Lilly and the Price of Insulin

I just saw a New York Times article reporting that Lilly company has decided that they would be selling an authorized generic version of their rapid acting insulin, Humalog, for $135 a vial. The actual brand name version, for those paying out of pocket, is around $330 at your local pharmacy. You can print out a discount coupon from GoodRx that lets you pay $177. A vial might last the average diabetic about a month.

 

Humalog came out in the mid 1990's. The price has ramped up exponentially in the past few years. Pretty obviously they can actually produce this insulin at a far lower price. There are 2 other major companies producing very similar rapid acting insulin brands, but they all sell in the same price range. Why isn't competition working? Well I think mostly it's the same reason that medical costs generally are too high – that most of us pay for medical items indirectly and so at the point of sale the cost to the customer is only a small amount of copay. In medical care, prices are not set by the market, but instead by negotiations with third party payers, insurance companies and government. As in any negotiation the initial seller's price is set high to be  negotiated downward. Those who don't pay through third parties are left holding the bag.

 

The market works differently. Prices, except for very high ticket items like cars and houses, are not negotiated but are fixed and consumers choose from competing options. All other things being equal they flock to the lowest price, forcing prices down and in this case leaving the high priced seller holding the bag.

 

But payment for medical care is changing. Although more of us are insured, there's a great increase in high deductible insurance. I think it's this factor, and the public pressure resulting from it, that is forcing Lilly to relent. One thing worth noting in all of this is that older types of insulin, regular and NPH are still available at a price of about $28 a vial. These are less convenient but perfectly effective, so that there is no reason whatsoever for anyone to get sick or die for lack of insulin. Nevertheless, when I was still in practice, seeing a lot of diabetics taking insulin, almost everybody was paying through third parties and very few took advantage of these cheaper varieties. On the other hand in the free clinic where I volunteer, where no one has insurance, they're the only insulins we prescribe.

 

Just to put everything in perspective I want to point out that Dr Banting, who received the Nobel prize for working out the initial extraction and production of effective insulin in the early 1920's, was totally swamped by requests for his product from all over the world by desperate sufferers. He worked out an arrangement with the newly organized Eli Lilly company, which in the space of about 2 years, with the use of effective production techniques, was making enough to supply everybody.

 

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