Why are insulin prices going up? Chuck Grassley explains it

More than 7 million Americans require insulin to treat their diabetes but some people struggle to afford the cost. On Jan. 14, 2021, Sen. Chuck Grassley, R-Iowa, tweeted, "2day Sen Wyden & I released Finance Cmte report on INSULIN costs Prices hv gone THRU THE ROOF for patients/taxpayers bc of manufacturer, health plan & PBM biz practices They make $$ as % of ballooning list price so no incentive to lower price on 100 yr old drug."

Grassley has a history of attempting through proposed legislation to lower the cost of the drug, and Sen. Ron Wyden, D-Oregon, worked with him as the ranking minority member on the Senate Finance Committee when Republicans controlled the Senate.

Is Grassley right when he tweets about why insulin costs so much? To answer that question, we look, first, at those costs.

Insulin costs the people who use it a lot, as we have reported on in the past. Between 2012 and 2016, the drug’s cost nearly doubled, although some prices have declined slightly in the past few years. Goodrx.com, an online company that reports on drug prices as part of a discounting business, reportsthat, in 2020, consumers could buy a generic insulin lispro KwikPen for $60, compared to the name-brand Humalog KwikPen for $140.

Insulin remains expensive even when its price drops. Although a Humalog 50/50 vial has decreased slightly in price, one vial still costs an average of $390.23, the Goodrx web listing shows. Depending on the pharmacy and any savings found online, customers could end up paying more or less than that average. 

David Tridgell, a Minneapolis endocrinologist who has had Type 1 diabetes since he was 15, wrote in The Washington Post in 2017 that patients with Type 1 diabetes tend to use two or three vials of insulin per month. At the current cost of one vial of Humalog 50/50, these patients would spend $780 to $1,170 on their insulin every month. Type 2 Diabetes patients can require even more insulin per month, sometimes requiring six or more vials, Tridgell wrote. This would add up to $2,341 or more every month.

Grassley claims that the increase is tied to the business practices of manufacturers, health plans and PBMs, or pharmacy benefit managers. An April 10, 2019, House Committee on Energy and Commerce hearing titled, "Priced Out of a Lifesaving Drug: Getting Answers on the Rising Cost of Insulin," featured testimony from CVS Health, Express Scripts, OptumRx, Eli Lilly and Company, Novo Nordisk, and Sanofi. They couldn’t lower the prices of insulin, the company representatives claimed, because of how PBMs and health insurance companies operate.

PBMs serve as a liaison between drug companies and health insurance companies, negotiating what insurance companies, pharmacies and patients pay for a drug. PBMs and insurance companies help to determine on which tier of the formulary the drug will be placed. They can negotiate rebates, discounts, and other services. These rebates and other benefits are passed on to the health plans. Medicare, the government funded insurance program for seniors, is barred from participating in these negotiations. 

A study published by the American Diabetes Association in 2018 showed that these negotiations encourage high list prices. As these list prices increase, "profits of the intermediaries in the insulin supply chain, such as wholesalers, PBMs and pharmacies, increase because each may receive a rebate, discount or fee calculated as a percentage of the list price." 

The study also reported that, because transparency is lacking within the insulin supply chain, "it is unclear precisely how the dollars flow and how much each intermediary profits."

Some insulin producers blame insulin’s prices on the cost of innovation. However, Mayo Clinic hematologist S. Vincent Rajkumar dismissed this claim in a paper published by Mayo Clinic in January 2020. Rajkumar wrote that limited innovation exists when it comes to insulin, and that what matters more is affordability. This sentiment was echoed in the April 2019 House hearing when Rep. Mckinley (R-West Virginia) said, "Innovation is supposed to drive prices down, not up."

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The bipartisan United States Senate Finance Committee staff report, "Insulin: Examining the Factors Driving the Rising Cost of a Century Old Drug," that was released Jan. 14, 2021, stated, "Eli Lilly reported spending $395 million on R&D costs for Humalog, Humulin, and Basaglar between 2014 and 2018, during which time the company spent nearly $1.5 billion on sales and marketing expenses for its insulins." 

The report also cited instances of 100-year-old drugs still going up in price. Every time a pharmacy dispenses therapeutic insulin, manufacturers pay PBMs administrative fees as high as 5 percent of the drug’s wholesale acquisition cost, the Senate staff report states. "These fees are a significant revenue stream for PBMs and likely act as a countervailing force against lower list prices—PBMs may be reluctant to push for lower WAC prices since it would reduce their administrative fee-based revenue," the report stated.

Grassley said that insulin prices have dramatically increased because of manufacturer, health plan, and pharmacy benefit manager practices. He’s right. Innovations alone aren’t enough to justify the extreme increases in price that have raised insulin costs over the years.

PBMs, with their complicated discount negotiations; and manufacturers, with their continuing drive to increase earnings, both play a role. So do drug stores, pharmacies, and other suppliers who want to be competitive in the marketplace by offering consumers discounts. But the discounts don’t go to everyone with diabetes, and when they do, they vary from vendor to vendor.

Multiple studies in recent years, testimony in public hearings, the drug’s pricing history, and sourcing in federal government reports show examples of complicated procedures related in large part to negotiated discounts for some vendors adding to overall insulin costs.

We rate Grassley’s statement True. 

CORRECTION: A previous version of this article incorrectly stated that the acronym PBM stood for pharmacy business manager; it is pharmacy benefit manager.