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The Type 1 Diabetes Defense Foundation Files New Lawsuits Alleging Overpricing, Requesting Disclosure of Manufacturers’ Effective Net Realized Prices for Test Strips, Glucagon

Summary: On May 24, 2017, the Type 1 Diabetes Defense Foundation filed two new lawsuits in federal court with class-action law firm Keller Rohrback, L.L.P., seeking disclosure of manufacturers’ net realized prices on blood glucose test strips and emergency glucagon kits, both used in diabetes treatment. Following on T1DF’s insulin pricing lawsuit filed March 17, 2017 (Boss, et al. v. CVS, et al.), T1DF now joins with individual plaintiffs in test strip claim Prescott, et al. v. CVS, et al. and glucagon claim Bewley, et al. v. CVS, et al., expanding its consumer rights campaign against the unconscionable pricing of essential pharmaceuticals. These lawsuits are consistent with T1DF’s opposition to “rebates” and other hidden pricing practices that raise list prices for diabetes drugs and supplies while disincentivizing innovation, promoting clinical inertia, undermining therapeutic adherence and encouraging discrimination against people with diabetes.
June 21, 2017

June 15, 2017 - Eugene, OR. Glucagon rescue kits provide an emergency injection of glucagon, a hormone that raises blood sugar, in case of life-threatening severe low blood sugar. For people with diabetes who depend on insulin to stay alive (all type 1s) or to manage diabetes (a significant percentage of type 2s), glucagon is a vital tool to prevent the serious health damage or death that can result from severe hypoglycemia, an inherent risk of insulin therapy. The Glucagon Pricing Scheme alleged in Bewley, et al. v. CVS Health Corporation, et al. (2:17-cv-00802) explains how the three largest PBMs, Express Scripts, OptumRx, and CVS Caremark, sell exclusionary or preferential access to their formularies in exchange for price concessions, including rebates and other fees paid to the PBMs by Eli Lilly and NovoNordisk, who manufacture the only two glucagon rescue kits sold in the United States. These price concessions decrease the cost of glucagon kits for the PBMs and some of their client payers, but drive up the cost for uninsured consumers and for insured consumers whose pre-deductible or coinsurance payments at the pharmacy point of sale are based on the unrebated “list” price.

Overpricing glucagon injures both the patients who purchase it and those who—as a result of high prices—do not. Coupled with Eli Lilly and Novo Nordisk's refusal to supply their FDA-approved glucagon to third parties for remarketing, the anticompetitive dual-pricing scheme has also disincentivized investment in more effective delivery systems. The glucagon pricing crisis, along with the documented high rate of delivery failure from thirty-year-old glucagon kit designs, now undermines patient therapeutic adherence and contributes to clinical inertia in treatment intensification, thus broadly extending the clinical and economic implications of the Pricing Scheme.

T1DF has also joined individual plaintiffs in Prescott, et al. v. CVS Health Corporation, et al. (2:17-cv-00803), filed by Keller Rohrback against the largest PBMs and the four dominant blood glucose test strip manufacturers, Abbott, Bayer, Johnson & Johnson, and Roche, who produce the brands FreeStyle, Contour, OneTouch, and Accu-Chek. The complaint alleges a similar pricing scheme for the test strips that people with diabetes use to monitor their blood sugar: rebates and other price concessions from the manufacturers decrease the cost of test strips to PBMs and some insurers, while driving up the unrebated list price many consumers pay. Even for test strip purchases that take place over the counter, a network of confidential agreements works to keep prices artificially high. As a result of this pricing scheme, people with diabetes face significant financial hardship and may also face harmful health consequences, including higher risk of severe hypoglycemia, if high prices prevent them from testing their blood sugar with sufficient frequency to safely manage their condition.

