Look up “rising insulin prices” and one of the first things you’ll find is an article about the story of Alec Smith, a 26-year-old waiter who had just been taken off of his mother’s insurance plan. A type 1 diabetic with a $35,000 salary, Smith did not qualify for Medicaid or subsidized premiums in the marketplace. The $7,600 deductible plan offered to him led Smith to conclude that buying the insulin out-of-pocket instead was his best bet. Smith was later found dead in his apartment three days before his first pay-day without insurance. He had died from diabetic ketoacidosis, sometimes caused when diabetic patients ration out their insulin.
Smith’s story is not an anomaly. The Corley family were forced to consider buying insulin on the black market when they faced the $250 price per vial of insulin; Shane Patrick Boyle died from diabetic ketoacidosis when the GoFundMe page to fund his insulin fell $50 short of its goal. There are many theories as to why insulin prices have seen such a dramatic price increase in the last thirty years.
Some are quick to blame pharmacy benefit managers who charge clients significantly higher prices than they reimburse pharmacies (a profit-maximizing model known as “spread pricing). However, others see PMB’s as a necessity to negotiate prices between payers (e.g customers and health insurance companies) and pharmaceutical companies. Without them, pharmaceutical companies could, in theory, charge as much as they want, and, without any middlemen to negotiate this price, insurers would pay for drugs at ballooned rates.
Thus, many point their finger instead at the monopolistic structure of the insulin market, where three manufacturers, Sanofi, Eli Lilly, and Novo Nordisk, dominate the industry. This aspect of the industry is where specific policies have driven up insulin costs. Insulin is a biologic, meaning that it is not chemically synthesized, but rather produced using biological sources. Thus, when patents held by insulin manufacturers expire, it is very difficult for new companies to enter the industry with the same product, as biologics are too chemically complex to replicate exactly. Instead, companies hoping to enter the market produce biosimilars that can be approved if they show similar outcomes as the original drug.
However, insulin is not regulated by the FDA as a biologic. Instead, it is regulated as a traditional drug under the Federal Food, Drug, and Cosmetic Act. As such, biosimilars produced for insulin cannot follow other biosimilars’ regulatory pathway. Instead, they are treated as “follow-on products” to the original drug leading to many confusing regulatory questions. For example, because new biosimilars are simply “follow-ons” to the original product, are pharmacies allowed to substitute between the two products? If not, does that burden fall on patients? Regardless, treating a biosimilar as an add-on to the original greatly reduces the market pressures that a low-cost alternative to an original drug could create. In addition, biosimilars are actually rarely much cheaper than their original counterparts. The legal and regulatory obstacles as well as the high manufacturing costs lead only to slightly reduced prices of biosimilars. Thus, only large pharmaceutical industries with significant economies of scale can incur these initial costs in order to produce biosimilar insulin at a cost that is still profitable.
In order to lower the barriers of entry into the insulin manufacturing market, the federal government has two main options. One would be to move hormones from being regulated as traditional drugs under the FDC to be regulated as biologics under the Public Health Service Act, allowing for hormone biosimilars to face more rational regulations. Another possibility would be to subsidize biosimilar companies in order to increase incentives to enter the industry. By insuring against the blunt force of short term costs before these biosimilar companies reach economies of scale, federal subsidies will encourage more biosimilar manufacturers to enter monopolized industries with high demand for lower-priced products.
More transparency to the system would also drive significant changes in the industry. A Colorado Congressional bill was proposed that would force drug manufacturers to report price increases to the state government before doing actually raising prices. A federal adoption of this policy could help prevent manufacturers from slyly increasing prices without facing an ensuing public backlash. In addition, either nonprofits or the federal government should adopt the responsibility of making it easier for young people to understand the insurance marketplace. Though such navigators are housed in office buildings across the country, few people know that they actually exist. Federal funds could be given to the marketing agencies of these navigators or nonprofits dealing with healthcare access could themselves run such a marketing campaign. With the adoption of the ACA subsidies as well as many not-for-profit cost-sharing groups (i.e Christian health cost sharing ministries), there are more options than many might initially believe.
Yet, even with all of these largely unknown routes to gain healthcare coverage, there are still a portion of diabetic Americans who will still be forced to pay for their insulin out-of-pocket. It is thus largely up to the federal government to update regulations and create incentives to breed competition in this largely stagnant, monopolized industry.