Predatory pricing by the insulin cartel has triggered a public health crisis. Diabetics are dying after self-rationing their overpriced insulin. The past decade’s exorbitant price hikes have left patients stranded like oxygen-starved hikers on Mount Everest.
The insulin debacle has become the public face of a much broader crisis. Sharp increases in out-of-pocket costs have left millions of patients unable to afford their medications. A large majority of Americans now rank the high cost of drugs as their top health-care concern, according to a recent Kaiser Family Foundation poll.
And of all the prescription-drug horror stories out there, insulin is the worst. The insulin story illustrates everything that is wrong with the contemporary drug marketplace. Insulin, which is usually produced naturally by the pancreas to process sugar in the blood, was first isolated and used to prevent death from diabetes in the 1920s. Biosynthetic versions of human insulin were invented more than three decades ago and are no longer patented. Yet, the three-firm cartel that controls the insulin market—Eli Lilly, Sanofi, and Novo Nordisk—still does not face competition from low-cost generics, which typically come to market at a small markup above their manufacturing cost (not the 500 percent markups typical of still-patented branded drugs). Why? Those firms have been primary beneficiaries of a well-funded biotechnology industry campaign that convinced the Food and Drug Administration (FDA) to require long and expensive clinical trials for any biosimilars (the industry name for biosynthetic generics), which makes their cost much closer to the brand-name originals.
About a quarter of the nation’s 30 million diabetics require insulin, without which they either die or suffer debilitating health consequences. Democratic Senator Amy Klobuchar highlighted the crisis by bringing a Minnesota constituent, Nicole Smith-Holt, to the 2019 State of the Union address. Smith-Holt’s 26-year-old son Alec, a Type 1 diabetic, died in 2017 from an acute case of ketoacidosis, the acid buildup in the blood that results from inadequate insulin, after being forced off his mother’s insurance plan when he turned 26. The $1,300-a-month he had to pay out-of-pocket for insulin was $200 more than his biweekly paycheck. Klobuchar and her Iowa Republican colleague Charles Grassley have included an accelerated pathway for biosimilars in their proposed legislation that would end the patent games drug companies use to delay generics entering the market.
Later in the year, on the eve of the second Democratic Party debate, Senator Bernie Sanders, who has made Medicare-for-All his signature policy proposal, took a busload of diabetics to Canada to purchase insulin that is one-tenth the United States price. Sanders’s single-payer system would go beyond negotiating lower prices as is done in Canada and other industrialized nations. It would completely eliminate the copays and deductibles that stand in the way of many patients—including some who are well-insured—getting the medications they need.
That our health-care system fails to provide essential medicines to people who face immediate death or injury without them is morally outrageous. The pricing and access policies of profit-seeking drug companies also make that failure quite literally a human rights violation. Those companies—and the government that fails to control them—are flagrantly ignoring the World Health Organization’s constitution, which calls “the highest attainable standard of health a fundamental right of every human being.” The document, which the United States signed in 1946, also says that “understanding health as a human right creates a legal obligation on states to ensure access to timely, acceptable, and affordable health care of appropriate quality.”
But flagrant violations of international norms have not convinced Congress to put an end to this human rights abuse. The drug industry’s protectors include virtually every member of the Republican Party, which marches in lockstep with the army of lobbyists deployed by Big Pharma. Last year, the drug industry spent $169.8 million on lobbying, more than any other industry. It’s on track to spend even more this year, having poured $129.4 million into its Washington influence machine through September, according to the Center for Responsive Politics.
Despite their numerous protests, many Democratic Party leaders remain conflicted about how to solve the problem. Too many legislators buy into the industry’s assertions that high prices are necessary to incentivize innovation. Most Democrats also accept drug and insurance industry campaign contributions, making them reluctant to pursue dramatic changes in the status quo. And conflicted members are in key positions for making policy. Since the beginning of 2019, New Jersey Democratic Representative Frank Pallone, chairman of the House Energy and Commerce Committee, raised $130,700 from medical professionals and $66,500 from drug companies, which together represented nearly 13 percent of his total campaign contributions. Democrat Anna Eshoo, who chairs that committee’s health subcommittee and is a vocal defender of her Silicon Valley district’s biotech companies, raised $115,700 from Big Pharma and $106,350 from medical professionals. That is fully 26 percent of her campaign contributions so far this year. Drug and biotechnology companies are concentrated in areas (eastern Pennsylvania/New Jersey, Boston, and San Francisco/Silicon Valley) that are heavily Democratic.
