By Edel Pace
The cost of a life can be measure by the price of insulin. For someone living with Type 1 Diabetes, insulin is more than medication; it is necessary. Insulin is said to be among the most expensive liquids in the world. In the United States, insulin has been in the spotlight lately because of the accelerated price increase. For people with diabetes in insulin therapy, insulin is not an optional treatment. Therefore, the price tag is not debatable either. As tragic as it sounds, millions of people in the United States face this a reality every month when refilling their prescriptions. However, the cause of why the increase in the price remains an open debate.
Most people place responsibility on the pharmaceutical companies as they are, after all, the manufacturers, but they are not the only players in the arena. The other players are the pharmacy benefit managers (PBM), wholesalers, pharmacies, health insurance/plans, and the government. The exorbitant price of insulin has caused a strain in people’s lives, not only financially but mostly to their health, leaving them with limited solutions on what to do.
It has become a moral debate since money, and people’s lives mingle to which is more valuable. This topic got front-centered as the pressure mounted for all those involved, and the government has been making attempts to correct the situation; however, this is just one branch of a much larger problem, the healthcare system. Nevertheless, understanding and correcting the insulin pricing crisis will make a difference in the life of millions of people living with diabetes in the United States who need insulin to stay alive.
How the Prices are Set
According to Hua et al., to know how we got to the point where the mean price of insulin tripled between 2002 and 2013, we need to start by understanding the pricing’s complex system. First, we need to identify the players in the supply chain of insulin and directly influence the price; we have manufacturers, wholesalers, pharmacy benefits managers, and health insurance. These players are not exclusive to insulin pricing. Unfortunately, it is a multilayer process that almost every medication undergoes, starting from manufacturers to finally in the consumer’s hands.
The process starts with the manufacturers. As Beran et al. explain, Eli Lilly, Novo Nordisk, and Sanofi hold the totality of the United States’ insulin market. On a global scale, they dominate in terms of value 99% of the market and volume 96%. The manufacturers are the ones that set the list price of the medication, in this case, insulin.
Then, there are three paths the manufacturers use to sell the medication. The first path is direct to the wholesalers, who then sell the medication to pharmacies at almost the same list price or a small markup price, then the pharmacies sell the insulin to patients with another markup of the price. The second path is selling the medication directly to the pharmacies, then selling the medication to patients at a markup price from the list price. The third path is the manufacturers dealing with the pharmacy benefits managers (PBMs), the middlemen between manufacturers and health plans (employers and health insurers for Medicaid, Medicare, and private health plans).
Pharmacy Benefit Manager (PBM)
It is worth emphasizing that the Pharmacy Benefit Managers represent a health plan’s interest, not the patients. The PBM negotiates with manufacturers rebates against the list price, later given to their health plans. The patients ultimately see a markup in the price at the pharmacy. The first two paths are pretty much direct sales. However, it is not as simple as it seems. The third path is relatively more difficult to explain, follow, and find information; the PBMs keep their information tight. In all three instances, who pay the most and have no voice in the process is the patient, especially those who do not have health insurance and pay out-of-pocket.
The problem starts with the manufacturers, Eli Lilly, Novo Nordisk, and Sanofi, who set the list price for insulin. The list price has increased exponentially compared to the net price, which is the list price minus any rebates to PBM/health plans, discounts paid to pharmacies, and fees paid to wholesalers. The disparity across the list prices and net prices is the game land for fees, rebates, and discounts for PBMs, health plans, and pharmacies. It is unclear what the percentage is for each; all known is that it is a percent of the list price, prompting the list price to continue to grow.
It is crucial to understand the role of the PBMs to understand their leverage over all of the parts involved. They are the ones that negotiate discounts, rebates, and fees with manufacturers, with the leverage of the formulary discretions and tiers in which the medications will end up for health plans and pharmacies. Besides all of this, the PBMs also receive payment from the health insurers they represent and look after, so it is a double win.
They also negotiate with the pharmacies, leveraging which pharmacies to include within the health insurance network. The process leaves a loophole for the PBMs to take advantage and get more significant rebates and discounts from manufacturers and pharmacies, but the patients never see those discounts. Furthermore, they are the ones that negotiate the percentage that the patients and the health plan pay for medication, determined by the number of discounts the manufacturers gave to that medication.
