Drug Rebates, Insulin and Affording Life with Diabetes in the United States


For people with diabetes, the out-of-pocket cost of life-sustaining monthly supplies and medication is expensive. Even with health insurance, people with diabetes can pay upwards of $1,000 or more per month on health expenses (including medications, supplies and services) until they reach their deductible (which can be thousands of dollars). This analysis is not a surprise to those living with diabetes. The Center for Disease Control (CDC) has named diabetes “the most expensive chronic condition” in the U.S., with annual costs of $327 billion overall. 

One major reason for high out-of-pocket costs is the drug rebate system, which increases the list price of a medication by adding additional charges that go back to multiple companies involved in the drug supply chain. The rebate system’s most apparent impact has been on insulin—for over 8 million Americans who are prescribed insulin to stay healthy, the list price of insulin has become artificially inflated due to drug rebating. The list price of analog insulin in the United States has skyrocketed since the introduction of Humalog in 1996, with a retail price of approximately $20 per vial. Today, the list price for a 10ml vial of analog fast-acting insulin is around $275. 

This astronomical increase in the list price is due to drug rebates. 

What are drug rebates and who do they benefit?

Rebates are a complex piece of the U.S. healthcare system. Pharmaceutical rebates are given to a third-party called pharmacy benefit managers (PBMs) instead of the person purchasing the product at the counter.

Rebates function as a ““A fee or commission a broker charges to execute transactions or provide specialized services on behalf of clients.” (Investopedia.com)broker’s fee” in the pharmaceutical system and can impact any drug or item that runs through the pharmaceutical system. For insulin, a rebate is between up to 70 percent of an analog (aka modern) insulin’s list price. So, if the list price (what someone pays at the pharmacy counter without insurance or in a deductible phase) is $500, up to $350 of it could be in the control of a PBM to distribute. Every PBM and insulin manufacturer has a unique contract but none of them benefit people with diabetes.

The net price (list price minus all rebates, discounts and fees) of insulin increased by 57 percent between 2007 and 2016 versus a 252 percent increase in the list prices. Gross versus net prices shows us that while the list prices have increased, the amount of money that insulin manufacturers receive has decreased. Manufacturers are receiving less because PBMs are demanding higher rebates and the companies want to get onto an All the drugs covered by a person’s health insurance plan.insurance formulary. This number still doesn’t make up for the unreasonable insulin costs due to rebates that burden people with diabetes across the U.S., however.

Another report from the U.S. Senate Finance Committee explains that “every time a pharmacy dispenses therapeutic insulin, manufacturers pay PBMs administrative fees as high as 5 percent of the drug’s wholesale acquisition cost.” This is, of course, on top of the rebates added to the cost.

Who do drug rebates affect most?

Rebates impact people differently based on their insurance status but typically fall into one of three circumstances:

  • Uninsured people pay the total list price of insulin, with the rebate amount baked into the list price, effectively paying multiple companies for a single product.
  • Insured people on high deductible health plans (HDHPs) also pay the total list price, rebate included, until they hit their deductible. The rebate they pay as part of the insulin price will get divvied up among the manufacturer, PBM and insurer.
  • Insured people on traditional, non-HDHP health plans typically pay a lower copay amount but only for the types of insulin the manufacturer, PBM and insurer have entered into a contract. The insurance company will receive part of the rebate baked into the insulin price, but only if they make you choose their contracted insulin type, i.e. the type of insulin they list on their prescription drug formulary.

When PBMs first began to use rebates to get insulin manufacturers to compete for exclusivity and preferred positions on a formulary, they asked for a small rebate percentage (2 to 4 percent). The three manufacturers fight annually for placement on an insurance formulary, and the only contract negotiating tool they have is the amount of rebate they can offer a PBM. This system is why your insurance plan may not change annually but may tell you that the insulin on the formulary for one year is not on it the next year. This happens when one manufacturer offers a better rebate than another.

When increasing the rebate percentage given to a PBM, manufacturers will increase the list prices of their products to make a profit. While this occurs in contracts with all manufacturers that make drugs or products covered under pharmacy benefits, the rebates of insulin have been abused by manufacturers and PBMs, with people requiring this life-essential medication forced to pay list prices that outpaced inflation by over 300 percent

Today’s three largest PBMs: CVS Caremark, Express Scripts and OptumRx, control over 75 percent of all prescription claims in the United States. PBMs negotiate prescription drug benefits between pharmaceutical/medical device companies on behalf of health insurers, Medicare Part D drug plans, large employers and other payers. By providing this service, they claim a share of the rebates and also benefit from ““Administrative fees are fees charged by PBMs for the electronic processing of each claim, which can range anywhere from $1.25 to $3.50 per script, plus the transaction fee of $0.10 to $0.15 per claim.” (Info.rxsafe.com)administrative fees,” which can be up to 5 percent of a drug or device’s list price. The larger the PBM, the greater the rebate. Lilly offered a 22 percent rebate to small PBMs, Optum Rx was offered a 68 percent rebate for the same insulin products. Some PBMs have secured rebates as high as 70 percent in recent years.