Ending the political paralysis engineered by the drug industry and putting the interests of patients first is long overdue. Insulin is the perfect place to start. And the way to do it is not to make insulin merely affordable. No—the way forward begins by making insulin free to every patient. That’s right, free. To all who need it without copays or deductibles, and without having to wait for the passage of a single-payer health-care system, which will be a very heavy lift under even the most favorable conditions. Making insulin free will force Medicare, Medicaid, private insurers, and pharmacy benefit managers to directly confront the insulin drug cartel over their outrageous prices. If the three drug companies refuse to negotiate, there are practical policies for responding to their intransigence that are applicable to every high-priced drug category.
There are plenty of good ideas out there for how to make drugs affordable to taxpayers and private insurers should policymakers force them to assume the full cost of drugs. It can be done without jeopardizing innovation. All policymakers need to remember when designing a new system is that short-term medical necessity, long-term public health, and basic human decency should take precedence over the excessive profits being extracted from the current system by the pharmaceutical cartel. They must never forget that the greatest medical invention in the world is of no use to a patient who can’t afford to pay for it.
Why start with insulin? Because diabetes has reached epidemic proportions in the United States. Its incidence is expanding at the same rate as our collective waistlines. Nearly 10 percent of Americans today are diabetic, more than double the rate of 1990. Another 12 percent are pre-diabetic and at high risk of developing the disease because they are overweight or obese, which is the number one risk factor for Type 2 diabetes. (Type 1 diabetes, an autoimmune disorder, usually manifests itself in childhood or early adulthood and accounts for just 4 percent of diabetics.) Because our society has failed miserably in its half-hearted efforts to address the obesity epidemic, the United States now ranks third out of 34 Organization for Economic Cooperation and Development countries for diabetes prevalence. Blacks, Hispanics, and the poor suffer disproportionately from the disease.
The epidemic is imposing a staggering cost on the nation’s health-care system: an estimated $237 billion in 2017 for direct care alone. Poorly treated or untreated diabetes also leads to maiming and life-threatening conditions like kidney and heart disease, blindness, nerve pain, and amputations. Collectively, these complications of diabetes account for an estimated one in every $4 spent on health care, according to the American Diabetes Association.
Diabetes mellitus, derived from the Greek words for siphon and sweetness, occurs when the pancreas fails to produce sufficient insulin to process blood sugar after eating. Diabetes is hard to manage under the best of circumstances. It requires constant pinpricks to test blood, complicated drug regimens to control fasting glucose levels, close attention to diet, and, for about one in three diagnosed diabetics, regular injections of short- and long-acting insulins to keep blood sugar levels from spiking up or down, either of which can cause acute reactions like ketoacidosis and death. One-quarter of diabetics in the United States do not even know they have the disease and find out only when they wind up in the emergency room from some diabetes-related complication.
But individual health crises increasingly are triggered by “noncompliance,” the failure to take medicines as prescribed. Noncompliance used to be ascribed to patient apathy or an unwillingness to accept unwanted side effects. Today, physicians are just as likely to attribute diabetic noncompliance to the financial toxicity caused by the high price of insulin and other drugs for managing blood sugar. Across all classes of drugs, an estimated 20 percent of prescriptions are never filled, with copay affordability increasingly cited as a major reason for noncompliance.
The average diabetic now spends nearly $5,000 a year on drugs, with insulin of course being the most expensive. The price of long-acting insulin has shot up eightfold since 2000. Eli Lilly’s Humalog, for instance, retailed at $234 per vial in 2015, up from just $35 in 2001. Moreover, prices are far above those paid abroad. Sanofi’s Lantus retailed at $372 a vial in the United States in 2015, more than six times higher than what the same brand costs in Canada ($67), France ($47), or Germany ($61), according to a 2016 survey published in the Journal of the American Medical Association. Patients need anywhere from two to six vials a month.
