A wave of lawsuits has been filed by state and local governments against drug companies and pharmacy benefit managers (PBMs), accusing them of inflating insulin prices. While these entities claim they are fighting for patients, a closer look reveals a more intricate story. For years, these same governments have actively demanded a share of the rebates PBMs secure when negotiating drug coverage, profiting from a system they now condemn.
PBMs have become powerful intermediaries in the prescription drug market, dictating which medications are covered and at what cost. These lawsuits primarily argue that insulin prices are unreasonably high and blame drug companies and PBMs. However, this argument doesn’t hold up under scrutiny, as insulin prices have been steadily declining. For instance, Eli Lilly and Co. reported that the net price for its Humalog insulin dropped from $62 per vial in 2018 to $26 in 2023, with its biosimilar Lispro costing just $17 per vial in 2023. Sanofi and Novo Nordisk also slashed the prices of their insulin products in 2023.
A more credible accusation in these lawsuits is that PBMs drive up patient costs by demanding rebates and fees from pharmaceutical companies. These payments are tied to a drug’s list price, incentivizing PBMs to favor higher-priced medications, where more significant rebates can be negotiated. Unfortunately, these savings don’t reach patients; instead, PBMs and the health plans that hire them pocket the rebates.
The irony lies in the fact that several of the states and local governments now suing PBMs previously insisted that their PBMs pass along rebates for drugs taken by their beneficiaries. However, these health plans chose not to share those savings, highlighting their complicity in the problem. Between 2017 and 2019, PBM profits grew by 12%, reaching $28 billion. Today, rebates and fees account for 42% of every dollar spent on brand-name drugs, totaling $72 billion in 2022.
Ultimately, patients remain sidelined in this scheme, as their cost-sharing is based on the list price, not the discounted rate. Consequently, PBMs and the health plans they work with profit twice: from substantial rebates collected from drug makers and artificially inflated copays imposed on patients. This complex web of interests raises serious questions about the true motives behind these lawsuits and the effectiveness of their approach to tackling high drug prices.
