Insulin Makers Sued Over “Astounding” Price Hikes

Pharmacy benefit managers come under fire

Sanofi, Novo Nordisk, and Eli Lilly have been hit with a class-action lawsuit charging them with conspiring to drive up insulin prices, according to an article in The New York Times.

The lawsuit, filed in federal court in Massachusetts, accuses the companies of exploiting the U.S. drug-pricing system in a way that benefits themselves as well as pharmacy benefit managers (PBMs). The suit alleges that the three companies intentionally raised the list prices on their insulin products to gain favorable treatment from PBMs, which work with health insurers and drug makers and help decide how a drug will be covered on formularies.

Insurers do not pay the list prices that the drug makers set. Instead, the PBMs negotiate a rebate that is returned to them. The benefit managers, in turn, keep a slice of that rebate for themselves, although the amount of the rebate, and the amount they keep, is not made public, according to the Times.

As a result, drug manufacturers customarily set two prices for their drugs—the higher list price and the lower, secret, “real” price that insurers pay. The lawsuit claims that rather than competing with one another to offer a lower, “real” price to insurers, Sanofi, Novo Nordisk, and Lilly are vying to offer the best payment to PBMs, which is why they have been raising the list price of their insulin products.

The lawsuit states: “Over the course of the last five years, each [company] has raised the publicly reported, benchmark prices of their respective drugs in an astounding and inexplicable manner. Drugs that used to cost $25 per prescription now cost between $300 and $450 dollars. And in the last five years alone, Sanofi, Novo Nordisk, and Eli Lilly have raised their benchmark prices by over 150%.”

Michael Carrier, an antitrust professor at Rutgers Law School, told the Times that the lawsuit is interesting because it turns attention to the inner workings of PBMs, which until now “have floated under the radar of sustained drug-pricing scrutiny.”

“Where two medicines are largely interchangeable, a PBM will sometimes exclude the more expensive of the two from its formulary,” the lawsuit states. “When a drug is excluded from [a] formulary, health insurers using that formulary will not reimburse their members for purchase of that drug. As a result, formularies enable PBMs to push patients toward certain brands of drugs over others, giving them enormous control over drug purchasing behavior.”

Sources: New York Times; January 31, 2017; and Class Action Complaint; January 30, 2017.