Price caps on Insulin make for positive headlines but Diabetics need officials to address the cause vs simply treating the symptoms

From the Diabetic Kid at President Biden’s State of the Union Address to discussions about price caps, the conversation is progressing, but government price fixing will not help diabetes.

"Joshua is here with us tonight. Yesterday was his birthday. Happy birthday, buddy.” For Joshua, and for the 200,000 other young people with Type 1 diabetes, let’s cap the cost of insulin at $35 a month so everyone can afford it. Drug companies will still do very well," said President Biden.

Joshua Davis, a middle school student from Virginia who is an advocate for affordable access to diabetes treatment, was seen clapping and encouraging others to stand during parts of Biden's speech to a joint session of Congress in 2022. At one point, Biden highlighted Davis's work and called on Congress to make insulin more affordable.

In recent years, the conversation around healthcare affordability has brought insulin into the spotlight, particularly with advocacy for federal government intervention in setting insulin prices. For type 1 diabetics, insulin is vital to their survival. Without insulin, they die. For type 2 diabetics, insulin is often used in a treatment regiment, but does not normally have the same life ending consequence as removing it does for type 1 diabetics.

While the intention to make this vital drug accessible for the millions of Americans with Diabetes is noble, the economic implications of such a policy warrant a critical examination. Here's why federal price setting for insulin could be a misstep in economic policy:

1. Disruption of Market Dynamics

The pharmaceutical market, like any other, operates under the influence of supply and demand. When the government sets prices, it bypasses all these fundamental market mechanisms. Fixed prices can lead to shortages if the price is set below what producers need to cover their costs or encourage companies to shift manufacturing focus to other, more profitable drugs. Conversely, overproduction if the price is set too high. This distortion can result in:

• Shortages: If insulin prices are capped at an artificially low level, manufacturers might not find it profitable to produce or might reduce production, leading to shortages. This has been observed in countries with price controls on pharmaceuticals.

• Innovation Stagnation: Pharmaceutical innovation is costly. When profits are curtailed, the incentive for companies to invest in new research and development diminishes. This could slow down or halt the development of new insulin variants or treatments for diabetes, which could be more effective or have fewer side effects.

2. Quality and Supply Chain Issues

Government price caps might lead manufacturers to:

• Cut Corners: To maintain profitability, companies might reduce costs by compromising on quality control, research, or even sourcing cheaper, less reliable raw materials.

• Supply Chain Disruptions: Companies might decide to pull out of markets where they can't achieve desired profit margins, leading to fewer choices for consumers and potential supply chain vulnerabilities.

3. Inefficiency in Resource Allocation

Centralized price setting often results in:

• Misallocation of Resources: The government might not have the nuanced understanding of each drug's production costs, demand variability, or true value to patients. This can lead to resources being inefficiently allocated across the healthcare sector.

• Bureaucratic Overhead: Implementing and managing price controls requires significant bureaucratic machinery, which can be costly and potentially less agile than market-driven adjustments to price changes.

4. Long-Term Economic Impacts

• Tax Burden: If the government subsidizes insulin to cover the gap between the capped price and actual cost, this could increase the tax burden on citizens.

• Market Exit: Smaller pharmaceutical companies might find it unsustainable to compete, leading to less competition and potentially higher prices in other drug categories or those companies would be taken over by the government in order to maintain production aka Socialism.

5. Unintended Consequences on Patient Care

• Access vs. Affordability: While capping prices might make insulin more affordable, if it leads to shortages, it ironically could reduce access to the drug.

• Healthcare System Strain: If costs are passed onto other healthcare areas due to price caps in one sector, this might increase overall healthcare costs or lead to reduced quality in other services.

My unCommon Sense

When I went to fill my insulin Rx’s in January a few years ago, my out of pocket expense for 30 days of (2) types of Novo Nordisk insulin, 30 days worth of test strips, and syringes was just over $1600 with insurance coverage. Not too long after that and thanks to a friend, I learned about a program through Novo Nordisk that allows patients to get up to a certain amount of (2) types of insulin for $99/month. The only caveat to this program is that the Rx cannot be run through insurance. You get a Discount Card via the website and pay the cash price. This allows the manufacture to get their meds into the hands of their patients without the added costs of the “middle men,” insurance companies and PBMs.

While the goal of ensuring access to essential medications like insulin is commendable, the approach of federal price setting carries significant economic drawbacks. It can disrupt market dynamics, stifle innovation, compromise quality, and lead to inefficiencies that could ultimately hinder rather than help the very people it aims to serve.

A more balanced approach might involve:

• Negotiating bulk discounts through Medicare or other governmental purchasing power.

• Encouraging competition by fast-tracking generic drug approvals.

• Supporting research through grants or tax incentives rather than direct price control.

• Removing the “Middle Men” (aka Pharmacy Benefit Managers - PBMs) and other cost increasing steps in the distribution system from the manufacturer to the end patient. Our medication distribution system (what happens in the process between the time the doctor writes the Rx to the time the patient receives the Rx from their pharmacy).

By understanding these economic implications, policymakers can better design strategies that enhance access to insulin without the collateral damage to market health, innovation, and are able to focus on the actual problem vs just the symptoms. Follow the $$$ and you can see where reform needs to start.

By understanding these economic implications, people (diabetics and their supporters) can direct their efforts in a more meaningful direction vs just pressuring their elected officials. I am cautiously optimistic about what RFK and the MAHA movement may do with their recent assentation to power.

If you want to chat about your thoughts on this topic, please send me an email dan@thrailkill.us or drop me a message using the button below. Would love to meet for coffee or a beer.

Have a good one,

Dan