Sens. Jeanne Shaheen, D-N.H., and Susan Collins, R-Maine, unveiled a bill this week that caps the out-of-pocket cost of insulin at $35 a month for patients with Medicare or private coverage. The measure would also incentivize drugmakers to keep their insulin prices below a certain predetermined limit.
This might sound like good news, especially for the roughly one in 10 Americans living with diabetes. But price controls are a counterproductive way to make medicine more affordable.
Artificially fixing the cost of insulin won't address what actually makes medicines unaffordable for so many people — namely, the self-serving tactics employed by insurance companies and pharmacy benefit managers, or PBMs.
Worse, price controls will weaken the incentive for pharmaceutical companies to invest in developing more effective cures and treatments.
The data on insulin pricing in the United States are concerning. A federal analysis from 2020 found that a unit of insulin cost $98.70 on average in the United States. In 32 other developed countries, the average price was less than one-tenth that figure — just $8.81.
But the data are misleading. The prices often cited in these kinds of comparisons don't reflect what most patients actually pay for their medicines. The $98.70 figure represents the "list price" set by the manufacturer — that is, the price before accounting for discounts or rebates.
In effect, the list price is a drug company's opening bid in what is often an extended negotiation with insurance companies and the PBMs they employ to manage their drug plans.
Drug companies usually offer massive price concessions in order to secure a spot on an insurance plan's formulary. In most cases, these discounts are so substantial as to render the list price meaningless as a measure of a drug's actual cost.
Between 2016 and 2021, for example, the list price for Eli Lilly's Humalog insulin increased by 12%. But after factoring in discounts and rebates, the price of the drug actually fell by 27%.
Similarly, net prices for drugmaker Novo Nordisk's insulin products have dropped by double-digit rates every year since 2017.
Patients haven't seen those declining prices. If they're insured, the cost-sharing required by their insurers is based on the inflated list price. And if they're uninsured, they struggle to cover the full list price.
Insurers and PBMs, meanwhile, pay that discounted price and largely keep the savings for themselves.
Capping patients' out-of-pocket insulin costs at $35 a month might seem to remedy this situation — as might Shaheen and Collins' effort to limit the price drug firms charge for insulin. But such a price-control policy would create more problems than it solves.
For starters, these efforts would send a signal to drug companies that they no longer have a say over the prices of their products. This will make firms far less willing to spend billions of dollars developing new medicines — particularly new insulins — since the chances of earning back that investment would be curtailed.
By discouraging pharmaceutical companies from entering the insulin market, the bill would also suppress the kind of competition that drives down prices over the long-term. Just three companies — Eli Lilly, Novo Nordisk, and Sanofi — are responsible for the vast majority of global insulin sales. Allowing these firms to tighten their grip on the market, even unwittingly, is a step in the wrong direction.
A far better approach to lowering insulin costs is to go after the PBMs and insurers who benefit from artificially high drug prices. Patients should share in the "discounts" PBMs secure relative to a drug's list price — not just for insulin but for all medicines.
A new scheme of drug price controls like the one proposed by Sens. Shaheen and Collins will lead to a less competitive, less innovative, and less transparent market for insulin. That's the last thing millions of Americans with diabetes need.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.
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