Four Factors Are Driving Up The Price Of Insulin in the U.S.
No topic in the diabetes community is more debated and discussed than the cost of insulin. Everywhere people express concern about the escalating price. The numbers are daunting. In a 2016 letter in the Journal of the American Medical Association, “Expenditures and Prices of Antihyperglycemic Medications in the United States: 2002-2013,” researchers said the average cost of insulin per month per patient more than tripled, from $231.48 in 2002 to $736.09 in 2013, and the price per milliliter of insulin nearly tripled, from $4.34 per milliliter to $12.92 per milliliter.
Because insulin is anything but an optional luxury for people with diabetes, it’s no wonder they are upset. This article explores four significant factors driving up prices in the United States.
Factor 1: The manufacturers
There are three major insulin makers in the United States: Eli Lilly and Company, Novo Nordisk, and Sanofi. There is no question that the manufacturers are raising prices in lock step with each other. According to Lydia Ramsey in the May 2017 Business Insider article, “The prices for life-saving diabetes medications have increased again,” class action lawsuits allege that the three companies’ synchronized price hikes are part of an organized price-fixing scheme.
Factor 2: Pharmacy Benefit Managers
Most insurance plan administrators do not negotiate directly with manufacturers on medication pricing. Instead, they use Pharmacy Benefit Managers (PBM). These specialized intermediaries negotiate with drug makers for lower prices in exchange for placement on the insurance plan’s formulary.
This negotiation has three aspects: price, rebates (to the PBM for each vial of insulin sold), and discounts off the list price. Theoretically, patients benefit when the rebate and the discounts are reflected in lower costs at the register or lower health plan premiums. However, because of industry consolidation, just three PBMs now control more than 80 percent of the market: CVS Caremark, Express Scripts, and United Healthcare’s OptumRx. And according to a March 2017 Newsweek article, “Understanding the hidden villain of Big Pharma: pharmacy benefit managers,” by Jessica Wapner, the very mechanisms that were supposed to lower costs are instead increasing them, as these companies push for higher list prices in order to collect larger rebates.
Factor 3: Health plan designs
Health plans continue to raise deductibles and shift more costs to employees. Andrew Siddons wrote an overview of this trend, “Deductibles Rise in Employer-Sponsored Health Plans,” in Washington Health Policy Week in Review in September 2016. He wrote that in just two years, from 2014 to 2016, the number of workers using high-deductible plans rose by nearly half, to 29 percent, and their average annual deductibles soared, from $159 to $1,478.
Being enrolled in a health plan used to mean that insulin was relatively inexpensive, but as costs have increased, employers are shifting the cost to employees, with workers more exposed than before, given their higher deductibles.
Factor 4: Insulin use
Supplies of insulin are dropping, even as demand increases. The Expenditures and Prices of Antihyperglycemic Medications in the United States: 2002-2013 study found that insulin use increased from 5.2 percent of the population in 2002-2004 to 7.7 percent in 2011-2013, based on a survey of 27,878 people. But the supply trend is going in the opposite direction.
In the 2016 report “Insulin Market Profile,” Health Action International says that “while the global demand and production of insulin has been increasing, the global surplus of insulin has decreased sharply, from 248.9 million units in 2012 to 67.6 million units in 2014.” The report notes that no global shortage is expected, but even reductions in surplus production naturally drive prices upward.
It is unlikely that we will see significant reductions in the price of insulin anytime soon. Even if existing insulin manufacturers somehow increase their competition, this won’t likely drop prices by more than half even under the most ideal circumstances, and biologically similar products face a very difficult path to market, according to Lutz Heinemann’s article, “Biosimilar Insulin and Costs: What Can We Expect?” in the March 2016 Journal of Diabetes Science and Technology. Heinemann speculates that the high costs of developing and getting regulatory approval, the costly manufacturing process and the slow adoption of generic alternatives by health care providers and consumers will prevent patients from realizing significant cost benefits.
And with the cost of health care in general rising, employee health plans and government providers are more likely to absorb reductions in insulin costs than to pass reductions on to the consumer, keeping insulin costs sky-high unless governmental policy or public pressure grows.
Disclosure: Phillips attended an insulin summit sponsored by Eli Lilly and Company in 2017 and the company paid for his room, transportation, and meals.
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