Interestingly when this happened, the FTC wasn’t looking at the pharmaceutical producers as the main force hiking insulin prices, but at a small set of middlemen known as pharmacy benefit managers that control which medicines are on our shelves.
So what are these middlemen and what do they do? I’ve written about PBMs before, and how they influence the price of drugs.
PBMs maintain a list of drugs for insurance companies, they negotiate drug prices, and they manage reimbursements to pharmacies. The original idea behind PBMs is they would be able to get enough bargaining power by representing multiple insurance companies that they could negotiate to bring down drug prices. And accumulate bargaining power they did, merging until three PBMs control 80% of the insurance market. They are also vertically integrated with insurance companies and drug store chains. The top three PBMs are owned by CVS, United Health, and Cigna.
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> Unfortunately, because of an exemption from anti-kickback laws, PBMs don’t use their bargaining power to reduce consumer prices. Instead, they force pharmaceutical firms to compete over who will give the PBM the biggest kickback, which in the industry is known as a rebate. Take insulin. In 2013, Sanofi gave a 2-4% kickback to PBMs to prefer their product to customers. In 2018, that number went up to 56%. In other words, more than half of the price of insulin is going to a middleman who does nothing more than push around paper.
All of which brings me back to Eli Lilly’s actions, which should best be understood as a pharmaceutical firm deciding to break from the cartel and compete on the merits. Lilly did four things. First, it cut the price of its authorized generic, Humalog, to $25/vial. Second, it capped monthly payments for anyone buying Lilly insulin products at $35/month, which is exactly what Medicare recipients pay under the Inflation Reduction Act. Anyone paying cash at the drug store for list price can get vials at $25/apiece, and if they need multiple vials per month, can download a discount card to cap their total spending at $35/month. Third, Lilly lowered the list price of Humalog (and Humulin, which is an older version) by 70%. And finally, Lilly is launching a competitor to a different insulin drug, Sanofi’s Lantus, at a 78% list price discount.
The other two main producers of insulin, Sanofi and Novo Nordisk, haven’t announced similar price cuts, but now they will be under pressure to do so. The losers here are the PBMs. No longer will they get a giant rebate off an inflated list price, at least not for Eli Lilly products.