A federal judge dropped allegations that three drug makers engaged in antitrust practices by scheming to overcharge for insulin, but the companies will continue to face racketeering claims in a lawsuit brought by pharmaceutical wholesalers.
In the lawsuit, the insulin makers — Eli Lilly (LLY), Sanofi (SNY), and Novo Nordisk (NVO) — were accused of inflating prices by paying kickbacks in the form of rebates and various administrative fees to pharmacy benefit managers in exchange for favorable placement on formularies. These are lists of medicines for which coverage is provided by health insurers that hire PBMs to negotiate on their behalf.
In general, drug makers have argued they must raise prices to compensate for rebates, while pharmacy benefit managers maintain pharmaceutical companies raise prices to boost profits. But the wholesalers argued that the fees and rebates create incentives for pharmacy benefit managers to accept higher prices rather than negotiate lower prices on behalf of health insurers and employers.
However, U.S. District Court Judge Brian Martinotti rejected the antitrust claims that were brought under two different federal laws. In one instance, the wholesalers failed to convincingly allege the drug makers conspired with one another to fix prices. In the other, the wholesalers are not direct competitors with the insulin makers and, therefore, lacked the legal standing to file suit.
At the same time, the insulin makers and pharmacy benefit managers will have to face allegations of racketeering. In their lawsuit, the wholesalers contended these companies “engaged in a scheme . . . to corrupt the supply chain by artificially inflating list prices in exchange for preferred formulary placement, shifting the cost of bribes and kickbacks to direct purchasers of the insulin.”
In his opinion, Martinotti concluded that the wholesalers “plausibly alleged” that the drug makers and pharmacy benefit managers operated as if there was a racketeering enterprise according to federal law.
A Sanofi spokesperson wrote us that the drug maker is “pleased that the court has narrowed the claims at issue. The remaining claims are also without merit.” A Novo spokesman wrote that “we’re pleased that the court dismissed all of the antitrust claims, and we will continue to defend the company against the remaining claims.” A Lilly spokesman declined to comment.
An OptumRx spokesperson wrote the company “negotiates aggressively with manufacturers to reduce the prices consumers pay for insulin, and we have no role in setting prices that manufacturers charge. We believe these allegations are without merit and will defend ourselves.” We asked the other pharmacy benefit managers — Express Scripts (CI) and CVS Health (CVS) — for comment and will pass along any reply.
We asked an attorney for the wholesalers — Professional Drug Company and FWK Holdings, which holds claims for a bankrupt wholesaler called Frank W. Kerr — for comment and will update you accordingly.
The ruling comes amid long-running controversy over the cost of the life-saving diabetes treatments and accusations that insulin makers have conspired to set unaffordable prices, an issue that has fed into simmering debate about prescription drug prices in Washington and state capitols.
More than 29 million people in the U.S. — or 9.3% of the population — live with some form of diabetes, and about 7.4 million use insulin. However, a 2019 study found that among adults who were prescribed a diabetes medication in a recent 12-month period, 13.2% skipped doses, took fewer doses, or delayed filling a prescription in order to save money. And 24.4% asked their doctor for a lower-cost alternative.
A growing list of studies have cited rising patient costs for the controversy. An analysis conducted two years ago by the Health Care Cost Institute found that spending per person for people ages 18 to 64 with employer-sponsored health insurance doubled between 2012 and 2016, increasing from $1,432 to $2,853, even after accounting for a 50% rebate.
More recently, a report found that insulin prices in the U.S. were often five to 10 times higher in 2018 than in all the other countries in the Organization for Economic Cooperation and Development. That year, the average U.S. price per standard unit across all types of insulin was $98.70, compared with $8.81 across all other OECD countries combined, according to the report.
In response, the Centers for Medicare and Medicaid Services began a voluntary program in which some drug makers and Medicare Part D plans lower out-of-pocket insulin costs for beneficiaries to $35 a month. And insulin makers have maintained they are taking other steps to mitigate the financial toll on some patients.
Sanofi began a program to lower the cost of insulin to $99 a month for uninsured patients and others who pay cash. And Novo Nordisk and Eli Lilly began selling authorized generics — or official, lower-cost versions — at half the list price. Lilly also lowered the cost for most of its insulin products to $35 a month for anyone with commercial insurance or lack health coverage altogether.
The lawsuit was not the first time that antitrust allegations have swirled around the insulin makers. Several Congressional lawmakers asked the Federal Trade Commission to investigate the three big insulin makers for “exploiting” their market power and repeatedly raising prices. And two years ago, insulin makers were issued subpoenas by the New York attorney general in connection with an inquiry into their pricing practices.