County Files Lawsuit Over Insulin Price Fixing Scheme
Joins national lawsuit charging big pharmacy and insurance companies with racketeering.
Milwaukee County has filed a federal lawsuit against some of the biggest pharmacies and insurance companies in the country, alleging they have orchestrated a sophisticated and highly profitable price-fixing scheme inflating the cost of insulin.
The companies named as defendants are allegedly involved in the scheme that has intentionally manipulated and inflated the price of insulin, causing vials that cost $2 to produce to sell for as high as $700. It ultimately alleges that the defendant defrauded and damaged the county by consistently, and systematically, overcharging it for insulin in the health plans it provides county employees.
The suit is another multi-district litigation joined by the county. The county recovered a $102 million settlement from opioid distributors and manufacturers through multi-district litigation in 2021 and 2023.
The complaint lays out a scheme, that has taken shape over decades, whereby the biggest players in the industry have gobbled up their competition, created a system of secret payments in exchange for market access and colluded to raise prices. Meanwhile, the companies are alleged to have deceived their customers by not telling them about the alleged corrupt business practices inflating the cost of insulin.
The suit names 21 defendants, including some of the biggest names in pharmaceuticals and insurance: Eli Lilly and Company, Novo Nordisk, Sanofi-Aventis, Express Scripts, CVS, OptumRx and United Health.
The lawsuit was filed in the U.S. District Court of New Jersey by a team of attorneys from around the country, led by Baron & Budd, a national plaintiffs law firm. It alleges violations of the Racketeering Influence and Corrupt Organizations Act (RICO), violation of the Wisconsin Deceptive Trade Practices Act, Common Law Fraud, Civil Conspiracy and Unjust Enrichment.
Some of the information contained in the complaint is drawn from bipartisan congressional investigations into insulin price fixing, which reached many of the same conclusions laid out in the complaint.
At the center of the scheme is a group of corporate actors known as Pharmacy Benefit Managers, or PBMs, which act as middlemen, in the supply chain. They are owned by the same entities that own the largest insurance companies in the country and control manufacturers access to the market, using this power to charges billions in costs that are ultimately passed off on the consumer.
“These relationships place PBMs at the center of the flow of pharmaceutical money and allow them to exert tremendous influence over what drugs are available nationwide, on what terms, and at what prices,” the complaint alleges.
Manufacturer, PBM, Formulary, Fraud
From its creation, insulin was supposed to be an affordable, life-saving therapy. It was invented in the early 20th century and the researchers who created it sold their patents for $1 each; one of them, Sir Frederick Banting, proclaimed “insulin does not belong to me, it belongs to the world.”
Similarly, PBMs, the middlemen defendants in the lawsuit, were also created with ostensibly honorable intent: to negotiate drug prices with manufacturers. But the same instrument that could be used to drive costs down has instead been turned around and used to drive costs up. The instrument is the drug formularies maintained by the PBMs, which are essentially the lists of drugs a PBM has approved.
The three PBMs named in the suit — CVS Caremark, Express Scripts and OptumRx — are the three largest in the U.S. and they were created through the consolidation of more than 40 other PBMs. Today they control the drug market, controlling 80% of drug benefits for approximately 270 million Americans, according to the complaint.
This market power and control of the formularies could be used to drive prices down. But if prices go down, the fees and payments PBMs collect from the manufacturers also go down. This incentivizes the manufacturers to raise their prices, raising the fees collected by the PBM, which the complaint calls “kickbacks,” in exchange for listing on the formularies.
These lists are created in collusion between the PBMs and the manufacturers, which regularly meet and share confidential information to set prices and decide which drugs make it on the list.
As a result manufacturers have greatly raised prices, increasing the cost of insulin up to 1000%, frequently in lockstep with one another. This increases their revenue, increases the size of kickbacks to the PBMs and also increases their tax breaks, according to the complaint. When a manufacturer donates insulin, the value of the donation is based on the inflated list prices, increasing their annual charitable deduction.
Using some of the inflated cost to pay the PBMs, and also turning around and collecting greater tax breaks as the cost of any insulin they charitably donate increases the annual deduction they can claim, according to the complaint.
The PBM defendants are owned and controlled by entities that also own the largest insurance companies — Aetna, Cigna, and UnitedHealthcare. The PBM defendants also own three of the top five largest pharmacies in the U.S. These entities decide which pharmacies are included in their network and how much they will reimburse the pharmacy for insulin; then the PBM pockets the difference.
“In other words, the PBMs charge a client payor more for a drug than the PBM pays the pharmacy and pockets the difference,” according to the complaint.
The complaint alleges that the defendants are running a racket and perpetrating fraud.
“By intentionally and falsely inflating the list prices, by misrepresenting the purpose [of payments for formulary access], and by subsequently failing to disclose such practices to [the county], each Manufacturer Defendant and each PBM Defendant engaged in a fraudulent and unlawful course of conduct constituting a pattern of racketeering activity,” according to the complaint.
Government Attention
Through the price-fixing scheme detailed in the complaint, the PBM defendants are generating more than $300 billion in annual revenue. Meanwhile, the defendants only spend a few million a year lobbying Congress and federal agencies in furtherance of the scheme, according to the complaint.
However, the complaint noted, as public outcry and political pressure have increased, the companies have begun to pour more money into their lobbying operations. For example, in 2017, NovoNordisk spent $3.2 million lobbying Congress and federal agencies. At the time it was the biggest investment in lobbying among any of the defendants. But by 2023, the company was spending $5.1 million. The same year Eli Lilly spent more than $8.4 million on lobbying and Sanofi spent more than $5.4 million.
In 2019, the U.S. Senate launched an investigation into insulin pricing. Two years later the results were released.
“This industry is anything but a free market when PBMs spur drug makers to hike list prices in order to secure prime formulary placement and greater rebates and fees,” said Sen. Chuck Grassley (R-IA), who launched the investigation as chair of the Senate Finance Committee along with ranking member Sen. Ron Wyden (D-OR).
“These findings make it clearer than ever why Congress must make fundamental reforms to the way drugs are priced and paid for,” Wyden said at the time.
The next year, Congress passed The Inflation Reduction Act, which included a provision capping insulin prices for seniors on Medicare. As a result Sanofi, Novo Nordisk and Eli Lilly capped their co-pays at $35, but only for Medicare patients.
The Cap Inflation Prices Act was introduced in the U.S. Senate in 2023 by Sen. Josh Hawley (R-MO). It never made it out of committee.
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