Oklahoma Sues Big Pharma and Pharmacy Benefit Managers Over ‘Insulin Pricing Scheme’

A unit dedicated to the production of insulin pens at the factory of the U.S. pharmaceutical company Eli Lilly, in Fegersheim, eastern France, on Oct. 12, 2015. Frederick Florin/AFP via Getty Images

Oklahoma’s attorney general has filed a lawsuit against major diabetic drug manufacturers and pharmacy benefit managers (PBM) for what he describes as “an unfair and deceptive” practices in insulin pricing.

The petition, filed in Cleveland County District Court by Oklahoma Attorney General Gentner Drummond on May 14, accuses drug manufacturers of significantly and consistently raising the prices of their diabetes medications over the past 15 years, even though the costs of producing the much-needed drugs have decreased and the characteristics of the medications have remained unchanged. Mr. Drummond alleges that this insulin pricing scheme violates the Oklahoma Consumer Protection Act.

“Insulins, which today cost Manufacturer Defendants less than $2 to produce and which were originally priced at $20 when released in the late 1990s, now range between $300 and $700,” Mr. Drummond argues in the lawsuit, adding that they have “increased the prices of their insulins up to 1,000 percent” in the last decade alone.

The lawsuit further argues that both the manufacturers of the drugs and the PBMs “play vital roles in and profit immensely from the Insulin Pricing Scheme and the artificially inflated prices produced by it.”

“Today, insulin has become the poster child for skyrocketing and inflated drug prices,” the lawsuit charges.

“As a direct result of the Insulin Pricing Scheme, one in four Oklahoma diabetics can no longer afford their diabetes medication and are forced to ration and skip doses,” it states.

The lawsuit names a total of 17 defendants:

CVS Health Corp., CVS Pharmacy Inc., Caremark Rx LLC, Caremark PCS Health LLC, Caremark LLC, Eli Lilly and Company, Evernorth Health Inc. (formerly Express Scripts Holding Co.), Express Scripts Inc., Express Scripts Administrators LLC, Esi Mail Pharmacy Service Inc., Express Scripts Pharmacy Inc., Medco Health Solutions Inc., Novo Nordisk Inc., Sanofi-Aventis U.S. LLC, Optum RX Inc., Optum Insight Inc., and United Health Group Inc.

Eli Lilly, Novo Nordisk, and Sanofi, collectively referenced as “Manufacturer Defendants” or “Manufacturers,” produce the majority of the insulin and diabetic medications available in the State of Oklahoma.

CVS Caremark, Express Scripts, and OptumRx are the PBMs said to collectively dominate the pricing system for these diabetic drugs.

“Their dominance results from the reality that these three corporate actors are at once 1) the largest pharmacy benefit managers in the United States and in Oklahoma, (controlling approximately 80% of the PBM market) and 2) the largest pharmacies in the United States and in Oklahoma,” the lawsuit claims.

In the lawsuit, Mr. Drummond further argues that these PBMs are the ones who establish the standard formulary offerings, or approved drug lists, for insurance companies. If a drug has not been included in the PBM’s standard formulary offerings, then the drug is not covered by a health insurance company.

Because these three PBMs control 80 percent of the pharmacy benefit market, if they do not include a certain drug on their approved drug list, Mr. Drummond contends that the drug will not be available to 80 percent of Oklahoma’s citizens.

The lawsuit also argues that drug manufacturers are aware of the fact that it is the approved drug lists of PBMs that “drive drug utilization.”

If manufacturers want their drugs to be prescribed by doctors and paid for by insurance companies, they must first “obtain preferable formulary position” on the PBM defendants’ approved drug lists, the lawsuit alleges.

The lawsuit further alleges that the “unfair and deceptive scheme at the root” of the lawsuit is the “Insulin Pricing Scheme,” which Mr. Drummond argues was “born from this mutual understanding.”

“As a direct result of the Insulin Pricing Scheme, one in four Oklahoma diabetics can no longer afford their diabetes medication and are forced to ration and skip doses,” the lawsuit claims. “This forced lack of adherence leads to substantial additional healthcare costs.”

The Facts

Diabetes is a chronic condition affecting the body’s ability to turn food into energy, as reported by the Centers for Disease Control and Prevention. For those with diabetes, the body is unable to create a sufficient amount of insulin or is incapable of using it as well as it should. When there isn’t enough insulin in the body or cells stop responding to insulin, too much blood sugar builds up in the bloodstream. Diabetes is a leading cause of heart disease, blindness, and kidney disease. Diabetes is also the leading cause of complications leading to lower-limb amputations.

CDC data shows that over 38 million people in the United States have diabetes, roughly 11.6 percent of the population. Of those, around 29.7 people have been diagnosed with diabetes while an additional estimated 8.7 million are unaware that they have it.

About 390,201 people in Oklahoma have been diagnosed with diabetes, with an additional 93,000 being unaware they have the disease, according to the American Diabetes Association (ADA). It is estimated that almost 24,000 more people are diagnosed with diabetes each year in the Sooner State.

Oklahoma ranked fifth for diabetes mortality rates among America’s 50 states, the CDC reported in 2022.

The lawsuit states that diabetes is the seventh leading cause of death in Oklahoma with an estimated cost of diagnosed diabetes in Oklahoma is $6 billion annually.

Insulin is a necessary hormone that helps the body convert food into energy, as defined by the Cleveland Clinic. Insulin is critical in the control of blood sugar levels in diabetes patients.

While a vial of insulin only costs between $2 and $10 to make, a March 2022 article on skyrocketing insulin prices from Verywell Health revealed that one vial of insulin can cost a consumer from $50 to over $1,000. A pack of insulin pens can cost from $45 to over $600.