As noted earlier, many patients deal with financial toxicity by skimping on their meds. A recent Centers for Disease Control and Prevention (CDC) analysis showed 13.2 percent of diabetics did not take their medications as prescribed, with nearly one in four asking their doctors for lower priced medicine. The uninsured were nearly three times more likely to skip or skimp on treatment. A 2018 survey by T1International, a patient advocacy group based in London, found that fully 26 percent of American patients rationed their insulin in the previous year compared to just 6.5 percent of patients in other high-income countries. The result? The hospitalization rate for diabetes complications was 38 percent higher in the United States compared to other industrialized nations.
The ancillary costs caused by skimping on drugs will only grow in the years ahead unless something is done to make diabetes drugs like insulin universally available at no cost to patients. More diabetics like Smith-Holt’s son will die unnecessarily. The pipeline of people heading for costly dialysis because of inadequate diabetes treatment will widen. The nation’s hospital beds will fill with people suffering diabetes-related heart attacks, strokes, blindness, and amputations. Health insurance premiums and taxpayer obligations will rise to pay for it all.
Dealing with high drug prices is only the start in addressing this mushrooming public health disaster. Americans not only pay higher prices for drugs. They require more drugs because, compared to other advanced industrial nations, Americans suffer from a far greater incidence of chronic diseases like diabetes, heart disease, cancer, and arthritis—a shift that in recent years has been directly tied to rising obesity. Americans and Europeans consumed about the same amount of calories per day in 1989, but by 2013, American consumption had jumped nearly 10 percent while European food intake declined slightly. America today has twice Europe’s obesity rate.
Moreover, declining health status in the United States is disproportionately concentrated among poor, minority, and working-class Americans. Epidemiologists have known for decades that there is a direct correlation between a person’s health and their social conditions. The United States is markedly worse than peer nations on what experts call the social determinants of health. We have the most unequal distribution of wealth and income; the least fair tax system; more inadequate housing, especially for the poor; and our food production and food marketing system, especially for low- and moderate-income people, is a hothouse for incubating obesity-related ill health, especially diabetes.
All are major contributors to the sharply deteriorating health status of working-class Americans. To its great shame, the United States has experienced declining longevity for three years running, according to the CDC, a phenomenon not seen in the industrialized world since Russia in the 1990s after the collapse of the Soviet Union.
It’s important to recognize that the debilitating social conditions that are causing declining longevity are not universal. They do not afflict America’s prosperous suburbs and gentrified urban cores. Indeed, life expectancy in those well-to-do enclaves continues to grow and is equal to the healthiest countries in Western Europe. Inequality, including in access to essential medicines, is driving the growing longevity gap between these prosperous areas and the communities inhabited by America’s working class and poor, where the modern-day epidemics of obesity, opioids, and gun violence are causing significant declines in life expectancy.
The relatively well-off middle class needs to recognize that dealing with these socially borne health disparities is in its self-interest. Only by tackling the causes and consequences of chronic disease epidemics like diabetes can we bring our health-care costs within international norms, and lower insurance premiums for everyone. That work begins by making essential drugs like insulin free for patients and low-cost to the system’s public and private payers.
Insulin, a naturally occurring protein, hasn’t always been expensive. Dr. Frederick Banting, the Canadian awarded the 1923 Nobel Prize for Medicine for its discovery, reportedly said “insulin belongs to the world, not to me.” He gave half his cash award to one of the co-inventors responsible for its purification, who had been denied recognition by the Nobel Assembly. His co-inventors were similarly imbued with the scientific spirit: They turned the patent over to the University of Toronto for the grand sum of one dollar.
The university, in turn, decided to license it for free to any company willing to produce the drug at the exacting purity standards required by diabetics—not an easy task given the volumes needed for treatment. The first insulin used by Banting and colleagues had come from the minced pancreases of hogs and cattle, which they obtained from local slaughterhouses. Animal insulin is essentially the same as human insulin and works as well once impurities are removed. Drug firms getting into the business would follow the same procedure. They built a supply chain for harvested animal pancreases that ran from major slaughterhouses to their purification factories.
