On November 1, the Congressional Diabetes Caucus released its long-awaited report on the insulin supply chain. Rep. Diana DeGette and Rep. Tom Reed, the co-chairs of the Caucus, have been conducting a  bipartisan inquiry into the rising patient cost of insulin for more than a year. Their 22-page report responds to the patient outcry caused by insulin becoming less accessible.

The report begins with excerpts of patient stories that underline the importance of insulin as a life-saving drug. It then gives a short history of insulin. Then we get into the good stuff: there’s an overview of the insulin supply chain, an analysis of that system, policy recommendations that aim to make the system work better, and acknowledgements (where DPAC is mentioned! We’re so flattered!).

First, an overview of the insulin supply chain:

The report shows that the insulin supply chain is made up of two parts: first, the delivery of insulin from manufacturers to patients, and second, the flow of payments for insulin throughout the supply and delivery chain. The two parts of the system have many intermediaries that interrupt the direct supply. The intermediaries include wholesalers, pharmacists, providers, insurers, and pharmacy benefit managers (PBMs).

The report provides visual aids for each part of the supply chain; this first one is the physical path that moves the insulin from manufacturers to pharmacies.

The second demonstrates the flow of insulin payments:

Next, the report discusses spread pricing.

Spread pricing is the practice through which a PBM makes its profit. “When a pharmacy sells insulin to a patient, it bills the patient’s PBM for a share of the insulin cost. The PBM sends a bill to the patient’s health insurer that includes both the base price of the insulin, plus a markup for services rendered. […] The markup amount is proprietary to each individual PBM contract[…]”

Here’s the report’s example of spread pricing, using a hypothetical insulin prescription costing $100.

The report notes that if a patient does not have insurance, they’re stuck paying the full list price out-of-pocket. It acknowledges that this cost is unaffordable for many patients.

Analysis of the Supply Chain

The report discusses several incentives for entities along the delivery pathways to artificially raise the price of insulin. These incentives combined with insulation from “market forces that would normally provide a downward pressure on typical commodity prices” are the factors that drive insulin prices higher.

The analysis includes paragraphs on rebates, formularies (the PBM’s list of drugs that they will cover), limited competition and ‘shadow pricing,’ patent extensions, formulary changes, providers, high-deductible health plans, patient assistance programs, drug discount cards, and community and online resources.

Policy Recommendations

Let’s get to the good stuff: what does the report say we should do? It splits its recommendations into different categories.

Combatting Upward Price Pressures:

  1. Encourage the development and use of value-based contracts between insulin makers and PBMs. (Value-based contracts (VBCs) are arrangements between different entities along the supply chain that pay higher rates for better patient outcomes instead of for higher sales volume) The report suggests that lawmakers could direct the Centers for Medicare and Medicaid Services (CMS) to “pilot outcomes-based pricing arrangements in Medicare. Lawmakers could also introduce pilot legislation allowing private insurers to take part in VBC models through managed care contracts or on the individual marketplaces.”
  2. Promote the use of payment arrangements between insulin makers and wholesalers that involve standardized fees instead of rebates.
  3. Require insulin makers, PBMs, and health insurers to disclose the value and volume of rebates that they receive and share with other entities in the insulin supply chain.
  4. Link patient out-of-pocket costs to negotiated prices instead of list prices.

Changing Competitive Market Forces:

  1. Encourage the development of follow-on insulin drugs by addressing patent extensions. Congress could pursue legislation requiring drug manufacturers to show that new formulations of insulin result in improved disease management when compared to current insulin formulations.
  2. Allow generic manufacturers to produce older, off-patent insulin formulations. Congress could direct the FDA to make exceptions or allow fast-track approval for certain biosimilar insulin formulations. But Congress may also need to address practices that dissuade generic pharmaceutical companies from producing older formulations of insulins.
  3. Require manufacturers to disclose their insulin’s list pricing process.

Formulary Changes:

  1. Standardize the process for requesting exemptions or filing appeals from formulary changes. Congress could convene working groups composed of patients, providers, PBMs, and health insurers to develop a patient-centric appeals system.
  2. Standardize drug formulary disclosure of patient cost-sharing information.
  3. Congress could introduce legislation directing CMS to develop a series of standard formulary designs that provide cost-sharing information in an accessible manner.
  4. Limit the number of changes an insurer is permitted to make to a formulary each year.

Additional Recommendations:

  1. Cap out-of-pocket expenses for prescription drugs that are needed for chronic conditions.

DPAC looks forward to discussing the report with lawmakers and coming up with solutions based on these recommendations.

Ready to read the whole thing? You can find the report here.