© Getty ImagesReport faults 'broken' system for insulin price spikes
Insulin prices have soared in recent years due to a "broken" system that rewards companies for raising costs on a drug that hasn't been significantly improved in its 100-year existence, congressional investigators said Thursday.
A scathing report from the offices of Sens. Chuck Grassley (R-Iowa) and Ron Wyden (D-Ore.), leaders of the Senate Finance Committee, found that in the convoluted drug pricing system, competition, rather than lowering costs, often drives price increases.
"This investigation makes clear that consumers are the only ones losing out in America's broken drug pricing system, since every part of the pharmaceutical supply chain benefits from higher list prices," Wyden said in a statement.
The report found that Novo Nordisk and Sanofi - two of the largest insulin makers in the U.S. - would closely monitor the other's prices and match or top any price increases, sometimes within hours or days of each other.
"Rather than seeking to undercut its competitors' pricing, from 2014 on Novo Nordisk engaged in a cat-and-mouse strategy of pricing that followed Sanofi's price increases closely, sometimes mirroring them within days or even hours," the report reads.
High drug prices have angered members of Congress and the public in recent years, spurring Grassley and Wyden to introduce legislation aimed at reining in costs.
The bill, which caps seniors' out-of-pocket costs for drugs covered by Medicare and limits price increases on a drug to the rate of inflation, passed the Senate Finance Committee, but did not have enough support from Republicans to be called for a vote on the Senate floor.
With Democrats taking control of the Senate this year, there might be more room for action on drug pricing to pass, but Democrats will have a slim majority that will require support from Republicans to pass legislation.
The authors of the report, who analyzed more than 100,000 pages of internal documents from various companies, found drug makers "aggressively" raised the list prices of insulin products "absent significant advances in the efficacy of the drugs."
The report places a lot of blame on pharmacy benefit managers (PBMs), middlemen that negotiate with drug companies on the behalf of insurance plans, large employers and other payers for discounts, also referred to rebates, on a drug's list prices.
PBMs play a large role in deciding whether a certain drug will be covered by a health insurance plan. Drug makers offering large rebates have a better chance of being covered by a health plan, thus expanding their market presence. PBMs charge fees and are paid a percentage of the rebate based on the drug's list price. This convoluted arrangement incentives drug companies to increase the list prices of their drugs so PBMs can get larger rebates and drug makers can secure coverage of the drug by health plans, the senators argued.
This arrangement also translated into higher sales volumes and revenue for drugmakers, the authors found.
"There is clearly something broken when a product like insulin that's been on the market longer than most people have been alive skyrockets in price," Grassley said in a statement.
"This industry is anything but a free market when PBMs spur drug makers to hike list prices in order to secure prime formulary placement and greater rebates and fees."
The documents also showed drug companies were "sensitive" to the bottom lines of PBMs and health plans, knowing that if they dropped the list price of their insulin products, PBMs would make less money and potentially punish them by leaving them off a health plan's list of covered drugs.
For example, the investigation found that Novo Nordisk's board of directors voted down a proposed insulin price decrease to avoid backlash from PBMs and payers.
According to a Novo Nordisk presentation slide obtained by the committee, the benefits of reducing list prices would be relieving "pressure from media and Congressional hearings" and supporting patient affordability.
The downsides were presented as "financial risk," upsetting payers, potential retaliation from others in the drug supply chain, and the possibility that competitors may not follow suit, putting the company at a "disadvantage."
In the end, the company apparently decided the downsides outweighed the benefits, as the board rejected price decreases and continued following the increases set by other companies.
"PBMs and payer backlash appeared to be of particular concern to Novo Nordisk," the report reads.
"The company believed that its decision to decrease list price could upset payers, and that many in the drug supply chain... would be negatively impacted financially and could retaliate against Novo Nordisk."
PBMs used their "size and aggressive negotiating tactics" to get larger rebates from drug companies, the authors wrote.
For example, in July 2013, Sanofi offered rebates between 2 percent and 4 percent of a drug's list price for inclusion on a health plan's list of covered drugs. In 2018, Sanofi's rebates were as high as 56 percent.
The authors of the report wrote that there appears to be little attempt from PBMs to discourage manufacturers from raising list prices of their products.
The report detailed list price increases for several insulin products.
Novo Nordisk's Levemir FlexTouch, a long-acting insulin pen, cost $462 in January 2019, an increase of 52 percent from May 2014.
Eli Lilly's rapid-acting insulin cost $530 in 2017, a 64 percent increase from four years prior.
Between 2001 and 2012, Sanofi increased list prices for insulin as much as 18 percent annually, according to the report.
In 2013 and 2014, the company nearly doubled the drug's list price in response to competition from Eli Lilly and Novo Nordisk and in response to increased pressure from PBMs for larger rebates and discounts, the report found.
The report didn't detail any price decreases taken by drug companies.
The price hikes has led to a significant increase in Medicare spending, amounting to billions more over the last decade, according to the report.
While drug companies often argue patients don't pay the list price for a drug, some patients have to pay out-of-pocket for drugs until they meet their deductible.
The amount they pay is typically based on the list price. Price increases also impact people without insurance.