While the original patent was free to anyone who wanted to use it, the university added a fateful codicil to the contracts: Private companies could keep any subsequent patents awarded for improvements to the drug. Eli Lilly of Indianapolis quickly accepted the offer and began producing insulin for the American market. The company patented the technologies for processing out the impurities that could lead to severe side effects, from allergic reactions at the injection sites to anaphylactic shock. Just a few other companies followed suit, thus giving birth to the original diabetes cartel. In 1941, a federal grand jury indicted three firms—Lilly, Sharp & Dohme (later part of Merck), and E.J. Squibb (later merged with Bristol Myers)—for insulin price fixing. They pleaded no contest and settled by paying a $5,000 corporate fine and a $1,500 fine for each of their top corporate officers.
While the penalty was relatively minor, it had a sobering effect on the industry that emerged after World War II price controls were lifted. The price of insulin remained relatively low and wasn’t a major concern for diabetics (unless they were uninsured) for over half a century. But the 1980s biotech revolution enabled researchers to begin making synthetic human insulin. They also developed short- and long-acting versions that dramatically improved diabetes care. The days of diabetic dependence on animal insulin were over.
But these new biotech drugs were protected by a new set of patents, and their prices began edging up. In this century, they were affected by broader changes in drug industry pricing strategies. For most of their postwar history, drug manufacturers depended on selling patented medicines to large patient populations. The prices of antibiotics, anti-inflammatories, broad spectrum anti-cancer drugs, and meds to lower blood pressure, cholesterol, and stomach acid all followed similar patterns. Their prices, when introduced, may have seemed high, especially compared to the generics that came to market after the original drugs went off patent. But they usually sold for less than $1,000 a year. Generating sales in the billions of dollars for most drugs depended on reaching tens of millions of patients. With less than 3 percent of the population suffering from diabetes through the end of the 1980s (it’s now three times that level), insulin was never a major revenue generator for an industry whose profits depended on mass-market blockbusters.
As innovation in these mass-market drugs waned—scientists like to say that by the end of the twentieth century, all the low-hanging fruit of the then-80-year-old drug revolution had been picked—academic and industry labs began focusing on rarer and more difficult diseases that affected smaller patient populations. Advances in molecular biology allowed scientists to identify the specific genetic malfunctions that triggered these diseases and to begin developing drugs that targeted those malfunctions.
Government-funded advances in molecular biology also enabled the treatment revolution popularly known as “personalized” medicine. Scientists began dividing broad disease categories into various sub-types. Breast cancer tumors, for instance, became identifiable as ER-positive, PR-positive, HER2-positive, all of the above, or none of the above. Treatment varied accordingly. It was elegant science, but it also meant the patient population for any given drug shrank. That’s why most of the targeted medicines developed over the past two decades have come from small, venture capital-funded biotech firms started by scientists whose original research was funded by the National Institutes of Health (NIH), charitable foundations, patient groups, or some combination of those resources.
Their successes created a new playbook for the big drug companies, which were scrambling for a revenue replacement strategy as their mass-market drugs came off patent. They began buying up successful biotech firms at inflated prices, often just on the cusp of their new drugs gaining FDA approval. To pay for these costly acquisitions from the venture capitalists, as well as maintain their own revenue streams and profit margins, the big firms began charging higher and higher prices to these smaller and smaller patient populations. Today, some of the latest drugs sport million-dollar price tags for the few thousand patients who benefit from their use.
This pricing strategy has nothing to do with the cost of developing those drugs. The premium paid by American consumers generates revenue far beyond what “the companies spend globally on their research and development,” a recent study in the journal Health Affairs found. Dr. Aaron Kesselheim, writing in the Journal of the American Medical Association, attributed the drug industry’s untrammeled pricing power to two market realities: One, they are protected from competition through patenting; and two, unlike in Europe, their prices are not subject to government controls.
As prices soared on new drugs coming to market, a curious thing happened. The prices of existing-but-still-patented drugs began rising right along with them. Unscrupulous operators like former hedge fund manager Martin Shkreli, now in federal prison for security fraud, even began imposing huge price increases on some generic medicines. After acquiring Turing Pharmaceuticals, the sole manufacturer of Daraprim, which is used to treat a rare parasite infection, Shkreli raised its price from $13.50 to $750 a tablet, a 5,000 percent increase.
