Attorney General Lori Swanson Files Lawsuit Against Pharmaceutical Companies Over Deceptive Price Spikes For Insulin

Price Hikes More Than Doubled the Cost Of Diabetes Medication

Minnesota Attorney General Lori Swanson today filed a lawsuit against the nation’s three major manufacturers of insulin used to treat diabetes after prices more than doubled in recent years. The lawsuit alleges that the drug companies—Sanofi-Aventis U.S. LLC, Novo Nordisk, Inc., and Eli Lilly and Co.—deceptively raised the list prices of insulin, making it less affordable to patients in high deductible health plans, the uninsured, and senior citizens on Medicare.

“Insulin is a life-or-death drug for people with diabetes. Many people can’t afford the price hikes but can’t afford to stop taking the medication either,” said Attorney General Swanson.

The list price of some insulin products has more than doubled since 2011 and tripled since 2002. For example, the cost of Levemir increased from $120.64 for 100 units/ml vial in 2012 to $293.75 in 2018; HumaLog increased from $122.60 for 100 units/ml vial in 2011 to $274.70 in 2017; and Lantus increased from $99.35 in 2010 when it first entered the market to $269.54 in 2018.

The lawsuit alleges that the drug companies fraudulently set an artificially high “list” price for their insulin products but then negotiated a lower actual price by paying rebates to pharmacy benefit managers (PBMs). A PBM is a company retained by a health plan to negotiate prices with drug companies and develop “formularies” of approved drugs that policyholders may take. Drug companies want their drugs to be on the formulary because if a drug is not on the formulary, it is not covered by the health plan or costs more. Pharmaceutical companies obtain favorable placement of their products on PBM formularies by artificially raising their list prices and then offering rebates to the PBM in exchange for favorable formulary placements.

PBMs normally get paid in part based on the “spread” between the list price of a drug and the net price paid by the health plan after the rebates (i.e. the greater the “spread,” the higher the compensation.) Because drug companies want their drugs to be on the formulary, they raise list prices so they can offer higher “rebates” or “spreads” to PBMs than their competitors. This causes the “list price” of the drugs to spiral upward. Health insurers receive a portion of the rebates from the PBM and do not pay the list price. Patients who are in high deductible health plans, who are uninsured, or who are on Medicare, however, may end up paying the artificial list price because they do not get the rebates.

Thus, the drug companies establish two prices for their insulin products: a higher artificial list price and the much lower, secret net price that insurance companies pay, which is confidential. PBMs and manufacturers do not disclose the rebates paid for favorable formulary placement, claiming this information is a “trade secret.” In most industries, competitors normally compete with one another to offer lower prices but here, the drug companies compete with each other by raising their prices so they can give larger rebates to the PBMs who are responsible for the placement of their products.

The “spread” between the list and net prices paid by PBMs has increased dramatically in recent years. For example, Lantus’s spread increased seven-fold between 2009 and 2015; HumaLog’s spread nearly tripled between 2009 and 2015; and Levemir’s spread nearly doubled between 2011 and 2014.

The lawsuit alleges that the list prices the drug companies set are so far from their net prices that they are not an accurate approximation of the true cost of insulin and are deceptive and misleading.

Underinsured and uninsured patients who purchase insulin at a pharmacy are unaware of the product’s net price and do not benefit from the rebates or discounts negotiated by PBMs, but instead make payments based on the deceptive list price published by the manufacturers. There are currently nearly 350,000 Minnesotans without health coverage.

The products included in the lawsuit include Sanofi’s Lantus, Novo Nordisk’s NovoLog, and Eli Lilly’s HumaLog, among others.

The insulin products in the lawsuit generate significant revenue for the drug companies. For example, in 2016, the drug companies made more than $14 billion in sales of the five most common insulin products named in the lawsuit. Sanofi’s Lantus product alone generated sales of $6 billion in 2016.

Nearly 10 percent of Minnesota residents have diabetes, which is the seventh leading cause of death in the United States. Diabetics who don’t take their insulin may face kidney damage, heart attacks, nerve damage, and ketoacidosis. The original patent for insulin was sold for $1 in 1922 because the inventors wanted the drug to be widely available. Some patients now skip or ration their insulin because of the high costs, which can lead to more expensive health complications or even death.

The lawsuit was filed today in the United States District Court for the District of New Jersey and seeks injunctive and monetary relief for Minnesota residents who paid out-of-pocket for their insulin.