Make Insulin Affordable Again

T he three largest insulin manufacturers recently announced seemingly unprompted massive cuts in the pricing of their key insulin products. The White House claims this is due to their Inflation Reduction Act, which limited out-of-pocket insulin costs to $35 per month. But insulin prices are falling because of competition that was set in motion by the Trump administration’s deregulatory efforts.

Over 90 percent of prescriptions in the U.S. today are generics, which can carry lower costs than their branded counterparts. Prior to the Trump administration, the average time for approval of a generic drug was 42 months, despite action taken by Congress to expedite review of generic drug applications. Former Food and Drug Administration (FDA) commissioner Scott Gottlieb lobbied for, and ultimately used, new authorities granted by Congress under the second Generic Drug User Fee Act. His particular goal was to prioritize FDA review of generic drug applications where the economic impact would be the greatest, which is especially for the second and third generics entering a market.

The results were dramatic: a 37 percent increase in generic approvals during Commissioner Gottlieb’s tenure and a 400 percent increase in biosimilar approvals during this time, which was sustained when Commissioner Hahn took over later in the Trump administration. One symptom of the FDA’s new pro-competitive actions was the sharp decline in the stock of Teva Pharmaceuticals during summer 2017, with the CEO stating that the company would be less profitable due to increased competition from additional genetic drugs. Over the course of Gottlieb’s tenure, inflation-adjusted prescription-drug prices fell by an average of 1.5 percent, and prices fell a further 5.1 percent in the subsequent two years, which marked a major reversal after decades of year-on-year price increases. Gottlieb’s policy changes again confirmed well-documented economic principles: Increased competition yields lower prices.

Most generics have been for so-called small-molecule drugs such as statins to lower cholesterol or Ambien for treating insomnia. Gottlieb also pushed the FDA to accelerate approvals of biosimilars, which are essentially generic versions of biologics. Biologics are more complicated drugs made from living organisms such as Humira for treating autoimmune diseases, vaccines for preventing infectious diseases, and insulin. In 2015, the first long-acting insulin competitor, Basaglar, was approved. The first short-acting insulin biosimilar was approved in 2017. In July 2021, the FDA completed its review of the first interchangeable biosimilar insulin, Semglee, after twelve months. The FDA followed this up last November by approving another interchangeable biosimilar, Rezvoglar. That gave patients four options, which is a well-known competition sweet spot.

Biosimilar innovation was also encouraged by policy changes made by Medicare during the previous administration. Initially, Medicare only granted enhanced reimbursement to the first biosimilar product for a biologic, with follow-on products being immediately paid based on the average sales price of all biosimilars linked to a given biologic, including the originator biologic. This policy depressed reimbursement for these biosimilars, reducing incentives for innovation. The Trump administration changed this policy by giving each biosimilar two quarters of enhanced reimbursement upon launch and then reimbursing based on the biosimilar’s unique average sales price in subsequent quarters, without regard to the average sales prices of other biosimilars or its innovator biologic. Medicare anticipated that these changes would lead to additional biosimilar innovation, increasing competition and decreasing costs. The evidence collected since this rule change appears supportive: Biosimilar savings have more than quadrupled since 2017, reaching $13.2 billion last year. This shows that unleashing competition is key in bringing down prescription-drug prices, as opposed to government interventions in market-pricing dynamics.

Despite these free-market successes, and even the regulations of the Inflation Reduction Act, Democrats are calling for more control and more federal power. Senator Bernie Sanders wants to cap prices at $20 per month, while Senator Raphael Warnock advocates expanding the IRA’s price cap to the private market. The bill may be bipartisan, but the evidence is that regulation is the wrong approach to decrease prices.

Market forces are more than enough to bring down insulin costs, especially with regulators out of the way.

Mr. Mulligan, an economics professor at the University of Chicago and a fellow with the Committee to Unleash Prosperity, was chief economist for the White House Council of Economic Advisers, 2018-19. Joe Grogan is a Visiting Senior Fellow at the USC Schaeffer Center and served as Domestic Policy Advisor to President Donald J. Trump. Mr. Grogan consults for the pharmaceutical industry.