Lilly's Cheaper Insulin: A Big Victory for Patients

In order to secure market share in crowded treatment areas, drugmakers offer discounts to pharmacy benefit managers – middlemen who negotiate drug prices for health plans. Bigger rebates make PBMs happier, so firms have an incentive to boost prices. The result is an inflated list price for medicines like Humalog that's far higher than what's actually paid in practice. The problem is, people who lack coverage, have high deductibles, or pay co-insurance don't benefit from those discounts. They're exposed to the list price and face bruising costs at the pharmacy counter. That's clearly unfair, which is why the Trump administration is trying to reform the rebate system in Medicare.

Gilead Sciences Inc. and Amgen Inc. announced lower-priced versions of hepatitis C and cholesterol medicines last year. But Lilly's Humalog discount is a more direct response to public outrage and is arguably more significant. Unlike those other drugs, millions of people use insulin on a daily basis and will do so for the rest of their lives. That means insulin costs have an outsize impact on patients and their families.

High prices at the pharmacy can lead people to skip doses or ration their insulin, which can lead to serious medical consequences. Bringing down list prices should mean that fewer patients have to make hard choices. Not only that, because Lilly is a market-leader, its move will have an even bigger long-term impact. If general scrutiny and a Congressional investigation into insulin pricing weren't enough, competing firms now have to worry about ceding more market share to Lilly if they don't also cut list prices. Drugmakers in other similar markets may feel pressure to follow along.

While the pricing move is a step forward, some critics will say it doesn't go far enough. Humalog is still cheaper in other countries even after the discount. And even if there is a wave of similar price cuts – and that's a big if – there are still expensive swaths of the market where there's little competition. Companies are increasingly focusing their research on areas where they have more pricing power, and launch prices are high and likely to get higher.

But cheaper insulin is an excellent start.

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Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

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