Major insulin maker Novo Nordisk said on Tuesday it would slash list prices for some of its insulin products by as much as 75 percent by the end of the year, following in the footsteps of Eli Lilly, who made a similar announcement earlier this month. Experts expect the third largest insulin maker in the US, Sanofi, to follow suit.
The price cuts come after years of escalating public backlash over companies’ steep hikes in the price of insulin, which many proponents have called price gouging. A 2018 analysis found that list prices for insulin in the US were five to 10 times higher than in other high-income countries, with standardized units of insulin averaging nearly $100. The cost of manufacturing the products, even the newer insulins, is generally under $10.
In its Tuesday announcement, Novo Nordisk said it would reduce the prices of several products, including Levemir, Novolin, NovoLog and NovoLog Mix 70/30. With the 75 percent cut, a 10ml 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 outrage over the prices, lawmakers have also been working on ways to bring prices down. The companies’ voluntary price cuts align closely with a state price cap that went into effect this year via the Inflation Reduction Act of 2022. The law limits out-of-pocket insulin costs to $35 per month for Medicare Part D beneficiaries. When Eli Lilly lowered its prices earlier this month, it also announced programs that will lower the monthly insulin costs to $35 for commercial and uninsured people limit. Novo Nordisk didn’t offer such a cap in its announcement today, although it did note a smorgasbord of deals and programs.
But while the price cuts appear to be linked to last year’s anti-inflation bill, health experts and lawmakers are noting that a slightly older piece of legislation could be the real catalyst for the dramatic cuts – America’s 2021 bailout Improving access and affordability of health care, including one that removes a cap on rebates drug companies must pay to Medicaid. If the cap was lifted and insulin list prices were set as they are now, insulin manufacturers might have had to pay Medicaid programs more than the price of their insulin products each time a Medicaid program has had to cover one, likely involving tens of millions of dollars in payments to Medicaid. But with the lower list prices, Eli Lilly and Novo Nordisk will bypass those additional payments. The upper discount limit is to be lifted on January 1, 2024 – then the price reductions by companies will also take full effect.
The rebate program cap is a bit complicated, so here is a breakdown of how it works. It all stems from the Medicaid Drug Rebate Program (MDRP) passed by Congress under the Omnibus Budget Reconciliation Act of 1990. The MDRP’s clear goal was to ensure that Medicaid paid the lowest or best possible price for prescription drugs. Therefore, drugmakers who want Medicaid coverage for their drugs must enter into a rebate agreement, under which Medicaid agrees to cover and purchase their products as long as the drugmakers pay them a rebate back to keep costs as low as possible hold. The cost of the rebate is based on a series of formulas that take into account things like the type of drug – brand or generic – and market prices.
For a branded drug, the base rebate that a drugmaker pays Medicaid is 23.1 percent of the average manufacturer price or the difference between the average price and the best (lowest) price, whichever is the price higher. In an example provided by the Federal Medicaid and CHIP Payment and Access Commission (MACPAC), the drug manufacturer pays the standard percentage of $23.10 when a branded drug has an average manufacturer price of $100 and the best market price is $88 is , for the basic discount. However, if the average price is $100 and the best price is $70, the base discount is $30.
However, there is another key element to discount calculation: inflation. If a drugmaker increases its prices faster than inflation, the drugmaker must also pay back the difference between the current average price and the price of the drug if the price increases had simply matched inflation. This is calculated based on a “baseline” manufacturer average price – whatever the drug’s average price was just before the rebate program began, or, for new drugs, the drug’s initial average manufacturer price. This base price is used by Medicaid programs to calculate what would be a current price based on general inflation, i.e. the Consumer Price Index for All Urban Consumers (CPI-U). Then, Medicaid subtracts the baseline trend price from the current average price, and drugmakers pay the difference on top of the base rebate — but only up to a point.
According to current law, the discount has been limited to the current average price. That is, drug manufacturers would not have to pay a rebate that would exceed 100 percent of their drug’s average manufacturer price. But with drug prices soaring well above inflation, that meant there was plenty of money on the table. For example, a nationwide analysis of drug discounts in 2012 found that 54 percent of branded drug discounts came from the inflation component. And in 2019, the rebate cap allowed drugmakers to avoid paying a whopping $3 billion in rebates, according to an estimate by the Congressional Budget Office.
Based on current insulin prices, Eli Lilly and Novo Nordisk would easily pay Medicaid rebates that exceed the average manufacturer price of their drugs, thanks to the companies’ steep price hikes that have blasted inflation rates over the years. For example, Sean Dickson, a drug pricing expert at the nonprofit West Health Policy Center, told Politico that Medicaid ended up generating an estimated $150 in revenue for each vial of Humalog it covered, which translates to about $140 million. dollars in annual Medicaid payments from EliLilly.
With list prices now falling, Medicaid could end up paying more for insulin products than before, though it’s unclear by how much.