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A growing number of U.S. states, cities, and counties are suing insulin makers and PBMs

November 28, 2023
By Ed Silverman and John Wilkerson

In response to strained budgets, a growing number of state and local governments across the U.S. are suing insulin makers and pharmacy benefit managers over claims the companies conspired to illegally drive up prices.

In recent weeks, state officials in Utah and Arizona, and municipalities in New York, VirginiaMaryland, and Ohio have filed lawsuits alleging that the companies artificially drove up the cost of insulin, making the medication unaffordable for countless residents who have diabetes and causing the governments to overpay for the medication.

Such claims are hardly new. Over the past few years, various lawsuits, some of which were also filed by consumers, alleged that Eli Lilly, Sanofi, and Novo Nordisk conspired with the nation’s largest pharmacy benefit managers — Express Scripts, OptumRx, and CVS Caremark — to profit from a complicated scheme involving lockstep pricing, favorable insurance coverage, and secret rebate fees.

Initially, only one county in Texas and a few states pursued these accusations in court, but the pace has picked up considerably this fall. And still more state and local governments are expected to file lawsuits as authorities seek to recover what they argue were years of inflated prices for widely used medicines, according to attorneys involved in the litigation.

“We’re trying to use any tactic we can to reduce and recover our costs,” said Chris Gardner, the attorney for Schenectady County, which is located in upstate New York. The county recently joined so-called multi-district litigation in federal court in New Jersey, where lawsuits filed by several state and local governments, as well as health and welfare funds, were consolidated last summer.

The lawsuits describe nearly identical scenarios involving the interplay between insulin makers and pharmacy benefit managers, which work on behalf of health plans and employers by creating formularies, or lists of medicines covered by insurance. At issue is the convoluted and opaque nature of their relationships, which greatly affect the cost of medicines for hundreds of millions of Americans.

The litigation outlines efforts by the manufacturers to allegedly coordinate price hikes, even as the cost to produce insulin plummeted. At the same time, the governments accuse the largest pharmacy benefit managers of profiting by receiving “secret” rebates from the manufacturers for advantageous formulary placements and, in some cases, by favoring their own mail-order pharmacy units.

“This pricing scheme is not only appalling, it’s also unlawful,” said Margaret Woolley Busse, executive director of the Utah Department of Commerce, in a statement when the state filed its lawsuit earlier this month. State officials maintain that about 200,000 residents have diabetes, costing the government and its residents about $1.7 billion annually.

A Sanofi spokesman declined to comment on the litigation, but maintained “pricing practices have always complied with the law and the company is committed to helping patients access the medicine they need at the lowest possible price.” Currently, he added, “fees and savings negotiated by health insurance companies and PBMs through rebates are not consistently passed through to patients in the form of lower co-pays or coinsurance.” As a result, patient out-of-pocket costs are rising, but the average net price for its insulin fell 58% from 2012 to 2022.

A Lilly spokeswoman wrote “these complaints are baseless and should be dismissed, just like cases brought by other local governments have been. It’s the local governments filing these lawsuits – not Lilly – who decide the terms of the rebate arrangements they now say are improper, including whether to pass rebates on to people who take insulin. Lilly has been working for years to reduce insulin out-of-pocket costs for people with diabetes, against the headwinds of a healthcare system that incentivizes others – like the parties filing these lawsuits – to choose higher list-price medicines over lower-priced options.”

As for Novo Nordisk, the company sent a statement saying it “believes that the allegations in the lawsuit are without merit, and we intend to vigorously defend against these claims.” Novo added that it offers different options for consumers who struggle to afford insulin, including a $35 program that began two months ago.

A CVS spokesman wrote to say that “pharmaceutical companies alone are responsible for the prices they set in the marketplace for the products they manufacture. Nothing in our agreements prevents drug manufacturers from lowering the prices of their insulin products and we would welcome such an action. Allegations that we play any role in determining the prices charged by manufacturers for their products are false, and we intend to vigorously defend against this baseless suit.”

