The world’s biggest makers of insulin are likely to make more money, not less, even after slashing prices by as much as 75% due to US government pressure.
(Bloomberg) — The world’s biggest makers of insulin are likely to make more money, not less, even after slashing prices by as much as 75% due to US government pressure.
That’s because Novo Nordisk A/S and Eli Lilly & Co. — both of which announced price cuts to their insulin products this month — could avoid paying out multimillion-dollar rebates to the government’s Medicaid health-care program.
A 2021 law incentivized the companies to lower prices by removing a cap on the rebate payment, a change that kicks in next year. Federal and state governments claim the rebates from drugmakers to help offset the cost of covering prescription drugs under government programs.
By dropping the cost of its Humalog and Humulin insulins, Lilly could sidestep $430 million per year in new Medicaid rebates and make more than $85 million in new annual profit, according to an analysis by Spencer Perlman, the director of health-care research at Veda Partners. Novo, meanwhile, could avoid about $350 million in new 2024 rebates on NovoLog and Levemir and add earnings of nearly $210 million, Perlman said. He estimated that both companies currently earn nothing on Medicaid sales.
Government policies are “driving what I think people wanted to see, which is a reduction in list prices,” Perlman said. Still, companies that choose to cut prices “will actually benefit from that change.”
Novo slashed prices on some of its insulin products on Tuesday, following Lilly’s similar move early this month. Sanofi, another major insulin manufacturer, declined to comment about any cuts to its prices.
A spokesperson for Lilly said it had been seeking to reduce prices while ensuring that it could continue to operate a sustainable insulin business that supplies Medicaid, which insures low-income individuals, at a low cost. A representative for Novo Nordisk said the company doesn’t expect the changes to have a material impact on its 2023 finances, adding that the potential financial impact from other changes in the insulin market is uncertain.
Insulin has long been a political football. The drug, which helps people with diabetes manage their condition, has been around for more than 100 years, over which time manufacturers have vastly increased prices. Just three vials a month can cost patients upwards of $1,000, and some patients will need as many as six vials each month. Nearly 40 million Americans live with diabetes, according to the American Diabetes Association.
US lawmakers have been pushing for price cuts for years, but little changed until 2021’s American Rescue Plan Act spurred drugmakers to act. Other legislation is providing further pressure to keep prices down.
The Inflation Reduction Act, passed last August, applies a similar rebate concept to the government’s Medicare program for the elderly, but may have less of an immediate impact since those rebates take into account inflation since 2021, Perlman said. The same act also capped insulin costs for seniors on Medicare, and President Joe Biden has said that this should be the case for all patients with diabetes.
“This builds on the important progress we made last year when I signed a law to cap insulin at $35 for seniors,” Biden said in a statement Tuesday following Novo Nordisk’s price cuts. “I urge all other manufacturers to follow suit and Republicans in Congress to join us and cap insulin at $35 for all Americans.”
Read more: Novo Nordisk to Slash US Insulin Prices, Following Lilly
The price changes apply to Novo Nordisk’s NovoLog products, plus its Novolin and Levemir insulins, and to Lilly’s Humalog and Humulin, as well as its non-branded insulin lispro. Novo’s changes go into effect next year, and Lilly’s largely in the fourth quarter of this year.
Companies are also facing the prospect of increased competition, including from the state of California, which last year said it would spend $100 million to develop and manufacture more affordable insulin.
Civica Rx also announced plans last year to produce three insulins that are interchangeable with Sanofi’s Lantus, Lilly’s Humalog and Novo’s NovoLog. The company plans to sell each vial for $30 or less and a box of five pen cartridges for $55 or less.
“Competition works,” said Robin Feldman, a professor at UC College of the Law, San Francisco, formerly UC Hastings. “California’s move puts pressure on other companies to rationalize prices.”
Price cuts will likely make the biggest difference for patients who are uninsured or have health-care plans with high deductibles, said Jing Luo, an assistant professor of medicine at the University of Pittsburgh. Drug companies also have assistance programs available for patients facing high out-of-pocket costs, subject to various qualifying criteria.
Still, while the reductions seem dramatic, insulin remains relatively expensive to the average person.
“Most people need at least two vials, two to four, sometimes six-plus vials every month,” said Zoe Witt, an organizer at Mutual Aid Diabetes. “If you’re someone who actually needs to pick up their month’s worth of insulin at that price, it’s a lot.”
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