by Insulin heavyweight Novo Nordisk said Tuesday it will cut list prices for some of its insulin products by up to 75% 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 companies’ steep insulin price hikes, which many advocates have described as price gouging. An analysis from 2018 found that insulin list prices were set five to ten times higher in the US than in other high-income countries, with average standardized units of insulin costing nearly $100. The cost of manufacturing the products, even the newer insulins, is generally under $10.
In its announcement on Tuesday, Novo Nordisk said it would cut the prices of several products, including Levemir, Novolin, NovoLog and NovoLog Mix 70/30. With the 75 percent cut, a 10 ml vial of NovoLog will drop from $289.36 to $72.34. A NovoLog Mix 70/30 FlexPen will drop from $558.83 to $139.71.
Amid public furor over prices, lawmakers are also working on ways to push prices down. The companies’ voluntary price reductions closely follow a federal price cap that went into effect this year through the Inflation Reduction Act of 2022. The law caps out-of-pocket insulin costs at $35 per month for Medicare Part D beneficiaries .When Eli Lilly cut its prices earlier this month, it also announced plans that cap monthly insulin costs at $35 for people with commercial insurance as well as the uninsured. Novo Nordisk offered no such cap in its announcement today, though it noted a slew of deals and programs.
But while the price cuts may seem tied to last year’s Inflation Reduction Act, health policy experts and lawmakers note that a slightly older law may be the real impetus behind the dramatic cuts—the US bailout plan of 2021. The law contained a number of provisions to improve access and affordability of health care, including one that eliminates the cap on rebates drug companies are required to pay to Medicaid. If the cap is lifted with insulin list prices set as they are now, insulin manufacturers would have to pay Medicaid programs more from the price of their insulin products every time a Medicaid plan had to cover one, likely totaling tens of millions of dollars in Medicaid payments. But with lower list prices, Eli Lilly and Novo Nordisk will avoid these extra payments. The rebate cap is set to lift on January 1, 2024—which is also when the companies’ price cuts will kick in in full.
The rebate program cap is a bit complicated, so here’s a breakdown of how it works. It all comes from the Medicaid Drug Discount Program (MDRP), which was authorized by Congress under the Budget Reconciliation Act of 1990. The simple goal of the MDRP was to ensure that Medicaid paid the lowest or best possible price for prescription drugs . Therefore, drug manufacturers who want their drugs covered by Medicaid must enter into a rebate agreement, under which Medicaid agrees to cover and buy their products as long as the drug manufacturers give them back a rebate to maintain the cost 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 rebate a drug manufacturer will pay Medicaid is 23.1 percent of the manufacturer’s average price the the difference between the average price and the best (lowest) price, whichever it is higher. In an example presented by the federal Medicaid and CHIP Payment and Access Commission (MACPAC), if a brand-name drug has an average manufacturer price of $100 and the best buy price is $88, the drug manufacturer will pay the standard rate, equal to 23 ,$10 , for the base discount. But, if the average price is $100 and the best price is $70, the base discount would be $30.
However, there is one more key factor in calculating the discount: inflation. If a drug maker raises its prices faster than inflation, then the drug maker must also pay back the difference between the current average price and the price the drug would have been if the price increases had simply matched inflation. This is calculated based on a “baseline” average manufacturer price—which is whatever the drug’s average price was just before the discount program started or, for new drugs, the drug’s original average manufacturer price. With this base price, Medicaid programs calculate what the current price would be based on general inflation, the Consumer Price Index for All Urban Consumers (CPI-U). Medicaid then subtracts the base trend price from the current average price, and drug manufacturers pay the difference above the base discount — but only up to a point.
In accordance with current law, the discount was limited to the current average price. That is, drug manufacturers would not be required to pay a rebate that exceeds 100 percent of the average manufacturer price of their drug. But with drug prices skyrocketing well past inflation, that meant a lot of money was left on the table. A federal analysis of drug rebates in 2012, for example, found that 54 percent of brand-name drug rebates came from the inflationary component. And in 2019, the rebate cap allowed drugmakers to avoid paying $3 billion in rebates, according to an estimate by the Congressional Budget Office.
Based on current prices for insulin, Eli Lilly and Novo Nordisk would easily end up with Medicaid rebates that exceed the average manufacturer price for their drugs, thanks to the companies’ steep price increases that hit past inflation rates over the years . For example, Sean Dickson, a drug pricing expert at the nonprofit West Health Policy Center, told Politico that Medicaid would have ended up earning about $150 for each vial of Humalog it covered, amounting to about $140 million in annual Medicaid payments from Eli Lilly;
Since list prices are now down, Medicaid may end up paying more than before for insulin products, although it’s unclear how much.
