I work for one of the companies mentioned in the article.

I too am troubled by the increasing burden on those unable to pay for their insurance, and feel that something must change, and quickly.

However, I’m shocked when I read articles like this one that manage to miss the crux of the issue so badly (though, to be fair to the author, most articles on the subject make the same mistakes). Perhaps it’s because I work in the industry and have more insight that I take for granted, or perhaps I’m simply blinded by personal biases and I’m the one off base, but the issue driving insulin price increases seems to be obvious: to he insurance system in the US is irredeemably broken. A few facts, considered together, support this:

1. The number of diabetics in the US has skyrocketed in the preceding decades.

2. The list price for insulin has also skyrocketed in the last 20 years

3. The amount of money the main insulin makers are paid per insulin fill is actually down during this time

So you have an increasing demand for a product, combined with an increased price, but less money per unit being made by the parties allegedly jacking up the price for profit. So where is the excess money going? Middlemen.

Insurance companies in the US have enormous leverage over just about every other party involved in healthcare: the patients, the providers, and the pharmaceutical manufacturers. This is even more true for medications like insulin, where there isn’t much difference in efficacy between brands. In a normal market, these companies would try to compete on price. But for insulin, price continues to rise. This is because insurance companies, and their negotiators, Pharmacy Benefit Managers (aka PBMs) have a vested interest in prices rising.

PBMs make their money by negotiating prices with pharma companies to secure discounted prices for insurers, and in doing so, create the insurers’ “formularies”, which are basically the list of all the medications an insurer will cover, the prices they will pay, and the conditions that must be met. PBMs get a cut of the discount they negotiate with the pharma company. If drug A has a list price of $200, and they negotiate it down to $150 for their insurance clients, they take home x% of all the savings that are made at $50 a pop.

This creates a perverse incentive however: a PBM stands to make more from a drug that costs $300 and is negotiated down to $150 than a drug that is $200 that is negotiated down to $150, even if everything else is the same. That means you are more likely to get better insurance coverage for your drug by starting high and giving deep discounts. And for drugs like insulin, where similarities between products are so small that the only place you can compete is price, how well you are covered by insurers compared to your competitors will make or break your business.

Insurance companies themselves also love drugs with high costs that are then discounted deeply, because when they charge a patient coinsurance, it’s based on the list price, and not the price the insurer is paying. So even though they’ve negotiated the price of insulin down by over 50% with the pharma company, they are still going to charge you y% based on the full price. So if they continue to get insulin from manufacturers for $Y per unit every year, they continue to charge you 20% of a cost that continues to rise further and further away from $Y, meaning they are actually paying less and less as prices rise. They will claim to be using the reduced costs to lower premiums, but if reduced costs are only the result of increased costs for the sick, then all we’ve done is create an insurance system where the sick are subsidizing the healthy, which is entirely backwards.

So now we have a system where manufacturers raise prices year after year, only to also give ever increasing discounts to insurance companies and PBMs, in hopes that it actually increases the number of patients who can afford their products (i.e. those with decent insurance). But those left holding the bag are the individuals without insurance or those with high deductible plans (which are becoming increasingly common).

It’s also important to note exactly how much power these middlemen have. It’s a common narrative that Big Pharma is able to get away with bad practices because of their power. But in reality, only a single pharmaceutical company is in the Fortune 50, and none of the insulin makers are. In contrast, 80% of the PBM market is controlled by 3 companies, 2 of which are Fortune 50, and the third is a subsidiary of United Health, which is an insurer and is also Fortune 50. In fact, 10 of the Fortune 50 companies are middlemen (insurers, PBMs, or drug distributors) in the healthcare industry.

Again, maybe my view of the issue has been entirely skewed by my personal biases. Also note that this isn’t necessarily the cause of all price gouging in the pharma industry. There are certainly bad actors that are jacking up prices simply because they can. But it seems to me like the true issue at the heart of the insulin pricing problem (the insurance system in the US) is being skipped over to focus on the symptom because the idea of rich pharma companies reaping in profits from price gouging because it is a simpler narrative.