The Era of Rebate Rip-offs Is Over (Maybe)
Eli Lilly & Co. is cutting the list prices for Humalog and Humulin, its two biggest-selling insulin products by 70%. The price cuts will take effect in the fourth quarter. Lilly also announced that, on May 1, it will lower the list price of an unbranded insulin from $82 a vial to $25.
Talk about Hoosier Hospitality.
Lilly's bold action will have additional consequences of even greater significance – specifically, it’s the first real step towards breaking the chokehold of Pharmacy Benefit Manager (PBMs). Even in the complicated ecosystem of drug pricing, one fact stands out: $166 billion in discounts annually from pharmaceutical companies go directly into the coffers of pharmacy benefit managers. That’s 37% of our nation’s entire expense on drugs. Lilly’s actions will help to redirect those discounts to where they belong – in the pockets of patients.
For years Eli Lilly raised the list price of Humalog and Humulin to help pay for PBM (ahem) “incentives” to keep their product on preferred drug formularies. Higher list prices lead to more rebates that line the bottom lines of PBMs instead of being passed along directly to patients. These “kickbacks-by-any other-name” resulted in artificially high prices and millions of dollars paid out of pocket as a percentage of the ever-increasing list price even though Lilly was making less on every vial it sold through the PBM middlemen.
This isn’t Lilly’s first attempt to offer lower cost insulin. In 2019, (before either COVID-19 or the Inflation Reduction Act) Lilly launched a generic version of Humalog, Called Lispro, the generic version is identical to rapid-acting Humalog, mirroring both its structure and function and was priced at half the price.
Why not just lower the price of Humalog? Because of the voracious appetite of PBMs for their rebates and the hammer of formulary incentives and, not surprisingly, fewer than 50% of health plans opted to cover Lispro while 80% covered Humalog. Why? Because Lispro doesn't generate as much rebate revenue.
Which explains the new Lilly announcement. Good will? Certainly. Bottom line math? Definitely. The company likely added up what it was spending on kickbacks (aka, “PBM rebates”) and realized that it could simply cut the list price of Humalog, forgo all the PBM overhead and dare the middleman to deny Americans fairly priced insulin. Ultimately, doing the right thing is all about cutting out the middleman.
As President Biden said, this is great for consumers. But in taking this step, Lilly has essentially wiped-out the status quo of rebate strangle-holds that PBMs use to pad their bottom lines.
We believe other companies should follow Lilly's lead and zero-out rebates with the result being a radical reduction in patients’ out-of-pocket costs. Let drug companies compete on how a product performs for each patient without payoffs to PBMs. End forever the knuckling under to PBM formulary bullying.
To be sure, following Lilly's lead will threaten health plan profits and the donations to the politicians who support their legal theft. (No wonder the PBM trade association has just announced a multi-million dollar “education campaign” on the value of their services.) However, the winds of change are blowing strong and, to paraphrase Winston Churchill, the era of half-measures, of soothing and baffling expedients that protected rebate rip-offs, is over, and we are entering a period of consequences.
It’s about time.
Peter J. Pitts, a former FDA Associate Commissioner, is President of the Center for Medicine in the Public Interest. Dr. Robert Goldberg is Vice President of Research Programs and Co-Founder of the Center for Medicine in the Public Interest.
