Cost Of Insulin Reflects Runaway Capitalism

On Monday, we had the story of the skyrocketing price of EpiPen. Today’s news is that even the cost of insulin has tripled between 2002 and 2012. Insulin has been around since the 1920s and is required for diabetics to properly maintain their blood sugar levels. Unlike the EpiPen, however, there are three large producers of insulin – Sanofi, Novo Nordisk, and Eli Lilly. Remarkably, all three of them manage to raise their prices in tandem in a move that is euphemistically known as “shadow pricing”. In the past, this was known as price fixing and was, and probably still is, illegal. The rise in insulin prices highlight all that is wrong with the way drugs are priced in this country. All three companies manage to tweak their insulin products just enough to extend the lives of their patents, essentially blocking the creation of a “generic” insulin. But excessive patent protections aren’t the only problem. There is a middleman between you and the drug producers and they are known as pharmacy benefit managers (PBMs). The PBMs are another oligopoly as three companies, ExpressScripts, CVS Health, and OptumRx, control over 80% of the market and service around 180 million insured people. They are supposed to use their market power to bargain for lower drug prices but, on the other hand, they are also for-profit companies, bringing in more than $200 million combined. The drug companies pay these PBMs “rebates” to encourage them to use their products. In the past, this was knows as either bribery or a kickback and was, and still is, illegal. So, rather than choosing the product with the lowest price, the PBMs actually have an incentive to choose the product that offers the largest rebate. In fact, although the amount of rebates is not, for some reason, publicly disclosed, it is estimated that over 50% of the cost of insulin is driven by the rebates the drug companies are offering. Of course, the benefits of those rebates do not get passed along to the consumer but are pocketed by the PBMs. So rather than lowering drug costs, PBMs are actually driving costs higher and lining their own pockets. The real answer is for the government to cap the costs of drugs like they do in every other developed country in this world. In Europe, for instance, the cost of insulin is about one-fifth of what it does here in the US.

To recap, we have two oligopolies that are driving the rising cost of insulin. The drug companies use their excessive patent protections to keep competitors off the market and PBMs dominate the insurance market, pocketing the cost savings that should be passed along to consumers. The drug companies are effectively price fixing and paying bribes or kickbacks to the PBMs who are happy to pocket these “savings”. It really begs the question – are there any regulations to restrain these firms? Aggressive antitrust enforcement, restoring sensible patent protections, and prosecuting price fixing and bribery/kickbacks are clearly the answer if we really are interested in making sure consumers are not overpaying for the drugs they need to use. The tools are there if we choose to use them. Somehow I doubt our legislators are interested in that.