The Epoch Times reached out to Eli Lilly, Novo Nordisk, Sanofi, CVS Caremark, Express Scripts, and OptumRx for comment.

Sanofi, Express Scripts, and OptumRx did not respond by time of publication.

A spokesperson for Eli Lilly responded by email, saying, “This complaint is baseless and should be dismissed.”

“It’s the parties filing these lawsuits, like the State—not Lilly—who decide the terms of the rebate arrangements they now say are improper, including whether to pass rebates on to people who take insulin and whether to choose higher list-price medicines over lower-priced options,” they said.

Novo Nordisk also sent an email saying, “the allegations in the lawsuit are without merit, and we intend to vigorously defend against these claims.”

CVS Health Executive Director of Corporate Communications Mike DeAngelis issued a statement by email, saying, “Pharmaceutical companies alone are responsible for the prices they set in the marketplace for the products they manufacture.”

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

A spokesperson from Optum Rx also replied by email, saying: “Optum Rx has long been focused on lowering the net cost of prescription drugs, including insulin. Our clients and consumers count on us to be a counterweight to the substantial market power of manufacturers, which have sole discretion in setting and raising prices for their products. This lawsuit is without merit and we will defend against these allegations.”

‘Controlling Drug Prices and Drug Purchasing Behavior’

Edmund Haislmaier believes the exorbitant price of insulin stems from the cost manufacturers add to the price of insulin to account for the cut PBMs receive for promoting their drugs.

Mr. Haislmaier is a research fellow at the Center for Health and Welfare Policy and is frequently sought by legislators to assist them in drafting reforms to America’s health systems.

In an interview with The Epoch Times, he suggested that the price gouging had less to do with a manufacturer trying to make a profit and more to do with how PBMs force those increases for their own benefit.

As Mr. Haislmaier explained, PBMs are the companies that negotiate with drugmakers on behalf of their health plan clients. They also create prescription drug lists, called formularies. Rather than charging fees for their services, PBMs will typically take a cut of the savings.

“Basically,” he said, “pharmacy benefit managers are prioritizing insulin products of their formularies based on how big a rebate the manufacturers give them. That induces them to favor manufacturers that give large rebates off high list prices.” If you actually lowered the price and thus lowered the amount of rebate you were giving as a manufacturer you would be disadvantaging yourself in the market.”

Mr. Haislmaier cited research on systemwide insulin prices published in the JAMA Health Forum in 2021. The research found that the average list price for 100 units of insulin increased by 40 percent over a five-year period, going from $19.60 in 2014 to $27.45 in 2018. During the same time period, however, the average net price manufacturers received declined from $10.53 to $7.29, a 31 percent loss.

According to a July 2023 article in KFF Health News, PBMs were created in the 1960s to assist employers and insurance companies in the selection and purchase of medications for their respective healthcare plans. The industry exploded between 1967 and 2021 as spending on prescription drugs grew around 200-fold. In addition to negotiating discounts with manufacturers for their clients, PBMs established payment terms for the pharmacies that purchase and dispense the drugs to patients.

“In effect,” KFF Health News said, PBMs “are the dominant middlemen among drugmakers, drugstores, insurers, employers, and patients.”

As an incentive to get insurance companies to cover their drugs in their health plans, “manufacturers will raise their list prices to give the PBM middlemen a bigger percentage of the sale price,” Mr. Haislmaier told The Epoch Times.

This, he explained, is how listed insulin prices increased by 40 percent while the net payments received by manufacturers for the products simultaneously decreased by 30 percent.

“That’s the economics of what’s going on,” Mr. Haislmaier said.

In the meantime, Oklahoma’s attorney general charged in a press release that drug manufacturers and PBMs have “coordinated closely to control drug prices and drug purchasing behavior.”

“It is despicable that these companies preyed upon Oklahomans who were desperate for life-saving medication to bolster their profits,” he said. “The outrageous profits these companies obtained through deceptive business practices need to be paid back through restitution or rescission.”

‘Profit Over People’

While he agrees that the PBMs are the ones who drive the cost of the diabetic drugs higher, Oklahoma’s attorney general insisted in an interview with The Epoch Times that “the manufacturers are culpable.”

“The manufacturers,” Mr. Drummond said, “raise their price and then pay a significant but undisclosed portion of that price back to the PBMs. These payments are provided essentially under a quid pro quo for the PBMs, encouraging the drugs to be included in their standard formulary offering. It’s collusion.”

Since it costs about $2 to make a vial of insulin and the price is multiplied 1,000 percent before it reaches the consumer, Mr. Drummond said, “Insulin is just the poster child for sky rocking and inflated drug prices by and through the collusive behavior of the manufacturers and the PBMs.”

“We have people in Oklahoma on a fixed income who are rationing or foregoing their insulin medication so they can make their rent or buy food,” he explained. The medical burden we’re shouldering in Oklahoma as a state and as a people is upwards of $6 billion per year for a four-million population base. That’s ridiculous.”

He also noted how over-the-counter medications haven’t seen similar price increases.

“If you’re going to increase my B-12 by a thousand percent, I'll stop taking vitamin B-12,” he said. “But if I’m diabetic I’m going to take the drug regardless of what it costs me. They are driving up employer costs so the employer that offers insurance, premiums are going up year over year. Co-pays are increasing and those who are uninsured are absolutely victims of this. I am the chief law officer for the state of Oklahoma. My people are being injured, and I am taking the battle to those who have put profit over people, and I will get a victory.”