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The state of California is suing three major drug companies as well as three pharmacy managers, alleging that they all conspired to raise insulin prices in an abuse of market power.

Eli Lilly, Novo Nordisk and Sanofi are the three pharmaceutical companies named in the complaint. Together they account for more than 90% of the global insulin supply. The three additional defendants are CVS Caremark, Express Scripts and Optum Rx, which are pharmacy benefit managers (PBMs), companies that manage prescription benefits for insurers.

The A 47-page case, filed Thursday in Los Angeles Superior Court, alleges that the three drugmakers each separately conspired with PBMs to artificially inflate the prices of their respective insulin products while agreeing to provide those companies with “secret rebates” in an effort to gain preferred positions on formularies, the lists of drugs covered by insurance plans. Manufacturers engage in this behavior because inclusion on the standard national PBM formulary is a financial benefit, the lawsuit alleges. For PBMs, revenue is tied to the amount of secret rebates they negotiate with insulin manufacturers.

“Larger list prices support larger secret discounts because discounts are calculated as a percentage of list price,” the suit says. “Also, the PBM defendants have a perverse incentive for ever-increasing list prices. The PBM defendants argue that they can extract higher rebates because of their market power. If drug prices rise, the demand for their negotiation services increases.

The alleged actions are a violation of California’s Unfair Competition Law, according to the complaint. The state is seeking relief that includes a civil penalty of $2,500 against each defendant for each violation against a senior citizen or disabled person. More than 3 million Californians have diabetes, according to the California Office of the Attorney General.

The PBMs deny the allegations.

“Pharmaceutical companies set their own list price for their products,” CVS Health Executive Director of Corporate Communications Mike DeAngelis wrote in an email. “Nothing in our agreements prevents drug manufacturers from lowering the prices of their insulin products, and we would welcome such action.” Claims that we play any role in determining the prices charged by manufacturers are false. We plan to vigorously defend against this complaint.”

Drug manufacturers list the availability of insulin for $35 per month for Medicare beneficiaries. That price cap, which went into effect Jan. 1, was one of the provisions of the Inflation Reduction Act signed last year. In an emailed statement, Lilly said the lawsuit “ignores that everyone has the right to purchase their monthly Lilly insulin prescription for $35 or less, regardless of whether they are uninsured or using commercial insurance, Medicaid or a participating Medicare Part D plan And the average monthly price for Lilly insulin is $21.80, down 44% over the past five years.

Lilly pointed to the availability of Lispro, a cheaper generic counterpart to its brand-name insulin product Humalog. Since last year, Lilly has reduced the price of Lispro to 70% below Humalog.

The California complaint claims that generic insulin sold by major drugmakers is not a solution. For example, while Express Scripts’ standard formulary covered Lispro when it was a branded product, it did not cover the lower-priced version, the suit says. The complaint elaborates on this point by citing 2019 congressional testimony from Lilly CEO Mike Mason:

“However, our experience to date is that most PBMs continue to prefer branded Humalog, even when the net cost is comparable, because this option offers more total rebate dollars and many of their health plan and employer clients value the total rebate dollars.” that they receive when their members buy prescription drugs. As described below, these health plans and employers use the rebate dollars they receive to slightly lower premiums for all of their policyholders, rather than using them to reduce patients’ out-of-pocket costs for insulin at the pharmacy counter. As a result, most PBMs have indicated that they are considering several approaches for Insulin Lispro, such as removing Insulin Lispro from formularies entirely, offering [authorized generic] only on ‘niche’ formulas or placing the product in a formula but at a higher level of cost sharing.”

Market competition has yet to overcome the dominance of Lilly, Novo Nordisk and Sanofi, the suit says. Viatris subsidiary Biocon sells low-cost and high-cost versions of insulin. Although none of the PBM defendants included the lower-priced versions of Biocon when this product was launched in the US, the higher-priced version was included in Express Scripts’ standard formulary.

More competition won’t hit the market for a while. Last year, the non-profit organization Civica Rx announced plans to offer insulin for $30 a vial and $55 for a box of five pen cartridges. But the company must complete its manufacturing facility and secure FDA approval for its insulin products, meaning they may not hit the market until 2024.

The attorney general’s lawsuit makes California the latest state to sue companies over high insulin prices. Other states that have filed similar lawsuits include Kansas, Arkansas and Minnesota.

Photo: fstop123, Getty Images

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