The state is taking action against three major drug companies and the big pharmacy benefit managers in an effort to temper costs for people with diabetes.
Many Americans with diabetes still struggle to pay for their insulin, even though Medicare placed a cap on co-payments this month.
With a population of 39 million, California has now become the largest state to sue the major companies on the insulin market, accusing them of illegally inflating the price of the treatment and spawning a financial and public health crisis.
Rob Bonta, the state’s attorney general, said in announcing the lawsuit late last week that the companies had engaged in “unlawful, unfair and deceptive practices” in violation of California’s laws on competition.
Characterizing the U.S. insulin market as “an oligopoly,” Mr. Bonta took aim in the state’s lawsuit at three pharmaceutical companies, Eli Lilly, Novo Nordisk and Sanofi, which control 90 percent of the global insulin supply, and the pharmacy benefit managers, CVS Health, Express Scripts and OptumRx, which manage 80 percent of the U.S. insulin market.
Nearly 38 million Americans have diabetes, roughly 11 percent of the U.S. population. And about eight million people — including all of those with Type 1 diabetes and many with Type 2 — need insulin treatments. Well-insured patients owe nothing or a co-pay of $20 to $35 a month for insulin, while those without insurance or high deductible plans can be charged hundreds of dollars a month.
President Joe Biden in August signed the Inflation Reduction Act, which now caps insulin’s monthly cost at $35 for the more than three million insulin users with Medicare Part D drug plans. Nearly half this population is expected to benefit from the cap, according to a study published Friday in JAMA Network Open. Researchers found that 45 percent of those with a Part D plan covering insulin paid at least $35 monthly for it between 2013 and 2019, up from 22 percent in 2006. The higher cost meant this group was 61 percent less likely to take their insulin doses as prescribed.
But people under 65 will not benefit from the new caps, although lawmakers and public health experts have expressed hope that the Medicare pricing rules will put pressure on the industry overall.
Insulin was discovered a century ago. In the wake of this medical advancement, researchers sold the patent to the University of Toronto for $1 in hopes of fostering affordable access in perpetuity.
History, and the pharmaceutical industry, had other ideas. Explaining recent soaring prices for a drug long off patent, critics said that between them, the three major pharmaceutical players have stifled competition. They also point to a host of patent law maneuvers, including companies tweaking aspects of insulin’s formulation or how it is administered, such as through injector pens, to expand lucrative patent protection on branded insulin products.
“The companies have been able to raise prices whenever they want, as a functional oligopoly with no major competitors in spite of patent expiration,” said Dr. Jeremy Greene, a professor of medicine at Johns Hopkins University. “They are locked into secret agreements with P.B.M.s — also an oligopoly with three major players — in which neither party will disclose what the true price of insulin products actually is.”
Some of the companies that are targets of the California lawsuit contend that costs for many consumers were already lowering. And some experts have pointed to the entry of generics and biosimilars as helping to drive down costs.
Daphne Dorsey, a spokesperson for Eli Lilly, said that the California lawsuit “ignores that anyone is eligible to purchase their monthly prescription of Lilly insulin for $35 or less. And the average monthly out-of-pocket cost for Lilly insulin is $21.80, a 44 percent decrease over the last five years.”
Both the Eli Lilly and Novo Nordisk representatives highlighted company programs that provide financial assistance to those struggling to afford insulin.
Representatives for both CVS Health and Optum Rx, pharmacy benefit managers that work on behalf of insurers and negotiate rebates off the list prices set by drug companies, rejected the state’s contention that the P.B.M.’s role fueled higher prices.
Other states that have sued some drug companies over insulin costs include Arkansas, Kansas, Kentucky, Minnesota and Mississippi.
A recent analysis by GoodRx of U.S. pharmacy and insurer data reported that the average insulin retail price rose 54 percent between 2014 and 2019, but noted a slight dip in the last few years. A RAND Corporation study in 2020 led by Andrew Mulcahy, a senior policy researcher, found that the average U.S. insulin list price — which he said had reached nearly $200 per vial, with higher prices for pre-filled pens — was 10 times that of other nations. Insulin users typically require two to three vials a month.
According to the American Diabetes Association, 22 states and Washington D.C. have imposed insulin co-pay caps ranging from $25 to $100 for 30-day supplies, which some would like to expand nationwide. The association and others are also lobbying for Congress to consider bipartisan legislation called the Insulin Act, which would encourage insulin manufacturers to lower list prices and cap the monthly insulin costs for insured diabetics at $35.
Dr. Kasia Lipska, an associate professor of medicine at the Yale School of Medicine, published a study in July finding that one in seven U.S. insulin users experienced “catastrophic spending” on the drug, meaning that more than 40 percent of their disposable income went toward their treatment. A survey study published in November found that 17 percent of insulin users reported rationing the drug to save money.
People who require insulin but do not take it as prescribed are at substantial risk of heart attack, kidney failure, amputation, blindness and death.
High insulin prices, the California lawsuit stated, also disproportionately affected Hispanic and Black people, who have higher Type 2 diabetes rates than whites and are at greater risk of dying from the disease.
Larry Levitt, executive vice president for health policy at Kaiser Family Foundation, said the interaction between drug companies, pharmacy benefit managers and insurers “results in fairly modest costs for insurance companies, but has served to inflate the prices for patients who have to pay out of their own pockets,” including those with high deductibles and the uninsured.
He and others hoped the lawsuits would help expose what they characterized as murky pricing schemes for insulin. But Mr. Bonta, a Democrat, disputed the idea that there was much mystery about the business relationships outlined in the lawsuit.
“The broad strokes we know,” he said in an interview. “The P.B.M.s are a middle person that helps set the pricing and prepare the formulary for the insurance companies.” That industry’s symbiotic business relationship with pharmaceutical companies, he said, gives drug companies the incentives “to forever raise the price” of insulin.
“It’s just pure profit padding,” Mr. Bonta said.
The Federal Trade Commission in June announced an unrelated inquiry into the impact of pharmacy benefit managers on drug affordability and access.
Isaac Sorensen, a spokesman for OptumRx, a subsidiary of UnitedHealth Group, said the California lawsuit mischaracterized the function of pharmacy benefit managers. He said such companies “are the only participants in the prescription drug supply chain whose role is to reduce drug costs.” OptumRx, he added, has eliminated out-of-pocket costs for insulin.
“Pharmaceutical companies alone set the list price for their products,” Phil Blando, a spokesman for CVS Health, said. “Allegations that we play any role in determining the prices charged by manufacturers are false.”
A University of Southern California research paper found that the rebate negotiation process among the industry’s players was a factor fueling rising drug costs and that reducing or eliminating rebates could lower list prices and out-of-pocket costs for some people.
Los Angeles resident Sammi Lappin, 33, reported that living with Type 1 diabetes and depending on expensive insulin to live since she was 20 years old has narrowed her options in life.
“I have had to move my career away from arts and education, where my passion lies, toward more corporate opportunities that specifically provide health insurance that covers insulin,” said Ms. Lappin, who works in talent acquisition in the medical aesthetics industry.