Cheaper Insulin Is a Big Victory for Patients

(Bloomberg Opinion) -- The debate over drug pricing has featured complicated arguments over profit, innovation, and fairness. At the end of the day, it's all about patients being able to afford medicine – and Monday brought one of the biggest victories yet on that front.

Eli Lilly & Co. announced that it's launching an authorized generic version of its best-selling insulin Humalog and that the list price of the drug – the pre-discount sticker price of the medicine – will be 50 percent lower than the current prescription brand. A vial of the new cheaper product will cost $137.35.

Humalog has been one of the prime examples of how America's opaque drug pricing can hurt patients, and policymakers and the public at large appear to be fed up. While Lilly CEO David Ricks wasn't among the seven executives dragged in front of the Senate last week for a scolding on pricing policies, scrutiny has zeroed in on high insulin prices in particular, and his company is clearly feeling the heat. Lilly isn't the first drugmaker to cut list prices on a best-seller, but it is the first to do so for a product as widely used as Humalog, and the move could have ramifications for the entire market. For patients, it's good news.

Humalog has been on the U.S. market for more than 20 years; in that time, its price has nudged higher and higher, a side effect of an arcane pricing system that has driven up the cost of American health care.

In order to secure market share in crowded treatment areas, drugmakers offer discounts to pharmacy benefit managers – middlemen who negotiate drug prices for health plans. Bigger rebates make PBMs happier, so firms have an incentive to boost prices. The result is an inflated list price for medicines like Humalog that's far higher than what's actually paid in practice. The problem is, people who lack coverage, have high deductibles, or pay co-insurance don't benefit from those discounts. They're exposed to the list price and face bruising costs at the pharmacy counter. That's clearly unfair, which is why the Trump administration is trying to reform the rebate system in Medicare.

Gilead Sciences Inc. and Amgen Inc. announced lower-priced versions of hepatitis C and cholesterol medicines last year. But Lilly's Humalog discount is a more direct response to public outrage and is arguably more significant. Unlike those other drugs, millions of people use insulin on a daily basis and will do so for the rest of their lives. That means insulin costs have an outsize impact on patients and their families.

High prices at the pharmacy can lead people to skip doses or ration their insulin, which can lead to serious medical consequences. Bringing down list prices should mean that fewer patients have to make hard choices. Not only that, because Lilly is a market-leader, its move will have an even bigger long-term impact. If general scrutiny and a Congressional investigation into insulin pricing weren't enough, competing firms now have to worry about ceding more market share to Lilly if they don't also cut list prices. Drugmakers in other similar markets may feel pressure to follow along.

While the pricing move is a step forward, some critics will say it doesn't go far enough. Humalog is still cheaper in other countries even after the discount. And even if there is a wave of similar price cuts – and that's a big if – there are still expensive swaths of the market where there's little competition. Companies are increasingly focusing their research on areas where they have more pricing power, and launch prices are high and likely to get higher.

But cheaper insulin is an excellent start.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.