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Who is profiting from the high cost of insulin?

Between 2002 and 2013, insulin prices almost tripled. From 2007 to 2016, Mylan's EpiPen rose from $57 to over $600 - 500%. And between 2012 and 2019, Humira rose from 19k to 38k per year.

Because in the words of Michelle Mello of Stanford:

We have a system that is all engine and no brake.

A complex scheme on purpose

The amount we pay for prescription drugs is based on a complicated and secret system, and is driven by (1) what insurance you have, (2) what is in or out of the formulary, (3) the amount of rebates negotiated, (4) the deal the insurer has with the manufacturer, and (4) dozens of other variables.

The result is high prices, with each member of the supply chain pointing the finger at the others.

Think of it this way.

The dollar amount a manufacturer assigns to a drug is the same as a car's sticker price. Rebates and discounts are available to some and not others. They sell a drug, say at 1k. The PBMs negotiate with Pharma manufacturers and insurers to establish the price. Based on that negotiated rebate, the manufacturer would, for example, take $400 off the initial sticker price. That $400 is a rebate.

Now one of two things happens to this $400. The PBM can take a share - say $40 - or the PBM pays the entire $400 rebate to the sponsor, but then raises the fee it charges to an insurer to negotiate prices in the first place.

Either way, the drug now costs $600 - which is the amount the Pharma will make on the sale of the drug.

The consumer is irrelevant

The main culprits for these high prices are the PBMs.

The system doesn't prioritize consumer costs. PBMs are not motivated to lower costs, but to negotiate larger rebates, as they make their money by taking a share of these rebates.

Pharmas know the PBMs want big rebates, so they increase the price of the drug to keep their net revenues the same.

The impact on the consumer is negligible if they have good insurance; bad for those with percentage co-pays or on a high deductible plan. And worst for those without insurance.

In addition to the rebates, PBMs make money by administering benefits, and from

a clawback from the pharmacy when the copay is higher than reimbursement costs.

There is a lot of $$$ on the line.

There is a tremendous incentive to keep the system as it is. This cabal spent $29M lobbying this year - to keep things the way they are.

Let's fix this.


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