to create better products, pay yourself – whatever you want to do with your $5.

But let’s say you want your product to be in more places and available to more people. You might hire a middle person to place your product in new stores across the country, and they’ll charge a fee, which is reasonable.

When you begin, their fee is $1. So that you can keep your $5 profit, you raise your price to $11. Still reasonable. But over time, your middle person makes themselves indispensable and knows it. You’re making way more money because of how many products you’re able to sell, so you’re not about to drop your middle person.

And oh oops – you also signed a contract with your middle person to ensure you’ll always get your product placed in these nation-wide stores, so you’re locked in. And part of that contract was a promise that you won’t lower your price, since that would impact your middle-person’s profit.

And oh oops – your middle person also has contracts with your competitors, and the contracts signed with those competitors make it so that if your competitor gives the middle person a little bit more of their profits, your middle person won’t sell your product in certain stores for a year. You can fix this by raising your own price to give the middle person more profits, so you can kick your competitor out of a store the next year.

So now, your product costs $50. It’s the same product – you’ve never improved it. Your customers are receiving no more value than when the product costs just $10. Over time, you wanted to make more money from it, so your profit is now $10.

It’s still $5 to make your product.

You get $10 profit, doubled from your original earnings.

And your middle person? They’re making $35, 70% of the list price, off a product they don’t make or even touch.

But you’re definitely not going to get rid of your middle person, because they’re the reason you’re able to sell so many products and make the money that you do.

For a regular product like a water bottle, no worries, your customer will just go somewhere else.

But what if your product was water, and your customer needed it to survive?

The Role of Pharmacy Benefit Managers (PBMS)

PBMs are third-party intermediaries who negotiate prices and drug placements on insurance formularies between pharmaceutical companies and insurance companies. Sometimes they are standalone companies, other times they are attached to national pharmacies or insurance companies.

For their negotiating services, they take a share of the profits from prescriptions. This share is known as ‘rebates.’ They also profit from “administrative fees” for each unit of drug sold, which can be up to 5% of the list price.

Speculated about for some time but difficult to prove because of private contracts (fully legal through the US system, which is notoriously bad at regulating drug pricing) is the sheer amount of cash being collected by PBMs. Originally created to help get needed drugs to patients more efficiently, PBMs have unfortunately become a key agitator to high out-of-pocket drug costs.

From a January 2021 Senate Finance Committee report, we now definitively know that “…drug manufacturers increased insulin WAC [wholesale cost], in part to give them room to offer larger rebates to PBM and health insurers, all in the hopes that their product would receive preferred formulary placement. This pricing strategy translated into higher sales volumes and revenue for manufacturers.”

The big legislative stumbling block we now face is just how reliant on PBMs the US healthcare system has become. In a more simple system, a pharmaceutical manufacturer could provide their medications to a pharmacy for direct disbursement to patients who require them. But in a system with a shaky foundation to start with and many players in the space, across private and public entities, the water gets significantly muddied.

To keep PBMs happy, ensuring they negotiate the placement of each manufacturer’s insulin on insurance formularies, rebates for insulins have increased exponentially, particularly since 2013.

In July 2013, Sanofi offered rebates between 2% and 4% for preferred placement on a formulary. The same product in 2018 provided a 56% rebate. That’s more than half of the out-of-pocket cost of insulin being handed to companies that don’t make the insulin.

This is one example, but every single insulin manufacturer does this. As the report states, “What is clear is that the money that flows through PBMs is nothing short of enormous. As discussed throughout this report, rebates have grown at a rapid pace in the insulin market in recent years, which is not true in all therapeutic markets.”

The Bigger the PBM, the Greater the Power

The three largest PBMs – CVS Caremark, Express Scripts, and Optum Rx – wield significant power in the market commanding large rebates. Lilly documents show that they offered a 22% rebate to a small PBM, but offered Optum Rx a 68% rebate for the same products in order to get placement in Medicare’s Part D prescription plan. As noted in the report, this robust ability to negotiate has led to “…some PBMs securing rebates as high as 70% in recent years.”

Manufacturer contracts with PBMs, previously confidential but exposed by the Senate Finance Committee report, are written in percentages. This means that it is to the PBMs’ benefit to encourage list price increases, making their portion of payout larger.

PBMs actively encourage manufacturers to raise the list price so that they may receive more money, and use threats of removing insulins from insurance formularies as leverage. The bundling of multiple products (increasing one product’s rebate amount to get other products included) is also a tactic used in PBM and manufacturer negotiations, especially in exclusivity contracts.

“As Eli Lilly explained to its investors in 2019, failing to secure formulary placement can “lead to reduced usage of the drug for the relevant patient population due to coverage restrictions such as prior authorization in formulary exclusions, or due to reimbursement limitations which result in higher consumer out-of-pocket cost, such as non-preferred co-pay tiers, increased co-insurance levels, and higher deductibles.”

The Bottom Line

The US healthcare system is deeply broken, and insulin pricing is one of the clearest examples that an unregulated drug pricing system motivated by profit will always put cash flow over patient lives. PBMs and the rebate system exacerbate the problem, but every participant within the system is at blame. Each entity has chosen profit over people.

Significant rebate reform and an overhaul or removal of the PBM system could slash the list price of insulin by up to 70% and would impact not just insulin, but many medications and devices that are subject to the rebate system. Robust federal healthcare reform could create a system where drug prices could be negotiated on a federal level, and current proposals like rolling back prices to more reasonable levels could be a step.

A deeply broken system requires layered solutions. Without a full overhaul, we risk fixing the insulin pricing issue with a bandaid, while driving up prices and limiting access to other life sustaining medications and life changing technology.

Substantial healthcare policy change takes the voice of many, and individual advocates make a resounding and impactful difference. If you are looking to get involved with diabetes access advocacy, start here. Reach out and get to know your state’s congressional representatives in the House and Senate. Make sure they know your personal experience and how issues of healthcare, drug pricing, and access impact you.

Source: diabetesdaily.com

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