Suing the Insulin Industry
California, among other states, are suing insulin industry suppliers and middlemen
Insulin is a necessary drug that millions of Americans rely upon for their health, not a luxury good. With today's lawsuit, we're fighting back against drug companies and PBMs that unacceptably and artificially inflate the cost of life-saving medication at the expense of vulnerable patients
California Attorney General Rob Bonta
California is just one of numerous states suing big players in the insulin industry. This brings up crucial questions like what exactly are these PBM’s, and what legal power do involved state and federal bodies have to rein in the ballooning cost of insulin?
(Legal) Drug Cartels and their Middlemen
It likely comes as no surprise that the market for producing insulin, a life-saving treatment for millions with diabetes, is highly concentrated, which many cite as the reason for its exorbitant price in the United States.
Insulin’s first inventors sold its patent in 1922 to the University of Toronto for $1 to give affordable access to patients with diabetes. One RAND review noted that in 2018, the average cost of a vial of insulin was almost $100 while consumers in other highly industrialized countries like Japan, Australia, and the UK had average prices under $15.
A 2019 suit by the state of Kentucky against the pharmaceutical companies Novo Nordisk, Sanofi, and Eli Lilly mention that they control 96% of global insulin volume.
The insulin manufacturing supply has accurately been labeled an oligopoly, an industry in which a few actors control most of the market share. Firms in an oligopolistic industry tend to operate like a cartel in which leading players retain control through measures like restricting supply and price fixing.
Another area of the industry is the pharmacy benefit manager’s (PBM’s) role. Drug manufacturers understand that many patients cannot afford to pay for list prices that must account for past investments in R&D. Getting covered by an insurer means that patients can (ideally) pay lower out of pocket costs while the insurer pays the rest to the manufacturer.
Health plans detail the drugs that they cover on formularies which are tiered lists that determine which drugs the insurer will cover. Those higher on the list will have lower out of pocket costs for the health plan member, because the insurer agrees to pay a larger share of the drug. These drugs higher on the formulary tend to also get purchased more, because patients have a lower out-of-pocket cost.
To structure these lists, insurers employ the help of PBM’s, often described as the middlemen that negotiate with drug manufacturers on what the insurer will pay if the drug gets on the formulary. In order to rank higher on the formulary (or get on it in the first place), manufacturers can pay the PBM a rebate.
When talking about higher insulin (and other drug) costs, many drugmakers blame these rebates for the reason that they must raise prices.
Another concern is that the PBM industry is not transparent. Prices and the structure of formularies are considered trade secrets, and the one-on-one negotiations mean that drugmakers are unable to make data-informed judgements about when rebates are too high.
Combined with the fact that CVS Health, Express Scripts, and OptumRx collectively control 80% of PBM work with insulin, it’s clear this second market is in need of scrutiny. Another fun fact — Express Scripts is owned by the insurer Cigna, and OptumRx is owned by the insurer UnitedHealth Group
Feds Taking A Look
In 2019, pharma and PBM executives went before Congress for hearings on the rising cost of prescription drugs like insulin. In fact, Congress heard directly from executives at the aforementioned firms — Novo Nordisk, Sanofi, Eli Lilly, CVS Health, Express Scripts, and OptumRx. In these hearings, the drugmakers’ executives endorsed a Trump administration proposal to outlaw rebates unless they were passed on directly to consumers of drugs.
This, of course, still does not address the drugmakers’ ability to strangle insulin market supply. Senator Whitehouse of Rhode Island noted that manufacturers shifting the blame to PBM’s was “political jujitsu.”
In early 2022, the House voted on and passed a bill to cap the out of pocket cost of insulin to $35. The Inflation Reduction Act, which passed both houses of Congress and was signed into law that summer, included the price cap for individuals on Medicare. An amendment to expand that price cap to all individuals on health insurance failed to get the necessary 60 votes in the Senate to be included in the final law.
That same summer, the Federal Trade Commission (FTC) announced an inquiry into the PBM industry by requiring the six largest firms to disclose information about business practices to the FTC. The goal is to gather information that could allow the FTC to enforce laws on antitrust and cracking down on other anticompetitive practices conducted by the PBM’s.
States Banding Together
More interestingly, individual states are suing the top insulin manufacturers and PBM’s.
California’s lawsuit against the top three insulin manufacturers and top three PBM’s seek to demonstrate that the companies are unlawfully, unfairly, and deceptively raising insulin prices. The goal is to force these companies to adjust business practices to introduce price competition and induce lower prices. Other states like Kentucky and Mississippi have pursued similar suits.
In Minnesota, the Alex Smith Insulin Affordability Act, named in honor of a man who died at the age of 26 while rationing insulin, requires insulin manufacturers to provide free insulin to those who can’t afford it and allows diabetics to make urgent requests to pharmacies for the drug. The trade group PhRMA challenged the law in court, but a federal US District Court judge dismissed the case.
What makes these state-led initiatives interesting is the past success of states leading efforts to bring change to the national level.
To settle dozens of lawsuits filed against 45 tobacco companies, in 1998, 52 states and territories signed the Tobacco Master Settlement Agreement. As part of this, the tobacco industry was forced to pay out fines to state governments and face heavy restrictions on advertising.
More recently, in 2021, a bipartisan group of state attorney generals announced a $26 billion opioid lawsuit settlement with Johnson and Johnson and three pharmaceutical distributors.
By threatening the pain of costly lawsuits, it could be a fruitful path forward to controlling firms unfairly jacking the cost of insulin.