The Insulin-pricing Machine

6/18/18
WRITTEN BY: Greg Brown
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Insulin. It’s a pretty simple substance really. It’s relatively cheap to make compared to some drugs. Huge medical advances have made it even easier to create a synthesis. Yet it costs a fortune. In fact, the cost of insulin tripled in price between 2002 and 2013, and prices have continued to rise in the years since.

So what gives?

We’re doing our best to untangle the complicated web that dictates insulin pricing in hopes of getting to the bottom of why this relatively simple and essential medicine for managing Type 1 diabetes and sometimes Type 2 diabetes costs as much as it does.

Push for better pricing

Statistics estimate that approximately 1.25 million individuals who have Type 1 diabetes rely on insulin to survive in the United States alone. And diabetes is continually cited as the most expensive chronic illness in the country.

In an effort to combat the rising costs of insulin, in 2016 the ADA launched its “Make Insulin Affordable” strategic health initiative. It included a petition that has, to date, been signed by more than 311,000 people and calls for complete cost transparency in the supply chain and affordable access to insulin for all those who use the medicine. The petition pushed for cost explorations and hearings on Capitol Hill as well. The ADA reports that more than 400 Congressional meeting on the matter have been held and more than 800 patient, caregiver and provider testimonies have been taken around affordable access to insulin.

Earlier this month ADA’s Chief Scientific, Medical and Mission Officer, Dr. William T. Cefalu testified before the U.S. Senate Special Committee on Aging. A few days later, the ADA published its report on the “Make Insulin Affordable” initiative in Diabetes Care under the title “Insulin Access and Affordability Working Group: Conclusions and Recommendations.”

Some of the recommendations call for providers and pharmacists to communicate openly with patients regarding insulin costs. It is also suggested providers prescribe the lowest-priced insulin required to effectively and safely achieve treatment goals. Additional suggestions highlight steps toward developing viable, long-term solutions to improve insulin access and affordability.

“The cost of insulin is a complex and multifaceted issue,” said Cefalu in a press release. “Many people with diabetes are experiencing increased burdens due to the high out-of-pocket costs for insulin, which can negatively impact their lives and health. Identifying factors that determine the costs of insulin is the first step toward ensuring that people with diabetes have affordable access to this critical, life-sustaining medication.

How far we’ve come and failed to come

Insulin was discovered in 1921. Back then, the patent was sold to the University of Toronto for $1 in hopes of keeping a company from patenting the medicine and securing a monopoly.

Back then insulin was derived from animal sources and it immediately started saving lives. Advances in genetic engineering made human-derived insulins available to patients in the 1980s. Rapid-acting and long-acting human insulins were introduced in the 1990s.

Nearly 100 years into its life, insulin is not a new medicine. In the U.S., insulin now comes in five categories: rapid-acting insulin pens, rapid-acting insulin vials, rapid-acting inhaled insulin, long-acting insulin pens and long-acting insulin vials. The ADA found that the average list price of these categories increased by 15 to 17 percent per year from 2012 to 2016. During the same period, the price pharmacies paid to buy insulins rose at similar rates. Medicare Part D spending on insulins also showed an increasing and accelerating trend.

To contextualize these numbers, consider that Humalog rapid-acting insulin came on to the market with a list price of $21 a vial in 1997, according to a Washington Post report. It now costs roughly $300 a vial. The increases well out-pace the national rate of inflation.

The problem, really, is at the supplier level. Despite the best efforts of the University of Toronto to protect the patent, insulin in the U.S. is now locked up by a three-company ogliopoly. Lilly, Novo Nordisk, and Sanofi are currently the only three manufactures serving insulin to U.S. populations.

It turns out the issues of insulin affordability and access are not limited to the U.S. A global ADA study found a similar increasing and escalating price trend globally. Not surprisingly, perhaps, the global insulin market is dominated by the same three companies who own the U.S. market. The ADA found that Lilly, Novo Nordisk, and Sanofi represent 99% of the total insulin by value, 96% by total market volume, and 88% of global product registrations.

So Who’s at Fault?

According to the ADA, its working group held meetings throughout 2017 and early 2018 with stakeholders at all levels of the supply chain (drug companies, drug wholesalers, pharmacies, insurance companies, and purchasers) to learn how each entity influences the cost of insulin. More than 20 stakeholders who were representatives of pharmaceutical manufacturers, wholesalers, pharmacy benefit managers (PBMs), pharmacies, pharmacists, distributors, health plans, employers, and people with diabetes and caregivers shared their perspective with the Working Group. Each stakeholder interviewed responded to a set of standard questions focused on learning the role each entity plays in the supply chain, the issues each entity faces and their recommendations for change.

Manufacturers typically sell their medications to wholesalers, who then handle distribution to individual pharmacies. Sometimes, however, a pharmacy chain will deal directly with the manufacturer. While wholesalers typically purchase their medications for close to the list price, they often receive a “handling fee” from the manufacturer. This is a fixed percentage of the list price, and good luck finding out what it is unless you’re making the deal. Wholesalers then sell medications to pharmacies, with little to no markup. They may, however, charge the higher list price. Pharmacies dispense the medication to individual patients and collect reimbursement from insurance companies.

That path, from manufacturer to patient, seems fairly direct, and it is. But the flow of money is a sordid and hidden mess.

