Insulin giant Novo Nordisk said Tuesday it will cut list prices on some of its insulin products by up to 75 percent by the end of the year, following in the footsteps of Eli Lilly, which made a similar announcement earlier this month. . Experts expect the third largest US insulin maker, Sanofi, to follow suit.
The price cuts come after years of escalating public backlash against the company’s sharp price hikes on insulin, which many advocates described as price gouging. A 2018 analysis found that list prices for insulin were set five to ten times higher in the US than in other high-income countries, with the average standardized unit of insulin costing nearly $100. The cost of producing products, even new insulins, usually does not exceed $10.
In a statement on TuesdayNovo Nordisk said it will cut prices on several products, including Levemir, Novolin, NovoLog and NovoLog Mix 70/30. At a 75% contraction, the 10 ml vial of Novolog falls out of the $289.36 to $72.34. NovoLog Mix 70/30 FlexPen will drop in price from $558.83 to $139.71.
Amid public outrage over prices, lawmakers are also working on ways to lower them. Voluntary price cuts by companies are closely linked to the federal price cap that went into effect this year under the Inflation Reduction Act of 2022. The law limits out-of-pocket insulin costs to $35 a month for Medicare Part D recipients. When Eli Lilly lowered its prices earlier this month, it also announced programs that cap the monthly cost of insulin to $35 for people with commercial insurance, and also for the uninsured. Novo Nordisk did not propose such a limit in its statement today, although it noted a hodgepodge of deals and programs.
But while the price cuts may appear to be related to last year’s Inflation Reduction Act, health policy experts and lawmakers note that the slightly older legislation, the 2021 American Bailout Plan, may be the real impetus for the drastic cuts. The law contained a number of provisions aimed at improving access to health care and affordability, including removing the cap on discounts that drug companies are required to pay to Medicaid. If the cap were lifted and list prices for insulin were set as they are now, insulin manufacturers might have to pay Medicaid. more than the price of their insulin products each time Medicaid had to cover one, which likely amounted to tens of millions of dollars of Medicaid payments. But with lower list prices, Eli Lilly and Novo Nordisk will be able to avoid these extra charges. The discount restriction should be lifted on January 1, 2024, when price reductions by companies will fully take effect.
The rebate program limitation is a little tricky, so here’s a description of how it works. All of this stems from the Medicaid Drug Rebate Program (MDRP), enacted by Congress under the Consolidated Budget Act of 1990. The immediate purpose of the MDRP was to make sure Medicaid paid the lowest or best possible price for prescription drugs. Thus, drug makers who want their drugs covered by Medicaid must enter into a rebate agreement whereby Medicaid agrees to cover and buy their products as long as the drug makers give them back the rebate to keep costs as low as possible. The cost of the rebate is based on a set of formulas that take into account things like the type of drug—brand or generic—and market prices.
Cold calculations
For a brand-name drug, the base discount that the drug manufacturer will pay to Medicaid is 23.1 percent of the manufacturer’s average price. or the difference between the average price and the best (lowest) price ever higher. IN example outlined Federal Commission for Payment and Access to Medicaid and CHIP (MACPAC)If the brand-name drug manufacturer’s average price is $100 and the best market price is $88, the drug manufacturer will pay a standard percentage of $23.10 for the base rebate. But if the average price is $100 and the best price is $70, the base discount is $30.
However, there is another key element in the discount calculation: inflation. If the drug manufacturer raises prices faster than inflation, then the drug manufacturer must also pay the difference between the current average price and the price of the drug, if the price increase were simply in line with inflation. This is calculated from the manufacturer’s “base” average price, which is the drug’s average price just before the start of the rebate program or, for new drugs, the drug’s initial manufacturer’s average price. Using this base price, Medicaid programs calculate the current price based on general inflation, which is the consumer price index for all urban consumers (CPI-U). Medicaid then subtracts the base price from the current average price, and the drug manufacturers pay the difference on top of the base discount, but only up to a certain point.
Under current law, the discount was limited to the current average price. That is, drug manufacturers would not be required to pay a discount in excess of 100 percent of the average manufacturer’s price for their drugs. But with drug prices skyrocketing far beyond inflation, that meant a lot of money was at stake. A federal analysis of drug rebates in 2012, for example, found that 54 percent of brand drug rebates had an inflation component. And in 2019, capping discounts allowed drug manufacturers to avoid paying. a whopping $3 billion in rebatesaccording to the Congressional Budget Office.
Based on current insulin prices, Eli Lilly and Novo Nordisk will easily end up paying out Medicaid rebates that are above the average manufacturer price of their drugs, thanks to the company’s price surge that has outpaced inflation over the years. For example, Sean Dixon, drug price expert at the nonprofit Center for Western Health Policy, Politico said that Medicaid would eventually generate roughly $150 in revenue for each vial of Humalog she covered, which equates to about $140 million in annual Medicaid payments from Eli Lilly.
Now that list prices have dropped, Medicaid may end up paying more than before for insulin products, though it’s not clear by how much.