Why Did Eli Lilly Lower Insulin Prices?
Pharmaceutical company Eli Lilly and Company recently announced that it was lowering the list prices for its most commonly prescribed insulin products by 70%, Humalog and Humulin, as well as capping consumers out-of-pocket expenses for insulin at $35 per month.
More specifically, the company is cutting the list price of the non-branded Insulin Lispro Injection to $25 per vial (down from $82 per vial) and the Humalog and Humulin brands by 70%. Eli Lilly also introduced a new insulin injection to compete with Sanofi’s (another drug company) Lantus product at a 78% discount ($92 per five-pack compared to Lantus).
Eli Lilly also capped out-of-pocket expenses at $35 per month for insured consumers shopping at retail pharmacies. Uninsured consumers can also have their out-of-pocket expenses capped at $35 by downloading a Value Program savings card via an Eli Lilly website.
In direct reaction to this announcement, President Joe Biden issued a public statement applauding Eli Lilly’s actions and insinuated that their decision came as a result of his call to action during his 2023 State of the Union speech to Congress. During his speech, Biden lauded how the Inflation Reduction Act (IRA) capped insulin costs at $35 per month for Medicare beneficiaries and called upon pharmaceutical companies to follow suit by lowering drug costs to benefit American families.
Eli Lilly’s official statement on its decision corroborates this morality-based explanation for lowering costs. The company said it is trying to “help Americans who may have difficulty navigating a complex health care system that may keep them from getting affordable insulin.”
However, Eli Lilly is a publicly traded company; thus, its sole legal purpose is to maximize shareholder value through generating the most profit. Thus, the company’s insinuation appears suspect on its face, as Eli Lilly is a large corporation not guided by a moral desire to help Americans.
After all, pharmaceutical companies, including Eli Lilly, have significantly increased drug prices, including insulin, over the last several decades, demonstrably hurting Americans with higher costs. For example, Eli Lilly increased the price almost tripled the wholesale price of Humalog between 2009 and 2017 alone, and it has regularly increased the price by over 10% annually since bringing the drug to market in 1996. In addition to putting an immense financial strain on diabetic Americans, the price increases have led to people rationing their insulin, leading to documented cases of death. Overall, there is little reason to argue that the executives at Eli Lilly suddenly experienced a change of heart.
If the decision was not morally based, then why did Eli Lilly dramatically lower the cost of its two most popular insulin products? There are two complementary explanations with reasonable evidence to answer this question: the company is reacting to a changing competitive marketplace along with the threat of enhanced legal enforcement.
First, some commentators, such as Vanderbilt University health policy professor Stacie Dusetzina, argue that the policy won’t actually hurt Eli Lilly financially in any significant way due to increased competition. For example, the nonprofit company Civica is planning to manufacture and distribute insulin at a price of no more than $30 per vial by 2024. Additionally, the California legislature and Governor Gavin Newsom have developed and appropriated $100 million for a state project to develop its own insulin brand and sell it at lower prices.
Thus, according to the competition explanation, Eli Lilly effectively made a public relations move to improve their image while actually looking out for their own competitive interest. However, it is important to note that other insulin-making companies, Sanofi and Novo Nordisk, have yet to follow suit. So, there is not yet a demonstrated market-wide urgency to lower prices.
Second, others, such as the antitrust thinktank American Economic Liberties Project (AELP), argue that Eli Lilly is reacting to significant pressure from policymakers from both the regulatory and legislative institutions. In June 2022, the Federal Trade Commission (FTC) unanimously and in bipartisan fashion issued a policy statement, announcing that it would “ramp up enforcement” against pharmaceutical companies and “prescription drug middlemen” known as pharmacy benefit managers (PBMs).
PBMs represent health insurers as the middlemen between the insurers and pharmaceutical manufacturers. They then use their status as the collective representatives of health insurers to create a list of drugs (called formularies) for insurance companies to cover, negotiate drug prices and discounts (called rebates) with manufacturers, and reimbursing pharmacies for the drugs they give to patients.
The relevant job of PBMs in relation to the FTC’s scrutiny is that when they negotiate drug prices with manufacturers, the discounts or rebates they receive are not then passed on to consumers in terms of lower costs. In fact, this relationship has incentivized drug manufacturing companies to increase prices, so that the PBMs receive larger rebates and, thus, preferentially place their drugs on their formularies rather than the drugs of competitors.
Research Director of the AELP Matt Stoller clearly describes this relationship:
Basically, to make money, PBMs solicit bribes in the form of a rebate from pharmaceutical firms in return for letting their products on their formularies. As of 2018, pharmaceutical producers like Eli Lilly were getting 47% of the revenue from their insulin products, and PBMs were getting 53% of it. That’s likely an even worse split today.
In its public statement, the FTC stated its intent to pursue future legal actions against PBMs and drug manufacturers whenever possible for violating various antitrust laws: the Sherman Act, Clayton Act, and Robinson-Patman Act.
Thus, Eli Lilly is ending the potentially illegal and anticompetitive arrangements with PBMs regarding the specified insulin products by not granting them large rebates. Although, the FTC public statement targeted the PBM-manufacturer relationship for raising prices of drugs of all kinds rather than just insulin.
In addition to the FTC’s enhanced scrutiny, insulin manufacturers have faced immense public pressure from President Biden and Congress. As President Biden alluded to in his aforementioned statement, he called out pharmaceutical companies for high insulin prices during his State of the Union speech. Additionally, a key campaign message in the 2022 midterm that Democrats used from passing the IRA was the $35 monthly out-of-pocket expense cap for Medicare Part D beneficiaries.
Congressional pressure has also been bipartisan, as a January 2021 report from the Senate Finance Committee heavily scrutinized and lambasted increasing insulin prices caused by the relationship between drug manufacturers and PBMs. A 2021 House Oversight Committee report pushed by Democrats targeted the “appalling conduct” of pharmaceutical drug companies that raises prices of drugs and insulin in particular. In the current Congress, House Republicans have recently announced their own investigation into PBMs and their role in raising drug prices.
There is historical, corroborating evidence to back up the idea that government and public pressure is a primary cause of lower drug prices. In October 2018, Minnesota Attorney General Lori Swanson sued insulin manufacturers for “price gouging;” subsequently in February 2019, the Senate Finance Committee scolded pharmaceutical CEOs (Chief Executive Officers) for high drug prices. Shortly thereafter in March 2019, Eli Lilly announced that it would introduce a version of Humalog at half the standard price: $137.35 per vial.
As Stoller points out, it will be interesting to see how Sanofi and Novo Nordisk, which control 70% of the insulin market, react to Eli Lilly’s decision. Especially as news agencies and government officials have widely reported the price reduction, the two companies face significant competitive pressure to also reduce their prices.
Ultimately, the key conclusion from Eli Lilly’s decision to lower insulin prices is not that drug companies are capable of moral behavior. Rather, when government officials do their jobs and apply proper public, legislative, and regulatory pressure, they can win and benefit the American people.