Sunday, June 25, 2023

Like Don Quixote Chasing Windmills, I Aim to See Financial Remediation for Patients Still Suffering in a Predatory U.S Healthcare System

Sometimes, I feel (if you pardon the metaphor) a bit like Don Quixote chasing windmills with my efforts to see true financial remediation introduced in the predatory U.S. healthcare "system" (and I am glad to see that the term "predatory" is now being used by a growing number of medical doctors, which I think is great).

Until March 2023, patients with autoimmune Type 1 diabetes suffered insane price inflation on insulin which they needed for their very survival. Many people have heard stories, such as the one about Alec Smith, a Minnesota young man who died in 2017 of DKA (at age 26) when he was no longer eligible to be covered under his parents' healthcare insurance. Because Alec made too much money as a waiter to qualify for Medicaid, and his job did not provide health insurance, he was forced to pay more than $1,300 a month for insulin and supplies, which was almost half of his salary. So he rationed his insulin in an effort to make it last just a little bit longer, but ultimately succumbed to DKA because of that. His mother has done an excellent job of keeping his story alive.

I recently wrote a letter to the U.S. Federal Trade Commission ("FTC") antitrust division, along with three of the FTC commissioners about so-called "formulary exclusions" being marketed by PBM's as a way to keep competitive products away from patients.

Aside  from the first paragraph below, what follows is the text of a letter I recently sent to the Federal Trade Commission (FTC) Antitrust Division. I also cc'd three of the FTC commissioners: Chair Lina Khan, Rebecca Kelly Slaughter, and Alvaro Bedoya on the chance that just maybe one would read my letter and decide to forward it to some of the FTC staffers currently working on the FTC's 6(b) study on vertically-integrated Pharmacy Benefit Managers (PBMs). I was delighted when on Monday, June 26, 2023 when Lina Khan responded to my email with the following: "Thanks Scott for sharing this information. I am looping our team." and she copied 9 of the FTC staffers working on the 6(b) study! I was really thankful.

If my name sounds vaguely familiar, the reason is because I wrote to FTC on September 13, 2021 when the agency was soliciting public input on the competitive impact on "rebate walls" on the U.S. prescription drug market. Once again, I appreciate the opportunity to submit a written statement for the Federal Trade Commission ("FTC") to review about vertically integrated Pharmacy Benefit Managers ("PBM's")  and the impact those entities have on prescription affordability for patients (who are the last entity in a very long line of drug distribution system intermediaries). When the FTC 6(b) study on the six largest vertically integrated PBMs' business practices was approved unanimously on a bipartisan basis by FTC on June 6, 2022 (FTC Matter No. P221200) and then initiated, patients such as myself had a real sense of optimism of what that study might formally reveal, and also the prospect for remediation of an industry which had grown primarily by acquiring its rivals, but not by offering superior or less costly products/services. 

I envision a type of financial remediation whereby patients will be able to get access to the care they need without having to face financial predators trying to pick their pockets with illegal discount bribes standing in the way of their getting access to things they need like insulin, CGM senors and related treatments.

We now have solid evidence that the excess complexity of the U.S. prescription drug distribution system perpetrated by vertically-integrated Pharmacy Benefit Managers ("PBM's") and a concurrent PR strategy by the PBM trade organization known as the Pharmaceutical Care Management Association (known by the acronym "PCMA") has invested considerable sums to persuade federal policymakers and the public that the reason prescription drug prices in the U.S. are so high is "anyone-but-us" attributed to pharma setting drug prices high without acknowledging the reason the industry sets list prices so high in the first place: so they can rebate it all back to PBM's.

But on February 22, 2019, the U.S. Senate Finance Committee led by Senators Charles Grassley (R-IA) and Ron Wyden (D-OR) launched truly bipartisan investigation into why U.S. insulin prices were going up inexplicably in spite of no therapeutic advancement while prices for the same insulins in every other country were stable or declining, and the study which was published on January 14, 2021 (for access, visit for the news release and the report), revealed that U.S. insulin prices were being manipulated by Pharmacy Benefit Managers, and that prices were rising in order to pay ever-higher "rebates" demanded by Pharmacy Benefit Managers to secure formulary placement.

Academic research undertaken by the University of Southern California (see then validated the Senate Finance Committee research and added additional information. Research published in the November 2020 issue of JAMA Health Forum by the USC Schaeffer Center offered one of the most comprehensive looks at the insulin distribution chain and shows exactly which players were profiting, by how much, all from selling insulin. The conclusion was that insulin's list price had indeed been going up, not down, with trade secrets and other protections preventing many researchers from pinpointing exactly who was receiving profits from its sale. Meanwhile, the realized "net" price — what manufacturers receive after accounting for all the discounts and payments to distribution system entities—had been falling. USC researchers analyzed the flow of money across all distribution system participants — manufacturers, wholesalers, pharmacies, PBM's, and health plans — and found that middlemen in the distribution process were then taking home approximately 53% of the "net" proceeds from the sale of insulin, up from 30% in 2014. Meanwhile the share going to manufacturers had fallen by 33%.