The dollar amount or percentage of said rebates and discounts negotiated between PBMs, manufacturers, and pharmacies are unclear. There is no information available and is considered confidential by the PBMs. It is also unclear the distribution of the rebates and discounts among the parts involved. It is without a doubt that the pharmacy benefit managers have the decision power on this process.
The insurance companies utilize the PBMs to get the best price possible for each medication cover under their plans. Also, PBMs oversees the authorization (prior) of medications for the patients, including quantity limits for each medication. The deductibles in each plan the insurance companies offer to patients are directly affected by the number of rebates and discounts negotiated with the manufacturers and pharmacies yearly. Also, patients can see these placements during the year when their insurance companies suddenly stop covering a medication they currently use or move to a different tier—leaving the patients and the doctors with little choice as to what medication to use. It also means that the patients end up with increased financial costs because of the medication movements along the tiers and formularies.
The patients are the ones that are left with the burden, in the majority of cases, of the high out-of-pocket price, high deductibles, and no choices as to what type of insulin to use. The possible solutions are scarce and limited. Patients who are already using analog insulin (a newer type of insulin) do not want to go back to the previous generation, human insulin, sold over the counter at a much lower price.
Organizations such as the American Diabetes Association and JDRF have suggested using human insulin for patients who can not afford the pricier analog insulin. The problem with this solution is that patients need to be re-educated for patients to use older insulin. The therapy is entirely different from when using analog insulin. It implies more visits to the doctor and diabetes educator. Not to mention the particular conditions needed before making the change. This type of insulin, cheap and all, is not for everybody, and the risks of using it have to be considered.
Another reason, more a moral one, is the differentiation among the population; the people who can afford the medication can use the newer, more effective insulin than those who cannot afford their medication will end up using over-the-counter insulin.
On the other hand, we have the insertion of more competition for the top three pharmaceutical companies. This competition comes in the form of biosimilar insulins, which are the generic version of it. However, Gotham et al. concluded that biosimilars’ insertion in the market would not radically depress the current insulin price. In part because of the regulatory process, they have to undergo the U.S. Food and Drug Administration (FDA) to be approved since it is a medicament produced from live cells and has a complex manufacturing process, causing higher production costs.
All the manufacturers have in place patient assistance programs to help patients who cannot afford their medications. All of the programs have eligibility requirements and a determined period. For example, Eli Lilly’s program is year-long (Eli). Likewise, Sanofi and Novo Nordisk also have similar programs, providing medication at no cost for people who meet the requirements. These programs are especially beneficial for people without insurance. However, they are a short-term solution. Remember that insulin is a medication that people with Type 1 Diabetes need to take for life, and the program helps, if qualified, only for some time.
At the same time, all major chain pharmacies have in place their patient assistance programs. The patient becomes a club member by paying a fee to get discounts for their medications, which in some cases can be combined with the insurance plans but have proven extremely beneficial, to a degree, for people without insurance.
Up to this point, the government has had no involvement in this complex process of the insulin pricing chain. Nevertheless, the government has its share of guilt on this problem. The current patent laws, which are in place to protect innovation, have been used to continue to secure a monopoly in insulin manufacturing—not diminishing the innovation and breakthroughs the manufacturers have made to the original formula of insulin. However, they have protected themselves and their profits by preventing access to other competitors.
Also, the existing healthcare law leaves the patients at the health insurance companies’ mercy. The people have put pressure on the government to act on transparency. Congress has held hearings with the pharmaceutical companies to hear their side of the story and find common ground in resolving this crisis.
The States have been making their efforts, passing bills to assure transparency in insulin pricing, making the manufacturers release their lists prices and how they come to that price. Among the States that have been in the forefront are California, Nevada, and Oregon, passing the bills California SB-17, Nevada SB-539, and Oregon HB-4005.
What is Next?
These initiatives, program assistance programs, use of human insulin, introduction to biosimilars to the market, and governmental and state intervention on transparency, although good-willed, are still not enough to mitigate this crisis. In the end, the patients are the ones who carry the burden not only financially but health-wise, by rationing their insulin supplies, transitioning to an older version of insulin, or giving up altogether the use of insulin to finally paying the ultimate price, death.
