Competition is not helping keep insulin prices low

March 30, 2021
Counter to standard economics, competition seems to drive the price of insulin higher. (AP Photo/Mark Zaleski)

Counter to standard economics, competition seems to drive the price of insulin higher. (AP Photo/Mark Zaleski)

Drug companies raised the price of insulin about 10% each time a new type of insulin cleared the third and the final stages toward Food and Drug Administration approval, according to new research that sheds light on a health system that benefits companies more than patients.

In a study published March 8 in Health Economics, researchers found that from 2007 through 2015, pharmaceutical companies raised the price of existing insulin drugs about $2.35 per milliliter in the quarter after a potential competitor cleared stage-three FDA trials. Companies then raised the price per milliliter $2.28 in the quarter after a potential competitor cleared stage-four trials. There was no significant effect when drugs cleared first- and second-stage trials — likely because they were still far from approval, the authors suggested.

New insulins — "biosimilars" — are not equivalent to generic versions of already existing drugs. Rather, they're insulin drugs that do the same thing existing insulins do, in a biologically different way. The process is often pointless for patients, and it's driving up the price of life-sustaining drugs, lead author Alice Ellyson told The Academic Times.

"The vast majority of people in the U.S. health care system are on insurance, so a huge segment of the market is shielded from this price increase," said Ellyson, an acting assistant professor in the University of Washington's department of pediatrics. "But there are patients who bear the full burden of these prices. ... You think about people who are working class, who don't qualify for Medicaid, but they don't have a good enough, stable job to have insurance. And that's really where there can be huge detrimental impacts."

Moreover, insured patients are affected by these market forces through higher premiums, but because insurance companies diffuse the costs, they're effectively masked from the consumers who pay them.

"Insurance companies are just like drug manufacturers: Their goal is to make money," Ellyson said. "The way that they measure that profit-maximization problem is over a very long time horizon. ... Insulin as a drug is exceptionally cost-effective. We know that it does a great job of preventing [expensive] complications, and so for an insurer, they look at insulin as a drug and say, 'Well, it's very cost-effective. We know that we'll pay less in the long run. The drug manufacturer is increasing prices, and we can just pass those price increases on to patients.'"

Ellyson was surprised that, even adjusted for inflation, list prices for insulin increased dramatically, from $14.67 to $61.22 — on average, a 317.3% increase — over the nine years she examined. 

In 28 million observations of insurance claims on existing insulins between 2007 and 2015, Ellyson found that the mean price per milliliter was $30.46, and the highest price paid entirely by a patient was $784.93 for a milliliter. The average patient takes about 12.5 milliliters a month.

Citing the work of her co-author, University of Washington health economics professor Anirban Basu, Ellyson suggested that policymakers should consider tying drug prices to the value they have for the patient, and that prices should not be priced per milliliter. 

Currently, high prices affect everyone through distributed higher costs, but they are especially burdensome to uninsured working people and to people who suddenly lose insurance after an event such as a job loss, Ellyson said. 

"The problem is that, in our system, that can happen to anyone," she said. "And so we don't have coverage for these gaps."

The study, "Do pharmaceutical prices rise anticipating branded competition?" published March 8 in Health Economics, was authored by Alice M. Ellyson, University of Washington and Seattle Children's Research Institute; and Anirban Basu, University of Washington.

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