The three firms that make up the insulin cartel took advantage of this new pricing climate after switching to biotechnology-derived insulin. The FDA approved Eli Lilly’s first synthetic insulin in 1982. Short- and long-acting versions were approved in 1996 and 2000, respectively. Their prices quickly began rising at double-digit annual rates. When new and allegedly improved versions came along, price spikes would follow despite the absence of evidence that they led to better outcomes for diabetics. European and other advanced industrial countries kept insulin price increases in check through government price-setting and more careful assessment of the newer insulins’ actual medical value.
Patient and consumer advocates had hoped that the earliest biotech drugs, synthetic insulin among them, would by now have given way to much cheaper generics, known as biogenerics or biosimilars in the biotech space. After all, when Congress enabled generic competition through the 1984 Drug Price Competition and Patent Term Restoration Act (popularly known at Hatch-Waxman after its two primary sponsors), the price of drugs coming off patent dropped markedly, sometimes by 80 percent or more.
But due to intense industry opposition, Congress did not pass the Biologics Price Competition and Innovation Act until 2009, three years after the European Union approved its first “biosimilar.” It took another decade before the FDA approved rules enabling biosimilar interchangeability at the pharmacy, which is key to substituting generics for brand-name products.
Why did it take so long? Industry and industry-funded scientists argued that biosimilars—a term they created to distinguish them from bio-generics—needed to show they were equally effective and didn’t have greater side effects than their branded predecessors. Traditional generics only had to show they were chemically the same. Under both presidents Obama and Trump, the FDA has supported the industry position. As a result, biosimilar manufacturers have to conduct long and expensive clinical trials before gaining FDA approval. The handful of biosimilars that have entered the United States market are priced near their brand-name rivals, not like true generics that come to market at 20 percent or less of the brand-name price.
The latest two insulins to enter the market are a case study for this regulatory and market failure. Each is considered a “follow on” drug, not a biosimilar. Each was developed, tested, and put on the market by a member of the insulin cartel. Neither is automatically interchangeable at the pharmacy. Each is priced at 50 percent or more of the branded predecessor. None has achieved significant uptake since many doctors and patients are either unaware of their existence or are unwilling to risk the hyped-up possibility of side effects for the scant savings from switching drugs. American patients and their insurers spent $126 billion on biologic drugs in 2018. Just 2 percent went for biosimilars. For insulin, as well as other pricey biotechnology drugs, the hope that biosimilars would provide low-cost competition has been a total bust.
Now we get to the heart of the matter: how to make insulin free. Let’s start that discussion by asking: What is the impediment to making insulin free? Answer: Our fragmented insurance system, which has neither the monopsonist buying power to challenge the patent-holding drug cartel nor the ability to negotiate prices. As a result, individual insurers create roadblocks to making insulin and other essential medicines and supplies affordable to patients. Nearly all private insurers impose copays on insulin that can reach hundreds of dollars a month. Even recent caps—Colorado imposed a $100 monthly maximum on out-of-pocket expenses; Express Scripts, a leading pharmacy benefit manager, limited its copay to $25 a month for some customers—will still force some low-income, price-sensitive patients to skimp on their drugs.
Medicare, the biggest government health-care program, falls into the same trap. Congress has been gradually shrinking the coverage gap in the Medicare drug benefit, but under new rules enacted for 2019, beneficiaries must still pay 25 percent of the cost of all brand-name medicines, including insulin, until they reach $5,100 in out-of-pocket expenses, when the copay drops to 5 percent. Total out-of-pocket spending by diabetic Medicare beneficiaries quadrupled between 2007 and 2016 to nearly $1 billion.
The path to ending all copays and deductibles, i.e., making insulin free to patients, is bypassing our fragmented insurance system with a common purchasing program that unites all consumers. It’s not even especially complicated. All it would take is for Congress to create and authorize a drug-purchasing pool, similar to a statewide program being implemented in California, that ideally would include everyone: all Medicare and Medicaid beneficiaries; users of other government programs like the Veterans Administration, the Indian Health Service, and subsidized plans on the exchanges; and the majority of Americans—currently somewhere around 175 million people—who have private insurance for health-care coverage.