The ADA’s working group, in fact, confirmed a lack of transparency throughout the insulin supply chain. Companies manufacturing insulin often don’t easily disclose what it costs them to make the product to wholesalers. Pharmacy benefit managers (PBMs) often don’t disclose what price they sell insulins to pharmacies or how much they receive in rebates from the drug companies. Pharmacies fail to tell patients how much they’re being reimbursed by insurance companies. Basically the left hand often doesn’t not know what the right hand is doing, cost points are set indiscriminately, and consumers (i.e. patients) get burned.

The only thing we’ve discerned for sure is that those costs keep going up. While the insulin supply mirrors that of many other prescription medications, the ADA reported that it was not possible to pinpoint any specific reasons for the surge in prices. It is important to note that the big three insulin producers are getting richer and richer on insulin price increases. But so are the PBMs and the pharmacies.

The End Game

With so many potential causes, let’s turn to the report itself. The following is a list of conclusions drawn directly from the ADA report.

  • The current pricing and rebate system encourages high list prices.
  • As list prices increase, the profits of the intermediaries in the insulin supply chain (wholesalers, PBMs, pharmacies) increase since each may receive a rebate, discount or fee calculated as a percentage of the list price.
  • There is a lack of transparency throughout the insulin supply chain. It is unclear precisely how the dollars flow and how much each intermediary profits.
  • Manufacturers are rarely paid the list price for insulin. The so-called net price — which reflects what the manufacturers receive — is much lower; however, in most cases, the data are not available.
  • In the vast majority of cases, discounts and rebates negotiated between PBMs and manufacturers and between PBMs and pharmacies, which affect the cost of insulin for the person with diabetes, are confidential.
  • Manufacturer rebates often are not directly passed on to people with diabetes.
  • Out-of-pocket costs vary depending upon the type of health insurance each individual has and the type of insulin prescribed. The costs can be significantly higher for people who are uninsured, who have an insurance plan with a high deductible, or who are in the Medicare Part D donut hole.
  • There are not enough biosimilar insulins on the market, and prices for biosimilar insulins are not likely to be lower unless there are multiple biosimilars that can be substituted for the brand-name analog insulin, rather than only one.
  • Prescribing patterns have favored newer, more expensive insulins. Newer insulins, including analogs, are more expensive than older insulins including human insulins. Human insulin may be an appropriate alternative to more expensive analog insulins for some people with diabetes.

So what are we supposed to take away from this sprawling list? Essentially that everyone in the supply chain, except perhaps the consumer, is at fault in some way.

Solutions generally aren’t quick and easy things. But the ADA has gone a long way towards assessing the problem. It remains to be seen if their recommendations, many of which are detailed below, solve the cost increase epidemic of insulin before more bank accounts are broken and lives harmed or lost.

Recommendations from the ADA Working Group

Here is a full list of the recommendations made by the ADA to potentially fix the insulin price surge epidemic. The entire report itself can be viewed here.

  • Providers, pharmacies and health plans should discuss the cost of insulin preparations with people with diabetes to help understand the advantages, disadvantages and financial implications of potential insulin preparations.
  • Providers should prescribe the lowest-priced insulin required to effectively and safely achieve treatment goals. (This may include using human insulin in appropriately selected patients.) Read The Patient’s Bottom Line – Human Insulin is Not the Answer by Dana Howe.
  • Providers should be aware of the rising cost of insulin preparations and how this negatively impacts adherence to the clinical treatment by people with diabetes.
  • Providers should be trained to appropriately prescribe all forms of insulin preparations based on evidence-based medicine.
  • Cost-sharing for insured people with diabetes should be based on the lowest price available.
  • Uninsured people with diabetes should have access to high-quality, low-cost insulins.
  • Researchers should study the comparative effectiveness and cost-effectiveness of the various insulins.
  • List price for insulins should more closely reflect net price, and rebates based on list price should be minimized. The current payment system should rely less on rebates, discounts and fees based on list price.
  • Health plans should ensure that people with diabetes can access their insulin without undue administrative burden or excessive cost.
  • Payers, insurers, manufacturers and PBMs should design pharmacy formularies that include a full range of insulin preparations, including human insulin and insulin analogs, in the lowest cost-sharing tier.
  • PBMs and payers should use rebates to lower costs for insulin at the point of sale for people with diabetes.
  • There needs to be more transparency throughout the insulin supply chain.
  • Payers, insurers, manufacturers, PBMs, and people with diabetes should encourage innovation in the development of more effective insulin preparations.
  • The FDA should continue to streamline the process to bring biosimilar insulins to market.
  • Organizations such as the ADA should do the following:
    • Advocate for access to affordable and evidence-based insulin preparations for all people with diabetes.
    • Ensure that health providers receive ongoing medical education on how to prescribe all insulin preparations, including human insulins, based on scientific and medical evidence.
    • Develop and regularly update clinical guidelines or standards of care based on scientific evidence for prescribing all forms of insulins and make these guidelines easily available to health care providers.
    • Make information about the advantages, disadvantages, and financial implications of all insulin preparations easily available to people with diabetes.

Read about How to Get Insulin.



Greg Brown

Greg Brown is a freelance health, finance, and environmental writer living in the mountains of western Maine. He has written for Consumer Reports Magazine, Consumer Reports Online, The New York Times, and The Chicago Tribune, among other publications. He holds an MFA in Fiction Writing from the University of Iowa Writers’ Workshop and an MS in Journalism from Columbia University.