Who Is Really At Fault From High Insulin Prices In The US? And Is It Time They Were Blamed?

Last month, drug maker Novo Nordisk was in the news announcing that it was slashing insulin prices by up to 75%.

This was only the latest company to respond to significant political pressure by reducing prices. Eli Lilly did the same a few months ago by around 70% clearly responding to President Biden's frequent criticism about the price of insulin and calling for Congress to limit the price to $35.

The latter action will be unlikely to happen but it may not matter to most American diabetics. Whether prices come down because of regulation or because of political pressure, they are still coming down and that is a cause for celebration.

In truth, most Americans were paying $30 or less a month thanks to insurance, benefits or simply rebates/coupons you could download from the company's website.

So, what's not to like? Americans pay more for insulin, on average, than consumers in other developed countries and are confronted with high and annoyingly complex costs. Who the heck wants to have to download rebate forms from some awful and non obvious pharma website every month? Not us.

Away from the basic price change and the good news for a small but important minority of diabetics there are a few takeaways here:

One obvious lesson is that political pressure can work. Nothing new there but it is interesting to note that, from the left and right, individual companies can now be publicly criticized by political leaders for largely political purposes. That is both new and an uncomfortable development for those of us who invest in American companies or hope that America will continue to be the home of innovation and businesses.

Healthcare is a complex and highly regulated business already. Adding the complexity of having to navigate the minefield of two different political parties's programs is not going to make it work any better, we suspect.

That is a big change and will have big consequences from corporate leaders. We noted with interest the media reports that JP Morgan was initially reluctant to assist Silicon Valley Bank or First Republic because of the public criticism, fines and litigation. Jamie Dimon has publicly complained about the "headaches" that came directly from previous rescue efforts.

The attacks on pharmaceuticals are a slightly different and arguably worse political attack line because, as they say, "the greatest wealth is health." There is no reason this new political trend will stop with pharma though. Today's Eli Lily or Novo Nordisk as punching bag for the left can be tomorrow's Disney or Meta or abortion pill manufacturers for the right. Not great.

So, just remember, there are costs to political grandstanding and they are likely higher than you or most politicians realize.

Second, the pharma companies will be just fine. Insulin is not that profitable an area for any of them and they will likely make up the difference by simply inflating costs elsewhere and in areas that are not so politically sensitive.

In fact insulin prices have been declining for years in real terms and most people already pay less than $30 a month out of pocket for the drug.

It is very probable that insulin costs will fall but overall healthcare spending will not budge. And that is the key societal goal. But that is a. very difficult and complex problem with serious tradeoffs around quality and amount of care. So, don't expect to hear about that on the 2024 campaign trail.

Another and more fruitful lesson, however, might be to explore a question that President Biden and other Democrats don't mention in their speeches: cui bono?

Or, who actually benefits from these high insulin prices?

The irony is that neither Novo Nordisk or Eli Lily or anyone else for that matter are the primary beneficiaries from the elevated prices over the last decade plus. Rather, an entirely different type of company reaps the majority of the profits on insulin and many other drugs.

Do you know what a pharmaceutical benefit manager is? Do you know how they operate or even what their names are? You likely should because, for years, they have been the primary benefits of the high costs of American insulin and many other drugs besides.

Let us start at the top:

• For those with private healthcare, PBMs manage prescription-drug benefits for payers like health insurers, plan sponsors and large employers. Their job is to keep costs down and manage patient care in a way that is both equitable and efficient.

• Healthcare plan companies work with PBMs because they want to keep drug costs down so that people take the necessary treatments and get better. The most critical aim is to stay out of hospital where costs for plans (and also patients) sky rocket very quickly.

• However, it is true that PBMs capture a growing share of healthcare costs which has caught the notice of both politicians and the FTC. The latter has recently launched an investigation as have newly empowered House Republicans and several state governments.

In short, PBMs are classic middlemen. Because they are negotiating with both providers of healthcare like drug companies and buyers of healthcare, like consumers, they are able to capture more of the available profit for themselves.

We are not experts in this area and so will remain careful about arguing just how responsible the PBMs are, at large, for rising healthcare costs. They likely negotiate and pass along tens of billions of dollars to the American consumer and government and tried to claw some back on frequently prescribed everyday medicines such as insulin.

Either way, that may not matter going forward. Achieving rare bipartisan agreement that you are a bad company is bad omen for your reputation, your profits and your share price.

What companies even are the PBM's?

Pretty simple: CVS (via Caremark brand), Cigna (via Express Scripts and Ascent Health Services brands) and United Health (via OptumRX).

Good luck to them.

In conclusion, despite being called out in Congress, on TV, online and in President Biden's State of the Union this whole "insulin price controversy" was neither controversial nor really the fault of pharma companies. Nor will they lose profits or business thanks to their current actions.

To the contrary, they may be happy that, finally, the political fire has started to be directed at the middlemen truly responsible for some of the elevated costs.

Eli Lilly Executives Right now:

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