The pool, which would be run by the federal government, would jointly purchase all forms of insulin from their manufacturers. It would then turn them over to pharmacies and other distributors free of charge. It would also have to add a small payment to cover distribution costs. Physicians would then be free to prescribe the best insulin for their patients, who would pick up their prescriptions at the pharmacy counter for free. Over time, this unified group purchasing system could be expanded to include other high-cost medicines, including the high-priced cancer chemotherapy and other specialty drugs that are prescribed and administered in physician offices and clinics.
The pool authority would still have to buy the insulin, of course. Nothing is free. But by eliminating markups in the distribution chain and lowering the price it paid for insulin, the pool authority would be able to substantially lower the total payments patients and payers shell out, which the Kaiser Family Foundation estimated at $13.3 billion in 2017 for Medicare alone.
To lower its acquisition costs, the pool authority would be empowered to engage in any of a number of tactics to bring down the price that it pays for insulin. They include:
- Direct negotiations with manufacturers;
- Setting benchmark prices based on an index of prices paid by other industrialized nations (the Trump Administration floated this idea last December and House Democrats included it in their bill; the drug industry has been running an expensive advertising and lobbying campaign to bury the idea);
- Setting reference prices based on the lowest-cost alternatives already in the market; and
- Importing the drugs from lower-cost countries.
Having done this, the pool would next need to finance its acquisition costs in order to make the drug free to patients. The pool authority could raise money in one of two ways, or a combination of both: from general tax revenue collected by the government or from a flat fee paid to the government by every public and private insurer.
How much would it cost? Precise numbers are hard to come by since estimates on current insulin usage vary widely. The CDC estimated that about 14 percent of the nation’s 23 million diagnosed diabetics used insulin in 2015—about 3.2 million people. The Kaiser Family Foundation reported that 3.1 million Medicare beneficiaries used insulin in 2016, at a total cost to the program of $13.3 billion. Since average expenditures per patient on insulin totaled about $5,705 per person in 2016, according to the Health Care Cost Institute, total current spending on insulin, including patient out-of-pocket expenses and the price increases the cartel imposed over the past three years, is probably about $17.5 billion a year.
If the pool authority’s acquisition costs were lowered by 40 percent through negotiations or other tactics (to about what the Veterans Administration pays), its total costs—even after relieving patients of their obligations—would drop to $10.5 billion, a $7 billion annual saving.
And getting rid of copays and deductibles, which may sound expensive to the layperson, wouldn’t even cost that much. Medicare patients pay only 7 percent of the total current cost, so going from “affordable” to “free” is a comparatively small lift.
So that’s a very reasonable estimate of the cost here; $10.5 billion. As a point of comparison, the federal government spends $16.5 billion a year on the CHIP children’s insurance program.
This pool approach holds out the possibility of attracting broad-based, even bipartisan support. For progressives, it represents a single-payer approach to one of the health-care system’s most pressing problems and provides immediate relief for patients’ out-of-pocket expenses. For centrists in the Democratic Party, it conforms with their “Medicare for more” approach and embodies their long-standing demand for direct negotiations with drug manufacturers. And for any conservative who is honestly looking for a health-care alternative (and perhaps a path to disentangle him or herself from the Trump cult), it mirrors the catastrophic reinsurance programs they have historically backed to spread the cost and risk of very sick, very expensive patients in employer-based plans.
Really? Get some Republicans to endorse this? In 2017, when the Republican majorities in both chambers of Congress were pursuing legislation to “repeal and replace” the Affordable Care Act, they included a reinsurance program for high-cost patients in employer-based plans. A dozen states, several of them under Republican leadership, have already received Health and Human Service Department (HHS) waivers to implement reinsurance programs as a way of lowering health insurance costs for small employers. Couching a national drug purchasing pool as a reinsurance program could convince at least a few Republicans to give it bipartisan support.
