There is a partisan meme I've seen on Twitter/X multiple times on how Joe Biden forced Eli Lilly (one of the Big 3 suppliers of insulin products, Eli Lilly, Novo Nordisk, and Sanofi "control over 90 per cent of the global insulin market") to cap insulin prices at co-pay $35 monthly. I've rebutted this claim on Twitter and/or this blog. A principal motivation: "From 2002 to 2013, the prices of the most popular insulin products tripled,56 and from 2012 to 2016, the average price paid for insulin by patients with type 1 diabetes nearly doubled."
First of all, supporters of the so-called Inflation Reduction Act, which includes a co-pay price cap, wanted to include all diabetics, but it was limited to Medicare Part D participants (there is a nuance for Part B users of insulin pumps). This had to do with budget reconciliation rules. The Senate parliamentarian allowed majority vote for Medicare (more than a quarter of seniors have diabetes).
Roughly 37 M (11%) of Americans are diabetic. About 5-10% are type 1 diabetics, who cannot naturally produce their own insulin to process food to energy; type 2 diabetics may produce insulin but it is not sufficient and/or efficient enough to maintain blood sugar at healthy levels. About a quarter of type 2 diabetics use insulin, about half of those in conjunction with oral medications. There are multiple types of insulin, largely lab-generated human or insulin analog; they have been improved over time to help control blood sugar spikes during meals and/or to stabilize blood sugar levels over longer periods of time. ("Insulin analogs are much more commonly used and prescribed than human insulins, in part because of their perceived novelty and superiority." Human insulin can be more cost-effective.) There are competitive biosimilar insulin producers (think more generic, lower-costing insulin products), and there have been FDA hurdles in the past on approvals.
Let's first point out that federal government policy is part of the problem, not the solution. First, there is IP evergreening, i.e. "Artificially extending the life of a patent or other exclusivity by obtaining additional protections to extend the monopoly period" However, the IP issues seem to be less involving the insulin compound itself than the delivery mechanism like an insulin pen. Second, regulatory issues hobbled approvals of biosimilar insulin until 2020 (not to mention biosimilar approval in general). In addition, biosimilars face additional interchangeability requirements of performance and risk. Moreover, trade secrets in manufacturing do not expire and constitute a barrier against competition. Third, there are de facto trade barriers to foreign imports, e.g., the USG does not mutually recognize foreign approvals. And let's not forget how the government uses tax-free status of employer health coverage and/or regulatory authority to intervene in the healthcare market with unintended consequences.
[For Immediate Release: July 28, 2021. FDA Approves First Interchangeable Biosimilar Insulin Product for Treatment of Diabetes. The FDA granted approval of Semglee (insulin glargine-yfgn) to Mylan Pharmaceuticals Inc.]
Price caps generally don't work; they don't guarantee supply and can result in shortages. Depending on nuanced implementation, costs could get shifted to others (e.g., non-diabetic or privately insured). Price caps do not resolve the problem of limited competition, given the high barriers to entry, including product approval.
So, going back to the meme, the troll is trying to credit Biden with allegedly forcing Eli Lilly into a more comprehensive out-of-pocket cap program. (Note: the other two competitors have announced comparable policies in the process of being phased in.) However, at least half of US states have implemented their own caps, going beyond government healthcare programs to regulated private healthcare insurers and/or state employee plans. And whereas Lilly's announcement includes described branded products, Lilly notes:
In recent years, Lilly has introduced multiple insulin affordability solutions that have made a real impact, including launching low-list-price, non-branded insulins in 2019, implementing the Lilly Insulin Value Program in 2020 and committing all of our insulins to the Medicare Part D Senior Savings Model in 2021. Because of these efforts, the average out-of-pocket cost for Lilly insulins has dropped to $21.80 over the last five years...We are driving for change in repricing older insulins, but we know that 7 out of 10 Americans don't use Lilly insulin.
So, in part, one could argue that one motivation for Lilly's leadership price cuts is to increase market share and achieve cost-lowering economies of scale. Hence, the competitive response from the other Big Two.
But let's not underestimate the prospective competition of Civica Rx, which already has an agreement with the State of California:
Civica Rx, a nonprofit generic drug company, announced plans on Thursday, March 3, to manufacture and distribute affordable insulin. Mayo Clinic joined a coalition of seven hospitals to launch Civica Rx in 2018. The goal was to help patients by addressing supply shortages and high prices for medications...Civica plans to set a recommended price to the consumer of no more than $30 per vial and no more than $55 for a box of five pen cartridges. This is a significant discount to the prices people who are uninsured pay today...The insulin types will be manufactured at Civica's 140,000-square-foot manufacturing plant that is being built in Petersburg, Virginia.
But the idea that the general/federal government, that a political elite, can drive economic change is unwarranted. There is no core competency as a surrogate of a dynamic exchange for over 330 M American consumers; industrial policy is a corruption of the economy; there is a demonization of the profit motive which helps drive innovation, resource allocation and cost management. Over the past generation, we've seen proposals for a public option for healthcare insurance and even in the above case of insulin, Cherokee Lizzie wanted the government to find an insulin-production operation. There is no "fair" competition against a government monopoly with virtually infinite resources. We've already seen ObamaCare artificial marketplace wither away to one vendor in many markets with high premiums and huge deductibles. Mises a century ago described the economic calculation problem,, a fatal flaw in utopian socialist schemes.
Is there a role for government in the economy? Yes. It can promote sound money policy, minimize economic uncertainty caused by abrupt, volatile policy, limit siphoning off resources from the private economy caused by massive debt, and free up global exchanges, enabling comparative advantage, including free movement of people and other resources. It needs to focus on a limited mandate and related core competencies.