I mentioned in my letter that insulin prices continued to rise until something happened in March 2023. What happened at that time?

The short version is that on March 1, 2023 Eli Lilly & Company, Inc., then on March 14, 2023 Novo Nordisk, Inc. and on March 16, 2024 Sanofi-Aventis U.S. LLC (and its subsidiaries) each announced major list price cuts for their (but patent-expired) branded and unbranded insulins (duplicates sold under the generic drug name in an effort to bypass PBM-driven price markups), and to pay for those price-cuts, the major branded insulin manufacturers would simply disintermediate the PBM's from the transactions. In other words, they would slash prices on patent-expired insulins, and to pay for the price-markdowns, simply cut the PBM's out of the transaction.

Of course, the price-cuts bankrolled by disintermediation of PBM's did not occur in a vacuum. The price-cuts only happened thanks to series of unrelated events.

For example, on March 23, 2020, the U.S. Food and Drug Administration (FDA) formally passed a final rule (see for more), whereby an application for a biological product originally approved under the Federal Food, Drug, and Cosmetic Act (FD&C Act), including applications for most insulins and other biological products including human growth hormone were deemed to be a license for the product under the Public Health Service (PHS) Act. That, for the first time, enabled submission of applications for products that are proposed as biosimilar to, or interchangeable with, the transitioned products. As such, the transition of insulin products from approved drug applications to deemed biological product licenses formally opened up those products to potential biosimilar and interchangeable competition.

But that also required a robust biosimilars market to emerge which was not guaranteed (and that remains true).

However, a number of publicly-held (or, in the case of one entity, a formerly publicly-held) companies which have publicly disclosed via SEC filings, press releases, investor presentations, etc. plans to sell insulin biosimilars.

For example, in December 2018, Sandoz, (which is now formally being spun-off as a stand-alone company from Novartis AG; forecast to be completed in August 2023; the new company will be headquartered in Switzerland and will be listed on the SIX Swiss Exchange, with an American Depository Receipt program in the U.S.) announced a partnership with Beijing, China-based Gan & Lee Pharmaceuticals, Ltd. At the time of the announcement (see, Sandoz cited its reasons for partnering with Gan & Lee in its press release:

"Gan & Lee is a leading insulin supplier headquartered in China with more than 20 years' experience in insulins and production capacity with attractive cost of goods sold (COGS) structures."  

Hence, the company's main reason for choosing an offshore partner to manufacture the Active Pharmaceutical Ingredients ("API") was due primarily to its low cost of goods sold because Sandoz could have made them in-house. In Gan & Lee's 2022 annual report (see, if you fast forward to page 62 of 375, we know exactly what the "attractive cost of goods sold" which Sandoz boasted about back in 2018 actually are. Specifically, the costs were disclosed in Chinese Yuan, referred to as "CNY", so using current currency exchange rates, the U.S. Dollar (USD) amounts revealed at the time were: Insulin glargine injection 143.97 CNY = $20.83 USD, Insulin lispro injection 60.00 CNY = $8.68 USD and Insulin aspart injection 59.63 CNY = $8.62 USD (note: Gan & Lee refers to the prices on a "per unit" basis, which is presumed to be the cost of an internationally standardized 10 mL ampoule or vial of insulin).

Since the original 2018 Sandoz announcement of its biosimilar insulins, partner Gan & Lee has also revealed via public disclosures that the U.S. FDA has formally accepted it's Biologic License Applications (or "BLA," making it the first Chinese company ever to do so) for biosimilars of insulin glargine,  insulin lispro and insulin aspart The planned insulin biosimilars are anticipated (assuming they're ultimately approved by FDA) to gain not only approval but eventually also the "interchangeable" designation with the innovators, and are likely to hit the U.S. market in early 2024 presuming FDA disclosure that approvals (or denials) are typically granted in about 11 months from the initial date the BLA's are accepted.

A second company, specifically Rancho Cucamonga, CA-based Amphastar Pharmaceuticals, Inc. has been somewhat less forthcoming about its biosimilar insulin plans, but in an investor presentation made on June 8, 2022 at the Jefferies Healthcare Conference ( — see slide #18), the company disclosed that it had then several insulin biosimilars in development, including both insulin glargine, insulin aspart, and interestingly, several biosynthetic human insulin varieties (most likely very high-concentration U-500 versions used primarily by patients with insulin-resistant Type 2 diabetes for which Eli Lilly & Co. is the only current supplier).

