Carolyn Kaster/AP Photo
Insulin products are displayed in front of David Ricks, chairman and CEO of Eli Lilly and Company, during a Senate Health, Education, Labor and Pensions Committee hearing on Capitol Hill in Washington, May 10, 2023, to examine the need to make insulin affordable for all Americans.
There is an odd New Year’s ritual, more sobering than the ball dropping in Times Square, that involves drug companies raising prices on their prescription medications. Over 500 drugs jumped in price on January 1, something we should expect for many years to come. The government is now seeking to negotiate prescription drug prices in Medicare, but there is a lag time conveniently built into the law between the introduction of a drug and when it is eligible for negotiation. So higher pre-negotiation prices can squeeze out maximum profits.
But this trend has one important exception: insulin prices, which have been pushed downward repeatedly. As CNN notes, all three major insulin manufacturers are offering at least some of their products to patients for $35 a month, mostly through dropping list prices between 70 and 78 percent, which represents a real loss to these companies. The changes were announced last spring but went into effect with the turn of the calendar.
The problem is that all of these stories take their sweet old time explaining why this is happening. I can assure you that insulin company CEOs’ hearts did not grow three sizes over Christmas, leading them to bestow a gift on the people who rely on their products.
The dynamic also has nothing to do with the Inflation Reduction Act, which did in fact lower co-payments for insulin to $35 per month for Medicare beneficiaries with diabetes. That certainly helps that universe of patients, but if anything, that could make it more likely that insulin companies would gouge everyone else to make up for the shortfall. So why are they cutting their list prices?
It actually comes from a different law that Democrats passed with no Republican votes: the American Rescue Plan Act of 2021. As these stories eventually get around to mentioning, the ARP altered an existing provision that forces companies to rebate Medicaid when list prices for its drugs are increased above the rate of inflation. Because Medicaid gets a 23.1 percent discount of the average manufacturer price, an inflation rebate could actually lead to drug companies paying Medicaid money whenever their product is used. Since 2010, that rebate level has been capped at 100 percent of the list price of the medication. But the ARP uncapped that rebate, starting in 2024.
What this meant is that, if insulin companies like Eli Lilly kept their list prices at the same level, they would have had to pay Medicaid up to $150 for every vial used, per a Stat News estimate. Lilly stood to lose about $430 million a year to the uncapped Medicaid rebate.
So instead, Lilly slashed list prices by 70 percent, as I reported last March. And its competitors, not wanting Lilly to gain market share with cheaper prices (and also at risk from hundreds of millions of dollars in losses from the Medicaid rebate), followed suit. These changes will help all diabetes patients, not just those on Medicaid.
This is well known in industry circles—“Every major former blockbuster insulin is going to get thrown under the tires of this policy,” one analyst told CNBC—but almost completely unknown to the public. Most of the ARP was temporary, but this tiny provision, stuck in by House Democrats in a long-sought change, significantly remedied one of the biggest rackets in the entire pharmaceutical system.
It doesn’t reform the entire drug pricing system. In particular, launch prices are skyrocketing, up to $220,000 in 2022, a 20 percent year-over-year increase. (The higher the launch price, the more drugmakers can extract before inflation rebates and negotiation kicks in.) But the insulin shift is a reminder that Congress does have agency to fix market failures, and that policy matters.
That would be a better reminder if Democrats and the media managed to inform people about it.