The following is a statement from the Type 1 Diabetes Defense Foundation:

Since their introduction in the 1980s, confidential dual-pricing reimbursement contracts have profoundly impacted the U.S. pharmaceutical market, leading to price discrimination, information asymmetry and significant wealth transfer to non-creative administrative intermediaries—Pharmacy Benefit Managers and some insurers—at the expense of innovation and competition on price at the point of sale. Industry actors’ use of dual pricing has directly contributed to the increase in pharmaceutical list prices and thus to harmful consequences for the most vulnerable patients who are uninsured, who have high deductibles or coinsurance requirements on their health insurance plans, or who are covered by Medicare Part D. Reimbursement contracts facilitate a collusive scenario in which certain corporate actors who do not pay list price together engage in actions that result in patients paying amounts based on skyrocketing list prices for products that are procured at much lower net prices by PBMs and some insurers. The Boss, Bewley, and Prescott lawsuits plainly document the pervasive and injurious multifaceted effects of dual-pricing reimbursement schemes.

“The full benefit of research investment can only be delivered if we also address the social, economic, regulatory and legal roadblocks that currently diminish access to diabetes care in the United States.” —Charles Fournier, T1DF Director of Legal Advocacy

T1DF has reviewed publicly available industry literature, corporate disclosures, and technical articles on the production of insulin analogs, glucagon, and test strips. We derived from these sources that the inflated list prices for crucial diabetes supplies are not driven by increasing production costs, but instead seem to correlate with placement on PBM formularies:

• The production cost of biosynthesized insulins (human and analog) should logically have decreased as manufacturers simplified and optimized production processes since the 1970s. The current production cost for insulin crystals has been reported as low as $42.20 per gram. According to this figure, the estimated production cost for the 35 mg of insulin crystals contained in a standard 10 ml vial at a concentration of 100 IU would not exceed $1.47. Such a production cost would be consistent with 1996 list prices for synthetic analog insulins, $24 per 10 ml vial. It does not explain why list prices per 10 ml vial of the same synthetic analog insulins would increase to current levels (around $255 as of July 2016).

• The price of glucagon—a simpler single-chain peptide, manufactured via the same biosynthesis process as insulin—follows a similar pattern. Production costs do not explain why Lilly’s introductory list price for a glucagon emergency rescue kit, $66 in March 2000, has increased to approximately $300 today, while the production cost likely remains lower than $4.50.

• It is documented in industry literature that biosensor blood glucose test strips, manufactured in larger quantities than any other biosensor worldwide, can be screen printed for as little as 2 cents per strip, yet the U.S. list price for such test strips can be $1.50 per strip or more.

Additional information may arise during the course of litigation to further refine these estimates on production costs. In the meantime, existing publicly available information, though fragmentary and incomplete, still supports the inference that high production costs do not logically explain high list prices for essential diabetes pharmaceuticals and supplies.

Such high multipliers between goods’ cost of production and their list price (or MSRP) is unique to the U.S. healthcare industry. An iPhone is sold at 1.5 to 3.0 times the cost of production of its parts (bill of materials or BOM). A Samsung Galaxy retails at about 3 times its BOM. A car generally retails at 4 to 5 times its BOM. But the list prices for formulary-preferred diabetes pharmaceuticals and supplies, which are necessary for the survival of millions of people, are at factors approaching 100 times the estimated cost of production. Before Representative Jason Chaffetz (R-Utah) asked Americans to choose between healthcare and iPhones, he should have looked at the numbers: under current diabetes pharmaceutical models, an iPhone 7 with base 32GB storage would be priced to the most vulnerable consumers, those with no other choice, not at $649 but potentially as high as $22,080.

While manufacturers have been blamed for price gouging, the reality is more complex and responsibilities are shared among several participants. For brand-name diabetes drugs and supplies, the PBMs play a central role in managing a confidential network of reimbursement contracts that channel back to them and some of their payer clients a growing percentage of the list price in the form of fees, discounts, sales incentives and other price concessions. For some analog insulins, these kickbacks may be as high as 70% of list prices, possibly higher.

