Eli Lilly Cuts Insulin Prices by 70%; But Wait, There’s More!
A recent USMA Action post tells of drug manufacturer Eli Lilly’s announcement that it would cut the price of Humalog and Humulin, two of its proprietary insulin products, by 70%. The article made the argument that Eli Lilly’s actions were not the result of some newfound altruism, but rather a calculated move to help preserve its favorable relationship with government so that it may continue to possess a market advantage against present and even potential competitors. Since its original report, USMA Action has learned of a second, even more palpable advantage the move instilled upon the manufacturer. It seems that by drastically cutting the prices at which it sells its insulin products Eli Lilly stands to save millions in rebates it would have been forced to pay to Medicaid programs throughout the country.
Example of rebate calculations applicable to manufacturers. Medicaid Payment for Outpatient Prescription. MACPAC. Accessed March 20, 2023, https://www.macpac.gov/wp-content/uploads/2015/09/Medicaid-Payment-for-Outpatient-Prescription-Drugs.pdf
According to Congressman Frank Pallone, the advantage comes from a federal law euphemistically named the American Rescue Plan of 2021. The program forces a drug manufacturer to pay a Medicaid program the greater of 23.1% of the average price for the medication and the difference between the manufacturer’s average price and the best price in the market. The required rebate is then compounded by the rate at which the manufacture had increased its sales price relative to the average inflation rate as estimated by the Consumer price Index for All Urban Consumers (CPI-U). Further, whereas the inflation-based correction used to be capped at 100% of the average manufacturer’s price (which would translate to the manufacturer paying Medicaid every penny it made from selling the medication), beginning on January 1, 2024, because of the American Rescue Plan, the cap on the rebate a manufacturer would owe Medicaid programs for the sale of its medications would be lifted, meaning that Eli Lilly could actually paid more to Medicaid programs in rebates than it generated in revenues from the sale of the drug! In short, by taking this move, Eli Lilly was not only helping to prevent adverse legislation from moving forward, it was executing a cost savings of about $140 million annually.
Also since last week’s report at least one other insulin manufacturer, Novo Nordisk, has announced its move to drastically cut the price of its insulin products including Levemir, NovoLog, and NovoLog Mix 70/30 by up to 75%.
The moves have been lauded as major policy wins by supporters of heavy-handed governmental manipulations of the market, and although the consumer may experience some benefits in price reliefs as a result of government’s heavy hand, the greater deleterious effects continue to be the suppression of market competition and the quashing of any hopes of developing a robust manufacturing segment within the United States. These are the same government manipulations helping the largest manufacturers maintain a 90% share of the post-patent drug market in the United States; the real reason the market and competition are unable to help consumers realize the best prices for insulin while benefiting from a robust, sustainable American manufacturing milieu.
Dr. Julio Gonzalez is n orthopaedic surgeon practicing in Venice, Florida, and a former Florida State Representative. He is President of the United States Medical Association.