An Optum spokesman sent us a note saying “we have long been focused on lowering the net cost of prescription drugs, including insulin. Our clients and consumers count on us to be a counterweight to the substantial market power of manufacturers, which have sole discretion in setting and raising prices for their products. This lawsuit is without merit and we will defend against these allegations.”  

We asked Express Scripts, which is owned by Cigna, for comment and will update you accordingly.

In general, Americans diagnosed with diabetes constitute one of every four health-care dollars spent in the US, according to a recent report from the American Diabetes Association. The analysis also found that spending on insulin tripled in the past decade, from $8 billion in 2012 to $22.3 billion in 2022.

By and large, the facts recited in the various lawsuits are very similar, although some legal arguments differ by citing violations of racketeering, antitrust, or state consumer protection laws. The lawsuits also cite the findings of a 2021 U.S. Senate Finance Committee report that detailed how the companies allegedly boosted sales and profits in ways that allegedly drove up costs for the entire U.S. health care system.

To an extent, the recent spate of lawsuits mirrors the many lawsuits filed by state and local governments over the opioid crisis. Over the past couple of years, the companies that made or distributed prescription opioids reached billions of dollars in settlements amid allegations the painkillers were improperly promoted and led to tens of thousands of deaths.

For the moment, though, it is unclear whether the insulin litigation will develop the type of momentum that led dozens of state and local governments to file lawsuits. Nonetheless, the Senate report noted that the U.S. spent approximately $327 billion on diabetes in 2017, suggesting more states and municipalities will consider filing lawsuits to recover payments for covering the cost of insulin.

Insurance arrangements, however, appear to be another reason that more local governments may file lawsuits. Some counties and cities run so-called self-funded insurance plans in which they collect premiums and assume responsibility for paying claims. As a result, they have a better idea of the impact the price of medicines has on their budgets, explained Gardner.

The multi-district litigation also serves as a vehicle for attracting self-funded unions and employers, not just local governments, which may not otherwise want to bring lawsuits on their own, according to attorneys who have filed cases. “Local government interest is certainly a new trend that we’re seeing in the last six to eight months,” said Mark Pifko of the Baron & Budd law firm.

Although Medicare earlier this year began capping the cost of insulin at $35 for a month’s supply and the manufacturers have lowered list prices to the same level for most of their insulins, one attorney who represent local governments argued the litigation will pay dividends.

“I think we’ll see a change in how pricing is dictated, saving money and health care costs, and producing better outcomes for patients. And there will be more astute purchasing,” said David Buchanan, whose firm filed lawsuits on behalf of local governments in Virginia. “As anticompetitive and deceptive practices get revealed, we’ll also see how fees get hidden. The litigation will further our understanding.”

So far, though, the litigation does not appear to be attracting much attention on Wall Street. Although the number of lawsuits is growing, it is not yet sufficiently large enough to show up on radar screens. Moreover, Novo and Lilly are generating such huge profits from other diabetes drugs — which are also prescribed for weight loss — that any potential liability from insulin lawsuits appears to be overshadowed.

“Investors don’t seem to be focused on anything beyond GLP-1 drugs, in general,” said Umer Raffat, an analyst at Evercore ISI. He was referring to a type of diabetes drug such as Zepbound, a Lilly medicine that was approved by the Food and Drug Administration for weight loss and that is marketed as Mounjaro for diabetes. Novo sells two GLP-1 drugs, Wegovy and Ozempic, for weight loss and diabetes, respectively.

He added: “Perhaps more broadly, investors do seem to be getting somewhat immune to back-to-back liability litigation cases — especially since very rarely do they end up being the big liability that’s feared. With that said, [lawsuits filed over] talcum powder and opioids do scare investors with the size of [the] liability. So in some ways, it’s the size of liability potential that is driving investor attention.”

This post was updated with a comment from OptumRx.


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