Eli Lilly slashes insulin prices, but are they losing?
Last week, Eli Lilly announced it would slash prices on its’ insulin products by 70%, bringing the price of Insulin Lispro to $35. This is good news for consumers, especially those who are uninsured or covered under High Deductible Health Plans. Insulin Lispro is a biosimilar to Humalog, and can be substituted at the pharmacy.
But is Eli Lilly really going to be earning less on their insulins? Let’s examine a bit further.
Rebates: Lilly and other manufacturers have long paid “rebates” to middlemen known as Pharmacy Benefit Managers (PBM’s) for years. These rebates were paid to gain competitive positions in drug formularies used by health insurance plans. With Lilly slashing their prices, this essentially eliminates the rebates they have been paying to PBM’s and plan sponsors.
So, here’s my question. Is Eli Lilly actually netting less money after slashing prices? If the price of a vial of Lispro was $85, but they were paying $50/vial in rebates, they would net $35/vial. In comparison, by slashing their price to $35/vial, but no longer paying rebates, they are still in a net position of $35/vial.
This may be a very simplistic interpretation of what just happened, and my figures may be slightly off, but this is precisely what happened. They essentially took millions out of the rebate game. Does it help consumers? You bet. Does it help plan sponsors? That is yet to be seen. Does it hurt Lilly? I don’t think so.
It will be interesting to watch their stock price next week. This decision wasn’t made willy-nilly, and I highly doubt the company would want to hurt their shareholders.
Over the past month, Lilly stock is down 5.7%. However, last week, amid the news the company would slash prices on it’s signature product, stocks actually rose approximately 2%. Is this an indicator that Lilly isn’t actually losing by cutting prices? I believe so.
This reaffirms what we’ve told self-funded employers for quite some time, which is the road to the lowest net price isn’t always by taking rebates. Employers will likely experience lower prices with Lilly’s move by paying less for insulin vs. paying higher prices and sharing in a portion of paid rebates. But that is yet to be seen. Most employers who receive formulary rebates do not know precisely what the rebate is for a single drug, like Humalog. But it’s safe to say that they aren’t receiving 100% of available manufacturer rebates.
How many self-funded plans are now moving to exclude name brand Humalog from their formularies? If we are correct, and the lower price for Lispro nets a lower cost than purchasing Humalog and getting a rebate, self-funded employers who have control over their drug formularies will likely be better off excluding Humalog altogether.
This is why we advise employers on the importance of taking back control of their plans, and to work with independent PBM’s who will give plan sponsors flexibility and control. Most employers will have no say over what happens with their formularies, and you can bet that PBM’s are scrambling to find ways to triage this move by Lilly. PBM’s stand to lose the most, and will be looking to replace the lost rebates.
Employers should be vigilant.