In a free-market economy, one of the advantages is that free trade keeps prices low. Free trade provides producers with the ability to set their prices for a profit while also providing low prices to keep competition at bay, with little or no government intervention. The United States is a big believer and promoter of the free-market economy. Pharmaceutical and insurance companies have relied on this system to set their prices with little government intervention.
Their claim is the investment in Research and Development they made. After the FDA approves a drug, the pharmaceutical companies recover the investment by sales at a determined price point. According to Research! America in its 2018 Annual Report, the investment by the pharmaceutical companies in biopharmaceutical research amounted to 97.0 billion in 2017, 34.17% from the previous year. However, according to Cleary et al., the NIH contributed to more than 90% of all basic research from 2010-2016, translating to 210 new drugs approved by the FDA, making this basic research the groundwork of a breakthrough. After a breakthrough, Pharmaceutical companies develop and patent the product, leaving them with all the government-funded primary research benefits.
Also, as stated previously, Eli Lily, Novo Nordisk, and Sanofi hold 96% of the insulin market worldwide. It provides them ample grounds to set prices on insulin and benefit from a monopoly in insulin manufacturing. The original formula (patent) was sold by Banting et al. to the University of Toronto for C$ 3.00 for the greater good. Then, the University of Toronto gave it to Eli Lilly and Nordisk Laboratories (non-profit then and before the merger with Novo) to be manufactured at a larger scale to benefit patients worldwide. However, it did for a while with the introduction of synthetic insulin, the price went up, and later with the insulin analog, it went up yet again. The rising tendency has continued in the United States of America, and people are dying of lack of affordability and accessibility of their life-saving medication.
In 2018, Alex Azar II, a former Eli Lilly executive, was confirmed as Secretary of Health and Human Services. Under his authority, the price of insulin increased, and now he oversees the price regulations and government interventions. In a May 2018 speech, Azar expressed that free-market work “incredibly good” in the United States. However, the market protects drug prices to benefit manufacturers and intermediaries. He warned the companies not to raise prices more than inflation or changes in clinical benefits, yet, the insulin price has increased since.
Coincidently, according to The Center for Responsive Politics, Eli Lilly’s contributions to Federal candidates in 2016 was US$ 1.3 million, 68.4% of which went to the Republican Candidate/Party, and US$ 1.1millions with 62.2% going to the Republican Candidate/Party in 2018. Moreover, Eli Lilly is one of the top spenders in lobbying, spending US$ 6.7 million in 2018, focusing their efforts on research funding and the patent system. This cast a shadow of a doubt about whether Mr. Azar will do his duty to protect the people from the pharmaceutical companies.
Whether it is the manufacturers, the middlemen, the pharmacies, or the government, all play a part in the drug prices crisis, even if they defend their position and reasons as to why the prices are the way they are. The current system is not working for the benefit of the people. As Dr. Irl Hirsch expressed, “Insulin, in my view, is a right, not a privilege.” In the present time, thanks to technology, social media, in particular, people with diabetes can voice their concerns about the insulin pricing crisis. They have shown their struggles and their fears, and the consequences of the unreasonably priced medication in real-time, gaining the support of non-profits like Beyond Type 1, T1International, American Diabetes Association, JDRF, who work for affordability and accessibility of insulin. This crisis has gained momentum and has been picked up by mainstream media, leaving all involved no other choice to respond to the allegations and come together to find a solution.
All the parties, manufacturers, PBM’s, wholesalers, pharmacies, and health plans are necessary to solve the insulin pricing crisis. From transparency in the list price to the commitment to place medications in tiers and formularies to benefit the patients and not use it as leverage to negotiate discounts and rebates. To better manufacturing and pharmacy patient assistance programs to revise the current patent and health laws. Furthermore, to new transparency laws to protect the patients, all should be done if there is a will to help them. Meanwhile, the patients, The People, are claiming for a solution, but the question remains: Will they ever see a resolution to this problem? Although unclear, the hope is high that something is getting done. After all, this is the United States of America.
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