This touches the surface on PBMs and rebates—learn more here.

If Rebates Are the Cause of The High List Price, Let’s Get Rid of Them!

According to an April 2019 report from Foley Hoag, LLP, the current drug rebate model in the U.S. healthcare system has existed for about 30 years. Various attempts to reduce the list price of drugs through the elimination of rebates have been met with resistance, making it challenging to help people with diabetes access affordable insulin.  

In a report released in 2018, then Secretary of the U.S. Department of Health and Human Services (HHS), Alex Azar, stated, “…we have the administrative power to end this system ourselves—to eliminate rebates and forbid remuneration from pharmaceutical companies, align interests and end the corrupt bargain that keeps driving list prices skyward.”

Azar added, “Rebates are allowed under an exception to the “The safe harbor regulations define payment and business practices that will not be considered kickbacks, bribes, or rebates that unlawfully induce payment by Medicare or Medicaid programs.” (Asha.org)Anti-Kickback & Safe Harbor Regulations (AKS), and that’s an exception that we believe by regulation we could modify.”

Rebates are currently justified by utilizing a portion of them to pay for other costs, including keeping federal healthcare premiums from rising, subsidizing the federal 340B program and supporting state Medicaid programs. For commercial plan coverage, a portion of rebates are often handed to self-funded insurers or employers, who use them to offset their overall healthcare costs rather than pass them directly to the individuals who pay for the drugs with the highest rebates. Removing rebates from the system would have both immediate and long-term impacts on a macro level. 

Pharmacy Benefit Managers (PBMs) have lobbied extensively to keep rebates in the healthcare system. Stat News explains that rebates are traditionally recognized as “kickbacks” for PBMs from drug manufacturers to drive formulary positioning. Rebates are profitable for PBMs but aren’t beneficial for consumers or even pharmacies. 

Manufacturers claim the increase in list prices is based on the rise in rebate offerings to remain competitive and cannot refuse to pay rebates on insulin due to contracts. Insurers do not pass the current rebates to individuals paying list price with insurance at the counter. No current efforts address the fact that those who can least afford their insulin aren’t reaping the benefits of rebates.

Can Anyone Fix the Rebates Problem?

Congress has stated they want to help by introducing language in federal legislation to cap insulin copays at $35 per monthly prescription with no deductible for insured individuals. Still, at every turn, those who wish to lower the price of insulin find that these efforts are unlikely to pass and will not help those who are uninsured.

Though “Copay cards reduce the total out-of-pocket expense for the patient. When you use one, your health insurance pays some of the cost and then the drug manufacturer pays part or all of the cost you’re responsible for through your copay or coinsurance.” (goodrx.com)copay cards can offset the costs of drugs that aren’t preferred by insurance formularies, they do not solve the insulin crisis in the country and not everyone is eligible to benefit from savings programs. The top insulin manufacturers (Eli Lilly, Novo Nordisk and Sanofi) have savings or patient assistance programs with various eligibility requirements. 

While these programs do help those who qualify for them, there’s no guarantee as to how long they will last. Patients often need to resubmit their information annually or sooner to use these programs.

A 2020 report concluded that although discounts (through copay cards and patient assistance programs) “…partially offset list price increases of branded products from 2007 to 2018, there was still a substantial increase in net prices over this period.” Estimates from a 2018 study showed that one vial of human insulin costs $2.28-3.42 to produce, and one vial of analog (modern) insulin costs $3.69-$6.16 to produce. So, a year’s supply of human insulin per person could cost $48-71, and a year’s supply of analog insulin per patient could cost $78-133. Instead, people with diabetes pay more than $100 per insulin vial at the pharmacy counter under the current healthcare system. So someone with diabetes who needs a box of five vials could see a list price over $500 at the pharmacy checkout.

Few companies have come out with their own low-cost insulins—the challenge with these is that it’s tough to get them to the public because they don’t work within the rebate system. If there is no incentive for the PBM, these companies are unlikely to get the insulin placed on insurance formularies, and the public is unlikely to gain easy access to the product. This isn’t to say there isn’t hope for fixing the rebates problem, but realistically, there are many mountains to overcome in resolving its systemic nature.

We believe

High quality, modern insulin must be available to people with diabetes regardless of employment or insurance status, across all demographics, without barriers and at an affordable and predictable price point.

Our advocacy work focuses on equity: making sure people with diabetes have access to care by tackling issues like systemic racism, financial privilege and discrimination in all its forms.

To learn more about access advocacy and how you can become an advocate, start here. You can now use this page to send video and email messages to your representatives.

WRITTEN BY Julia Flaherty, POSTED 03/21/22, UPDATED 12/13/22

Julia Flaherty is a published children’s book author, writer and editor, award-winning digital marketer, content creator and type 1 diabetes advocate. Find Julia’s first book, “Rosie Becomes a Warrior.” Julia finds therapy in building connections within the diabetes community. Being able to contribute to its progress brings her joy. She loves connecting with the diabetes communities, being creative and storytelling. You will find Julia hiking, traveling, working on her next book, or diving into a new art project in her free time. Connect with Julia on LinkedIn or Twitter.