“When Jason Chaffetz made his infamous healthcare-iPhone consumer ‘choice’ remark, he overlooked that under current U.S. diabetes pharmaceutical pricing models the most vulnerable Americans could be paying $22,080 for a standard iPhone 7.” —Julia Boss, T1DF President

In the absence of the dual-pricing reimbursement schemes targeted by these lawsuits, manufacturers of insulin, test strips and glucagon would compete directly on accuracy, innovation, and price to consumers at the point of sale. Instead, they compete on kickbacks, and the resulting high list prices produce several forms of individual harm: (1) Financial harm in the form of higher out-of-pocket payments, distorted OTC or uninsured prices, and possibly higher insurance premiums. (2) Medical harm in the form of reduced clinical adherence, as patients treat less effectively to ration supplies of insulin or test strips, or clinical inertia, when a doctor pulls back from intensive insulin therapy because high prices for test strips and hard-to-use glucagon rescue kits mean patients can’t access the tools they need to prevent or efficiently manage severe hypoglycemia. And (3) social stigma along with employment and insurance discrimination, when insurers, the media, value-pricing experts or politicians present artificially inflated list prices as the “cost” of treating diabetes, leading the public to believe that plans pay list price for pharmaceuticals and that those skyrocketing list prices could cause their health care plan costs to increase.

For too long we’ve seen industries that treat patients as commodities further commoditize patients’ stories in support of a status quo that serves the interests of the dominant pharmaceutical companies, PBMs or insurers rather than the interests of the human beings who most need access to affordable drugs. In this David and Goliath fight, T1DF’s lawsuits focus on the direct and indirect harm to consumers perpetrated by the pricing schemes we have alleged for insulin and now allege for glucagon and glucose test strips. In the short run, we hope to expose these as individual instances where Americans’ access to the standard of care for chronic disease management has deteriorated as a result of collusive behavior by parties to reimbursement contracts that benefit certain corporate actors who do not pay list price, at consumer expense.

In the long run, T1DF seeks to grow into a policy-driven, patient-perspective watchdog organization. Until now, even ostensibly reform-oriented organizations—such as the Evidence Driven Drug Pricing Project or the Institute for Clinical and Economic Review—have primarily worked within the dual-pricing reimbursement model. They advance as innovation esoteric value-based variations on the current rebating scheme, industry-sanctioned variations on price negotiations between insurers and manufacturers that would further distort the relationship between the cost of goods and services patients actually receive and the amounts patients pay via cost-sharing or premiums, with continuing inflationary implications for list prices paid by the uninsured and for all those who pay out of pocket for needed medicines.

T1DF embraces, instead, patient-centered inclusive policy solutions, from the perspective of—and in the interest of—individuals with diabetes. In the consumer realm, we advocate for an end to a convoluted dual-pricing reimbursement regime that has burdened the healthcare industry with red tape and warped incentives since the 1990s. We support regulatory frameworks in which manufacturers compete directly on innovation and price to consumers and where drug channel actors can engage in open and efficient price arbitraging, without price discrimination and asymmetries of information. We urge a return to a transparent pricing regime that fairly rewards creative actors for technological innovations and manufacturing improvements, rather than transferring wealth to non-creative administrative intermediaries at the expense of the most vulnerable patients—whether uninsured, on high-deductible ACA or employer policies, on health plans with high cost-sharing requirements, or covered by Medicare Part D.

About T1DF. The Type 1 Diabetes Defense Foundation is a nonpartisan Oregon-based nonprofit 501(c)(3) dedicated to advancing equal rights and opportunities for all people with type 1 and other forms of insulin-dependent diabetes. We focus on the significant social impact of living with a condition that requires patients to make constant dosing decisions with a drug that, without careful management and constant monitoring, can kill them. T1DF strives to improve the regulatory, legal and social ecosystem essential to development and adoption of new technologies and therapies, with an explicit commitment to inclusive policies that will deliver for all Americans with diabetes, insured and uninsured, equal access to standard-of-care pharmaceuticals and equipment. T1DF accepts no funding from the pharmaceutical, pharmacy benefit management, or insurance industries.