Minnesota venture capitalist Andy Slavitt often goes to Washington, D.C., to talk health care policy, informed by his experience as a senior health policy official in the Obama administration.
What’s surprising to learn from his social media posts is that he has lately been there asking whether it’s time to give up any hope for the private market for insulin.
Just take over insulin from the drug companies. Nationalize it.
“Yes, I went full socialist,” he wrote on Twitter after appearing on a panel in April at the National Academies of Sciences, Engineering and Medicine. “I feel the same way about clean air, by the way.”
From what I’ve read, Slavitt is far from a proper socialist. His point may simply be that insulin is too important to too many Americans to be controlled by private companies that are interested in making as much money as they can.
The odds of Slavitt quickly winning this argument seem long, but players in health care may still want to pay attention to this kind of story. Given the structure of the insulin market and the incentives, what has happened seems inevitable. But at some point people won’t put up with any more price increases.
Pharmaceutical pricing has been making headlines for years, but part of what makes insulin so interesting is its origin story in Toronto nearly 100 years ago. The inventors essentially gave away their patent rights for nothing, thinking nobody should profit from a lifesaving invention like this.
Insulin in some ways maybe can’t even be considered a medicine. It’s a hormone our bodies create, although some people’s bodies don’t make enough or their bodies start resisting the insulin they produce, resulting in diabetes.
Scientists have found ways to produce better commercial insulin over the years, improving the lives of people with a chronic condition. That has led to the introduction more recently of products like Eli Lilly and Co.’s Humalog, which seems to often pop up in stories about out-of-control insulin prices.
Lilly launched Humalog in 1996, and between 2009 and 2017 the wholesale price of a single vial went from $92.70 to about $275, according to a story this year by Kaiser Health News. That’s a rate of increase about 13 times the consumer price inflation rate.
As Slavitt pointed out in a Twitter post last week, an annual cost of insulin now might be $4,000 to $6,000. While health insurance certainly helps cover the bills, many insulin users have high-deductible plans.
That leads to another interesting aspect of the story: maybe one in four people, as reported earlier this year in a relatively small study at Yale University, admitted to trying to stretch their insulin, delay filling a prescription or otherwise using less than prescribed, all because of insulin’s cost.
I don’t know at what point cutting back from physician-prescribed amounts becomes dangerous. But precisely zero cutting back sure sounds like the right choice.
Insulin demand, by the way, isn’t supposed to be all that price sensitive. As a product people literally can’t live without, insulin is a common example used in economics to illustrate what’s called the price elasticity of demand.
Elasticity varies a lot, as demand for some products will collapse if the price increases even a little, particularly products with close substitutes. Other examples of inelastic products besides insulin include things like household electricity, as it gets dark every winter evening and the kids need to see to do their homework, no matter what electric light costs. Of course, electricity is also regulated.
Given the results of the recent study, maybe it’s no longer fair to call insulin an inelastic product, if people really can’t find a way anymore to keep paying more for it.
As it seems with everything in health care, the market for insulin is a complicated one. The preferences of physicians matter, and they don’t pay for the drug or use it. There’s also the jostling going on among government agencies, pharmacy benefit managers, health insurance plans, and so on. But in the case of insulin, the market is still supplied by three major players.
One potential solution for escalating prices is the introduction of generics, meaning cheaper versions of the same thing as a branded product like Humalog. On the other hand, the one competing knockoff product with significant volume in the market, going head-to-head with a bestseller made by the French pharmaceutical giant Sanofi S.A., happens to be marketed by Eli Lilly.
This sure looks like an oligopoly, a market where there are so few competitors that it’s pretty easy for them to act in concert. They might compete fiercely for specific groups of customers or even geographic markets, but they can also tacitly agree to hold their fire on price competition, enabling them all to increase prices.
So with an oligopoly serving a market for a relatively inelastic product, maybe the remarkable thing is that prices have not increased even more.
The strategy of increasing prices can’t work forever, though. Eventually the public will demand the government step in to fix the problem. Political pressure seems likely to be what’s behind the announcement by Lilly this spring of a half-price version of Humalog, not changes in the economic incentives.
Slavitt has already decided it may be time to take the pricing decision out of the hands of the likes of Lilly and Sanofi. By the way, in his talk at the National Academy he only mentioned insulin briefly amid a much broader set of suggestions, and his only other candidate for nationalization seemed to be ambulance service.
“People want one thing, when you strip away all the buzzwords,” he told this audience in Washington. “People want to be able to able to take care of their family if somebody gets sick. And they want to be able to afford to keep them healthy.”
“And when they can’t do that, it’s an existential crisis,” he continued. “Because you don’t feel like an adequate parent. You don’t feel like you can capably lead a middle-class life.”