California sues drugmakers, PBMs over insulin costs

A new lawsuit targeting the price of insulin could spell trouble for the nation’s largest diabetes drug manufacturers and the companies they negotiate with for health plan rebates.

California Attorney General Rob Bonta sued Eli Lilly, Novo Nordisk, and Sanofi—which produce more than 90% of the global insulin supply—and pharmacy benefit managers (PBMs) CVS Caremark, Express Scripts, and Optum Rx last month for allegedly using their market power to hike up the cost of insulin. The PBMs handle pharmacy benefits for about 80% of all prescription claims nationally.

California is the latest (and largest!) state to sue drug companies and PBMs over the cost of insulin—joining lawsuits filed from May 2019 to December 2022 from the attorneys general in Kentucky, Arkansas, Mississippi, and Kansas. (Minnesota, meanwhile, defended its insulin affordability law in 2021.)

If successful, California’s challenge could have implications that extend far beyond the borders of that state (same goes for others with pending litigation).

“It’s such a big consumer market that it can really [lead the nation], sort of like when California requires changes in carbon emissions—it really sets the standard for other markets within the US,” Carmel Shachar, executive director of the Petrie-Flom Center for Health Law Policy, Biotechnology, and Bioethics at Harvard Law School, told Healthcare Brew. “Should the lawsuit succeed, it will have a really, really notable impact on millions of Americans because California is so big [and it will] draw the attention of other attorneys general who are looking for how to advocate on behalf of their citizens.”

Zoom in: The California lawsuit seeks to promote price competition for insulin and end “unlawful, unfair, and deceptive practices.” It also aims to recover potential restitution on behalf of California residents—more than 3 million of whom have been diagnosed with diabetes (that’s about 10% of the state’s adult population).

The suit claims drug manufacturers, who set the list price for insulin, and PBMs of being “complicit in overcharging” for the medication.

Since rebates are based on a percentage of a drug’s list price, Bonta’s office argues that manufacturers raise list prices to provide larger rebates—a portion of each rebate often goes to PMBs for their services. That encourages these companies to negotiate for a higher rebate rather than the lowest price for consumers, the attorney general contended.

Shachar told Harvard Law Today that a win for California could put more pressure on manufacturers and PBMs “who will know that simply offering a large rebate is not sufficient—that they have to indicate some sort of value or some sort of reasonable price, and that they can’t abuse their market share.”

But CVS Caremark spokesperson Philip Blando argued that “pharmaceutical companies alone set the list price for their products.”

“Nothing in our agreements prevents drug manufacturers from lowering the prices of their insulin products, and we would welcome such action,” he said in an email. “Allegations that we play any role in determining the prices charged by manufacturers are false. We plan to vigorously defend against this complaint.”

Optum spokesperson Isaac Sorensen said the company “welcomes the opportunity to show the California Office of the Attorney General, just as it has with other state attorneys general, how we work every day to provide people with access to affordable drugs, including insulin.”

Meanwhile, Eli Lilly and Company spokesperson Daphne Dorsey hit back against the attorney general’s “false accusations,” offering that “the average monthly out-of-pocket cost for Lilly insulin is $21.80—a 44% decrease over the last five years.”

Novo Nordisk spokesperson Allison Schneider declined to comment about the pending litigation, but said an “overwhelming majority of patients—an estimated 90% percent of patients with commercial or government health insurance—pay $1.50 a day for Novo Nordisk insulin.”

Zoom out: Federal law caps the out-of-pocket cost of a month’s supply of insulin for Medicare beneficiaries at $35. New provisions took effect Jan. 1 for Medicare Part D beneficiaries, and cost sharing for Medicare Part B beneficiaries will be limited to $35 for a month’s supply of insulin beginning July 1.