Re-bate and Switch? Understanding All Impacts of the Insulin Price Drop

Top 3 Things You’ll Learn

  • The reduction in price of insulin products is a significant win for patients with diabetes
  • With that price reduction comes multiple variables that plan sponsors must consider, including the reduction of rebate dollars associated with those products
  • Depending on your Pharmacy Benefits Manager, employers may be faced with choices that could have a profound impact on their overall benefit plan
  • Benefit advisors can help plan sponsors determine the best course of action for their specific needs

In 2023, the three major manufacturers of insulin – Eli Lilly, Novo Nordisk, and Sanofi, which together produce 90% of insulins on the market – reduced their average manufacturer price for insulin by 65% to 78%. Additionally, for Medicare Part D recipients and for commercially insured patients at certain participating pharmacies, the insulin out-of-pocket cost has been capped at $35 per patient per month. These initiatives occurred in response to recent legislation and market pressures. Generally, lower prices for a needed drug are a good thing … so why are some plan sponsors concerned?

The financial impact of diabetes and insulin

Diabetes is one of the most prevalent health conditions in the U.S. According to the Centers for Disease Control and Prevention, more than 37 million people (11.3% of the population) have diabetes. In 2017, the total cost of diagnosed diabetes was $327 billion, making it the most expensive chronic disease in the nation. Pre-rebated insulin costs accounted for $48 billion (20%) of the direct cost of treating diabetes.
The key phrase there is “pre-rebated.” As insulin costs climbed (rising more than 600% since 2003), manufacturers also increased the rebates they offered to PBMs and plan sponsors for the drug. After rebates, insulin accounted for only $14.9 billion (6.3%) of the direct cost of diabetes in 2017. With the new price reductions effective in 2024, rebates paid on insulin products will be drastically reduced or even eliminated.

Decreasing drug prices combined with copay caps through various mechanisms is a huge financial win for patients, many of whom have borne the brunt of high costs due to their plan benefit design. Unfortunately, some patients have skipped or rationed doses due to cost. With the price reductions and caps, clinicians expect to see improved adherence to diabetes treatments nationwide. That should result in fewer emergency room visits and hospital admissions, a reduction in medical and pharmacy costs, better management of comorbidities, and an overall increase in quality of life for patients with diabetes.

Concerns for plan sponsors

Most plan sponsors are cautiously optimistic about the lower insulin prices, but they also must understand the impact of lower (or no) rebates for the drug on their overall health benefit. On the positive side, plan sponsors with cash flow considerations likely will be pleased with the reduced price for insulin; they won’t have to wait months for a rebate to offset the cost of other claims. However, many plan sponsors use the rebates from insulin and other medications to offset costs in other areas of their benefits such as premium reductions; with those rebates reduced or completely eliminated, the funding for those benefits may have to be re-evaluated in a different way.
Contract language regarding rebates can be an area of concern for plan sponsors. Most PBM contracts contain a “Reservation of Rights” clause, which allows for an adjustment of rebate guarantees if a significant market event impacts the economics of the overall arrangement. A 70% estimated average decrease in insulin prices and the loss of insulin rebates coming from manufacturers to PBMs certainly qualifies as a significant market event.

Transparency is another consideration. Because PBMs rarely provide drug-level rebate information, plan sponsors likely won’t know if a reduction in rebate guarantees equals the actual rebates lost without conducting an on-site rebate audit.

PBMs may offer plan sponsors a choice based on formulary inclusions: one formulary could offer the lower list price insulin products coupled with a reduced rebate earning potential, while another formulary would favor higher list price insulin products combined with higher rebate potential. Disruption could play a key role in this decision if the choice is offered. Ultimately, a plan sponsor would need to consider multiple factors when deciding which approach to take.

Your benefit advisor: Help when you need it

With the many variables regarding manufacturer rebates and PBM contracts, knee-jerk reactions by plan sponsors can be a significant gamble. All aspects of the plan’s current and future utilization and the financial impacts should be considered as part of a thoughtful analysis.

Benefit advisors can help plan sponsors understand the pros and cons of rebate structures for insulin and other medications that will be affected by new or existing decisions by manufacturers and PBMs. Talk with your benefit advisor about building an effective and flexible pharmacy benefit strategy that meets your needs.

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