January 14,2021

Grassley, Wyden Release Insulin Investigation, Uncovering Business Practices Between Drug Companies and PBMs That Keep Prices High

Bipartisan Investigation on Rising Insulin Costs Finds Skyrocketing Prices are a Result of Companies Putting Profits Over Consumers’ Interests. After Years-Long Investigation, Finance Committee Publishes Thousands of Pages of Company Documents with Report, Exposing, For the First Time, the Pricing Schemes Between These Industry Giants.

Washington – Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Ore.) today released the results of their bipartisan investigation into the skyrocketing price of insulin, which they launched nearly two years ago. 
The investigation sheds light on factors that led to the surging list price of insulin—a drug that’s been available for almost a century—which has doubled or in some cases tripled in just the past decade, and provides new insight into how the opaque business practices of pharmaceutical manufacturers and pharmacy benefit managers (PBMs) impact patients, Medicare Part D, and private health plans. The Committee is also releasing more than 1,700 pages of documents containing internal emails, contracts, and presentations that served as the basis of the investigation.  
“There is clearly something broken when a product like insulin that’s been on the market longer than most people have been alive skyrockets in price. Our investigation worked to get to the bottom of this. We found that the business practices of and the competitive relationships between manufacturers and middlemen have created a vicious  cycle of price increases that have sent costs for patients and taxpayers through the roof. This industry is anything but a free market when PBMs spur drug makers to hike list prices in order to secure prime formulary placement and greater rebates and fees,” Grassley said. “Tens of millions of Americans, from every generation and background, depend on insulin. This report pulls back the curtain on the drivers of spiking prices. It’s a perfect example of why we ought to continue pushing for bipartisan legislation and oversight to address this problem.” 
“This investigation makes clear that consumers are the only ones losing out in America’s broken drug pricing system, since every part of the pharmaceutical supply chain benefits from higher list prices. Insulin manufacturers lit the fuse on skyrocketing prices by matching each other’s price increases step for step rather than competing to lower them, while PBMs, acting as middlemen for insurers, fanned the flames to take a bigger cut of the secret rebates and hidden fees they negotiate. Consolidation within the PBM industry has not improved the situation,” Wyden said. “These findings make it clearer than ever why Congress must make fundamental reforms to the way drugs are priced and paid for.”
Full text of the committee’s investigative report and records can be found HERE.  
In the course of its investigation, the committee reviewed more than 100,000 pages of internal documents, memoranda and rebate agreements produced by the three largest insulin manufacturers (Sanofi, Novo Nordisk, and Eli Lilly) and the three largest PBMs (CVS Caremark, Express Scripts, and OptumRx) in the United States. Pharmaceutical manufacturers set the list price of their products and then use rebates to compete for positions on formularies—lists of drugs that are covered by health plans for their beneficiaries. PBMs are middlemen negotiating on behalf of health plans, and play a critical role in whether and how prescription medications are placed on a health plan’s formulary. In return for these services, PBMs are paid a portion of the rebate drug makers pay to health plans, and also charge fees based on a percentage of a drug’s list price. 
The investigation found that insulin manufacturers aggressively raised the list price of their insulin products absent significant advances in the efficacy of the drugs.  In particular, the investigation found that Novo Nordisk and Sanofi not only closely monitored the others’ price increases, they actually increased prices in lockstep—sometimes within hours or days of each other—a practice known as “shadow pricing.”  These efforts kept a high price floor for their products, and left consumers paying more for insulin at the pharmacy counter. Internal documents also showed that insulin manufacturers were sensitive not only to their own bottom lines, but the bottom lines of PBMs and of health plans that set formularies, without which a manufacturer’s product would likely lose significant market share. For example, both Eli Lilly and Novo Nordisk executives, when considering lower list prices, were sensitive to the fact that PBMs largely make their money on rebates and fees that are based on a percentage of a drug’s list price. Novo Nordisk’s board of directors even voted down a proposed insulin price decrease due to financial downsides, risk of backlash from PBMs and payers, and expected pressure to take similar action on other products. In other words, the drug makers were aware that higher list prices meant higher revenue for PBMs, and that lowering list prices could be viewed negatively by PBMs and health plans, even though it meant higher out-of-pocket costs for patients. 
There appeared to be little, if any, attempt by PBMs to discourage manufacturers from increasing the list price of their products. Instead, the investigation found that PBMs used their size and aggressive negotiating tactics, like the threat of excluding drugs from formularies, to extract more generous rebates, discounts and fees from insulin manufacturers. 
Other key findings of the investigation include:
  •       Spending on insulin products has increased significantly for the Medicare program and its beneficiaries.
  •       Insulin R&D spending was a fraction of manufacturers’ revenue and sales and marketing expenses.
  •       Rebates for insulins have increased exponentially since 2013 from single digits to 60% or more for the largest accounts.
  •       The three largest PBMs—CVS Caremark, Express Scripts, and OptumRx—command significant market power when negotiating rebates in comparison to smaller rivals.
  •       PBMs’ use of exclusion lists has put more pressure on companies to increase the size of rebates, but has done little to reduce the list price of insulin.
  •       PBMs have increased the size of their administrative fees to as much as 5% of a drug’s list price, creating a major source of revenue that benefits from list price increases.
  •       So-called “price protection” clauses that PBMs insert in contracts as means to cap the annual rise of list prices allow drug manufacturers to increase prices up to 12% per year.
Legislation authored by Grassley and Wyden, the Prescription Drug Pricing Reduction Act, would provide some relief for insulin users who are burdened by these ever-increasing costs. A number of the bill’s provisions were included in the appropriations bill signed into law at the end of 2020.  

This is the third bipartisan investigation of drug pricing and marketing practices that Grassley and Wyden have jointly released. In 2020, they released a bipartisan report detailing how opioid manufacturers use tax-exempt organizations as extensions of their sales and marketing strategy. In 2015, they released the findings of an 18-month long investigation into the pricing of Sovaldi and Harvoni, new “blockbuster” hepatitis C therapies whose price caused an international uproar.