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High Costs of Insulin and Other Drugs Traced to Government Regulations, PBMs

November 15, 2018

The cost of insulin rose dramatically during this century, but the increases have slowed during the Trump presidency, a new report analyzing drug prices states.

Since 2014, the average price of insulin has increased by 64 percent, according to a report from GoodRx. The price tripled from 2002 to 2013, but the increases have slowed during the presidency of Donald Trump. The Trump administration has made lowering drug prices a significant part of its health care agenda.

The drug-price spikes have caused some diabetics who rely on insulin to self-ration their supplies, creating a danger to their health and possibly causing premature deaths, an article in Kaiser Health News reported.

Cheaper Alternatives Available

Dr. Richard Dolinar, M.D., an endocrinologist and senior fellow at The Heartland Institute, which publishes Health Care News, says the Kaiser article, which priced insulin at $1,300 per month without insurance, was inaccurate, as it is possible to purchase insulin at much lower prices.

“It was inappropriate in this article to claim that the price of insulin was so high that this guy died,” Dolinar said, referring to a claim in the article. “You can get insulin at Walmart for $25 per vial. In reality, he could have gotten Relion brand insulin, carried exclusively by Walmart, which is identical to human insulin and is much cheaper.”

Effect of Government Programs

Dolinar says government regulation has had a hand in raising the price of insulin.

“A few things have happened over the years that have pushed the price of insulin up and have pushed the price of other drugs up,” Dolinar said. “One of them involves the government. The American medical system is a socialized system, and as we know, socialism doesn’t work. What’s happening is you have government intervention in the medical marketplace. So, let’s say, for example, a drug company can sell a vial of medicine for $75, which would be sufficient for profits and expenses. But when they come to market, they don’t price it at $75, because they know they’ll have to give a 25 percent discount to Medicaid or the [Veterans Administration]. So when the drug goes to market, they price it at $100. That way, when they give their 25 percent discount, they still get their $75.

“If you’re in Medicaid or the [Veterans Administration], you’re happy, but if you’re not in any health plan and you have to pay cash, you end up paying the full, inflated price of $100,” Dolinar said. “And they have to sell it to cash buyers for $100, because if they sell it for less, there are rules and laws that kick in that state you can’t sell your products to another entity for less than you’re selling it to the government.”

PBMs Not Helping

Dr. Madelaine Feldman, a practicing rheumatologist and clinical associate professor of medicine at the Tulane University School of Medicine, says pharmaceutical benefits managers (PBMs) have contributed to rising drug prices. PBMs receive rebates from manufacturers to provide a discount off the list price of drugs, but they typically keep it for themselves, Feldman says.

“This does not lower the costs for patients in terms of their portion of cost-sharing for drugs,” Feldman said. “PBMs are now saying they’ll pass some of the rebates back to the patients, but in turn they are taking smaller rebates while at the same time charging much more for administrative fees.”

Feldman says cost-effective health care reform would restore the doctor-patient relationship, leaving the doctor to decide what is best for the patient, regardless of what is included on a formulary.

“Health care reform should increase affordability and availability to the right medicines, but underlying that access needs to be the doctor-patient relationship,” Feldman said. “The doctor-patient relationship is often being infringed upon by the formularies PBMs set up based on a perverse system.”

Government-Created Monopolies

Dr. Gilbert Berdine, an associate professor at the Texas Tech University Health Sciences Center and a faculty affiliate with the Free Market Institute, says governments’ overly expansive grants of patent protection inflate prices for insulin and other drugs.

“In a competitive market, entrepreneurs make decisions about entering the market, leaving the market, or staying in the market,” Berdine said. “These decisions are based on anticipated profits. Entrepreneurs are never guaranteed that their decisions will be correct, but they assume risks and realize profits on the basis of those risks. Entrepreneurs entering the market can either copy something and offer it at a lower price, or they can improve the quality of something and offer it at a premium. Copying has always been a feature of competitive markets and is the market defense against price gouging.”

In principle, patents establish temporary monopolies that keep prices artificially high, Berdine says.

“In a monopoly market, there are no entrepreneurial decisions,” Berdine said. “Government establishes a price high enough to guarantee a profit. The excess profit above what could be realized in a competitive market is a rent extracted from the public using the force of government to make copying illegal.”

INTERNET INFO:

Benita Lee, “Insulin Prices Continue to Rise,” GoodRX.com, September 21, 2018: https://www.goodrx.com/blog/compare-insulin-brands-prices-cost-diabetes.

Bram Sable-Smith, “Insulin’s Steep Price Leads to Deadly Rationing,” Kaiser Health News, September 7, 2018: https://khn.org/news/insulins- high-cost-leads-to-deadly-rationing.

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Health Care
Author
Leo Pusateri writes from St. Cloud, Minnesota.
psycmeistr@fastmail.fm

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