A variation of the pool approach for drugs is being pursued in California. Governor Gavin Newsom earlier this year ordered his health department to move toward common purchasing for expensive drugs used by state employees, retirees within the California Public Employees’ Retirement System (CalPERS), and customers relying on the state’s publicly funded programs, including Medicaid. The executive order also called on the state’s drug purchasing collaborative to open the pool to all private plans, including those for small businesses, the self-insured, and major insurers like Kaiser Permanente. The state’s Department of Health Care Services is moving quickly to meet the new governor’s January 2021 deadline for implementation. “We are reasserting our market leverage over the industry,” one official said. “We’ll be negotiating for 13 million people,” meaning not just the state’s 2.5 million employees and Medicaid beneficiaries.
Will the state succeed in reining in the prices currently being charged by Eli Lilly, Sanofi, and Novo Nordisk? Big purchasers have clout. Look at California’s auto emission standards, currently in the news because of the Trump Administration’s effort to take away the state’s authority to set stricter mileage requirements. Four major auto companies have already agreed to meet those standards no matter what happens. A big state like California will be able to use its purchasing power to drive prices lower by forcing the cartel members to finally compete, not collude, on the prices they set. Imagine what a national pool could do.
The insulin cartel, and the drug industry at large, will fight this approach with every weapon in its well-stocked lobbying arsenal. But the same is true for any reform that reduces their revenue stream or seriously tackles the exploding cost of drugs. Witness their so-far successful campaign against using international prices to set U.S. prices for the most expensive drugs. Unlike that proposal, however, a purchasing pool that eliminated copays and deductibles would be able to generate broad public support, something none of the half-steps currently under consideration in Washington have done.
Indeed, purchasing drugs in common has the potential to unite most health-care constituencies (patients, employer and individual plan purchasers, doctors, hospitals, insurance companies, and government payers). But in order to succeed, they will have to counter the drug industry’s two main talking points, which haven’t changed in the quarter century since legislators began discussing a drug benefit for Medicare.
First, if you drive prices lower for manufacturers, they will refuse to sell. This will lead to rationing and patients being cut off from expensive but necessary drugs. Second, reducing the drug industry’s total take—especially in the United States, their most lucrative market—will dry up investment in the research necessary for new and improved drugs.
There are legislative approaches already introduced in Congress that begin to deal with both issues. House Speaker Nancy Pelosi’s drug plan said if any manufacturer refuses to negotiate prices on some expensive drugs without sufficient competition, the government will impose a 65 percent tax on the gross sales of those drugs. Pelosi’s plan would also impose penalties if a company refuses to offer Medicare’s negotiated price to private insurers.
Though it doesn’t have leadership support, Texas Representative Lloyd Doggett and Ohio Senator Sherrod Brown have offered an even stronger approach. Their bills would authorize the HHS secretary to give generic manufacturers the right to produce any drug that relied on National Institutes of Health-funded research should negotiations fail. The companies would receive “just compensation” based on an audited statement of their investment in R&D or the medical value of the drug.
As far as new research drying up if industry revenues decline, it’s time to give serious consideration to delinking innovation from the drug pricing system. As the original discovery and production of insulin demonstrates, major innovations in medicine do not depend on pouring huge sums of money into the coffers of the pharmaceutical industry. If that were true, we’d have had a cure for cancer or treatments for Alzheimer’s a long time ago. Innovation only occurs when scientists understand the causes of diseases, which have genetic, chemical, environmental, and social roots. Virtually all of the basic science research that identifies those causes takes place in universities and non-profit labs funded by the government or charitable organizations.
Moreover, the application of science to develop therapies that address a disease, once its causes have been determined, has occurred just as often in government, university, or nonprofit labs as it has in industry-funded ones. The tools of applied science are equally accessible to both arenas. A recent study showed that each of the more than 200 drugs approved by the Food and Drug Administration between 2010 and 2016 depended in whole or in part on NIH-funded research. The playing field has tilted toward industry in the past several decades only because government-funded applied science, where government-funded scientific insights are turned into actual new drugs, has been systematically underfunded. NIH budgets, when adjusted for inflation, are almost exactly the same today as they were in 2001, when President George W. Bush took office.
