Here's why slashing insulin prices will actually save Big Pharma money

Heavyweight insulin-maker Novo Nordisk said Tuesday that it will lower list prices for some of its insulin products by up to 75 percent by the end of the year, following in the footsteps of Eli Lilly, which made a similar announcement at the start of the month. Experts expect the third top insulin maker in the US, Sanofi, to follow suit.

Further Reading

In its announcement Tuesday, Novo Nordisk said that it will 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.

Further Reading

But, while the price cuts may seem linked 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 American Rescue Plan of 2021. The law contained a number of provisions to improve health care access and affordability, including one that eliminates a cap on rebates that drug companies are required to pay Medicaid. If the cap was lifted with insulin list prices set as they are now, insulin makers might have had to pay Medicaid programs more than the price of their insulin products every time a Medicaid program had to cover one, likely totaling tens of millions of dollars in payments to Medicaid. But, with the lower list prices, Eli Lilly and Novo Nordisk will dodge those extra payments. The rebate cap is set to lift January 1, 2024--which is also when the companies' price cuts will fully kick in.

The rebate program cap is a little complicated, so here's 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 straightforward goal of the MDRP was to make sure that Medicaid paid the lowest or best possible price for prescription drugs. As such, drug makers who want their drugs covered by Medicaid have to enter into a rebate agreement, under which Medicaid agrees to cover and purchase their products as long as the drug makers pay them back a rebate to keep costs as low as possible. The cost of the rebate is based on a set of formulas that consider things like the type of drug--brand or generic--and market prices.