The way to delink innovation from prices is to establish an even playing field for scientific competition. This will enable scientific labs—whether nonprofit or for-profit, university-based or industry-based—to pursue the most promising scientific leads. In July 2019, 15 Democratic senators introduced legislation that would fund the National Academies of Sciences, Engineering, and Medicine (NAS) to conduct a comprehensive study of alternative ways to promote medical innovation. Progressives’ preferred option would establish a prize fund for medical innovation, where the prizes would be based on the medical value of any new drug receiving FDA approval. Legislation embodying that approach, introduced time after time by Senator Bernie Sanders, has gone nowhere. An independent study by a panel of mainstream scientists at NAS could flesh out whether it’s truly feasible and whether there may be other approaches for separating the financing of innovation from the prices people pay for drugs.
An alternative clearly is needed. The pharmaceutical industry’s present model, which leaves the pricing and marketing of drugs to the companies that own their patents, has generated the current crisis. Creating awards for true innovation and divorcing research and development from pricing and marketing—in essence, breaking up the drug cartel’s vertical monopoly—will create a far more robust system for medical innovation. The one we now have incentivizes industry to pour a substantial share of its R&D resources into minor changes whose primary goal is to extend the patent life of medicines (so-called patent evergreening) and thereby their owners’ monopoly pricing power.
The health impacts would be enormous. The winning argument for making insulin and other essential diabetes drugs and supplies free starts by emphasizing how much it would help reduce the unnecessary health-care costs generated by inadequate treatment. People who don’t have to worry about copays and deductibles are more likely to stay compliant with their drug regimens. Dose-skipping and skimping will disappear. The quarter of diabetics who are undiagnosed, often because they are uninsured and poorly insured, will be more likely to seek treatment knowing their costs will be covered. The long-term expense from treating diabetes-related dialysis, heart attacks, blindness, and amputations will decline.
Free insulin will also free up provider time to focus on the root causes of diabetes. Today, too many physicians and their staffs spend the little time they have for helping patients plugging them into industry-funded charity programs that help defray the cost of their meds and supplies. A far better use of their time would be to help those patients sign up for gym memberships, dietary advice, and cooking classes, which in some cases can reverse obesity-related Type 2 diabetes. (Medicare already pays for this clinically proven program for its enrollees.) If such programs were expanded to reach the nation’s 84 million pre-diabetics, it could dramatically shrink the pipeline of people on the road to full-blown diabetes.
Yes, the political roadblocks to creating a monopsonist drug purchasing authority and redrawing the nation’s medical innovation system are enormous. Industry opposition to both will be fierce, just as it has been to the half-measures that wouldn’t even solve the affordability crisis, such as getting rid of patent evergreening or giving Medicare a limited right to negotiate prices. But think of the political power of the phrase “free insulin.” Yes, we as a society will still be paying for drugs purchased by the purchasing pool. But imagine 7 million diabetes patients simply never, ever having to worry about paying for their insulin again. That’s very politically potent. And unlike Medicare-for-All, it doesn’t require remaking the entire health-care delivery system; just a part of it—the part that has left people in the richest nation on earth dying for lack of essential medicine.
For the past three decades, most Democrats and even a few Republicans—including Donald Trump—have consistently put the drug industry in their rhetorical crosshairs. Yet nothing has been done to limit the pricing power of the industry. New drugs are coming to market at astronomical prices. Once-cheap generics are skyrocketing in cost. Prices are being raised every year on drugs that are still on patent—long after their FDA approval and long after the research on them has ended. The political system’s abject failure over several decades to solve the drug price problem, which the public considers the most critical in health care, is a major contributor to the public cynicism that has brought our democracy to the brink of collapse.
A big win against the drug industry would prove that government can, in fact, work for people, not just special interests. It will also begin the process of achieving something that has frequently been claimed for our health-care system but has never been true—that it is the best on earth. Any nation that denies essential medicines to millions of its people in violation of their basic human rights cannot make that claim. But if we make insulin free to patients—and finally achieve what Dr. Banting reportedly wanted for patients when he and his colleagues turned over the insulin patent for only a dollar—we’ll be taking a giant step on the path to getting there.