A third company, specifically Lannett Company, Inc. in 2016 formally announced a partnership with YiChang HEC ChangJiang Pharmaceutical Co., Ltd., an HEC Group company (Lannett was formerly a publicly-held company whose SEC filings were filed under the stock ticker "LCI"; in May 2023 the co. announced a debt-for-stock trade in a bankruptcy reorganization filing which was followed by a deal to hand control of the business to the company's lenders and cut its debt in exchange for voting control of the company. However, Lannett's prior SEC filings remain on the SEC's Edgar database), see one press release acknowledging the company's insulin glargine and insulin aspart biosimilar insulins at provides somewhat more information from the company about its insulin glargine and insulin aspart biosimilar development program.

A fourth company, specifically the consumer facing business known as CivicaScripts operating unit of the Lehi, UT-based Civica, Inc. on March 3, 2022 announced that it intended to sell biosimilars of the three bestselling insulins (insulin glargine, insulin lispro and insulin aspart) forecast for 2024. Civica is an outlier in that it is a nonprofit drug manufacturer which announced on March 3, 2022 that it intended to enter the U.S. insulin biosimilars market. However, Civica is following the pattern of other biosimilars in that it will procure the insulin API from Hyderabad, India-based GeneSys Biologics. The original company press release (see revealed the API source for the insulin, while nonprofit co-development partner JDRF made a concurrent announcement at which disclosed planned biosimilar insulin prices was an atypical example, but, the Civica biosimilars plan effectively forced rivals to match the co's maximum out-of-pocket prices of no more than $35/vial or $55/box of 5 prefilled insulin pens really put pressure on the branded-insulin manufacturers to match or beat its prices.

With insulin prices on the decline, one might presume that insulin-users can finally breathe a sigh of financial relief. Alas, the PBM's highly-questionable and vulturous business practices are finding new ways to steal money which manufacturers pay them to reduce prices and instead use the cash they are paid to enrich shareholders instead.

Instead of taking rebates paid by insulin manufacturers to line their own pockets as the PBM industry had been doing, the PBM's are now playing games with rebates paid on the medical devices known as Continuous Glucose Monitoring (CGM) systems instead, taking money intended to reduce patients' out-of-pocket expenses in order to pay themselves instead.

Currently, there are only a handful of CGM manufacturers, just as there were only a handful of major branded insulin manufacturers until biosimilars became a possibility. Dexcom, Inc. currently dominates the U.S. market because it was the first to come to market in a big way. But in order to prevent any price competition from emerging, Dexcom currently pays PBM's rebates which are contingent on formulary exclusion for rival CGM's made by Abbott Laboratories, Inc. As I posted recently (see for more), United Healthcare found an interesting work-around to keep collecting rebate dollars from Dexcom while also covering a rival CGM system (credit for that belongs to Senseonics/Ascencia) which seems like fraudulently taking Dexcom's money, but I don't really pitty Dexcom because its trying to prevent patients from having access to a rival anyway.

Formulary Exclusions: Legally-Exempted Rebate Kickbacks Paid to Exclude Cheaper Products from Formularies

How do I know this is happening? Thanks to public reporting, we know with certainty that formulary exclusions are a way PBM's extract more money from manufacturers who pay the PBM's rebates. How does it work? Pembroke Consulting's CEO Adam J. Fein blogged on his "Drug Channels" blog describes the situation this way:

"The practice of formulary exclusion began in 2014" (see for the 2022 info. on formulary exclusions) adding in a more recent blog post "Formulary exclusions have emerged as a powerful tool for PBM's to gain additional negotiating leverage against manufacturers. The prospect of exclusion leads manufacturers to offer deeper rebates to avoid being cut from the formulary. Exclusions are one of the key factors behind the large gap between list and 'net' prices for brand-name drugs." (see for the 2023 formulary exclusions).

In other words, the prospect of being excluded from a PBM's preferred 'drug' formulary (which now also includes certain medical devices such as blood glucose test strips and continuous glucose monitors or "CGM's" used to treat diabetes) is the motivation. CGM manufacturers view themselves as somehow being different from drug manufacturers, but the PBM's do not. Rebate aggregation is the same regardless of who's paying the rebates.

CGM's are relatively new in being commercialized via the PBM retail pharmacy channel. They were previously sold via the Durable Medical Equipment ("DME") channel.

According to the digital magazine Medical Device + Diagnostic Industry ("MD+DI"), see for the article) the largest CGM manufacturer Dexcom, Inc. really began migration away from the Durable Medical Equipment ("DME") business model to the pharmacy benefit business model in 2015 (around the same time that PBM's began actively "selling" the idea of rebates paid to them in order to exclude less costly rival products from their preferred drug formularies). FTC noted in its 2022 revised policy statement (see, "drug companies and prescription drug middlemen on notice that paying rebates and fees to exclude competitors offering lower-cost drug alternatives can violate competition and consumer protection laws. The agency will use its full range of legal authorities to combat illegal prescription drug practices that foreclose competition and harm patients."

The revised FTC policy statement acknowledges (see

"The Commission has several legal authorities that may apply to these practices, including Section 5 of the FTC Act, Section 3 of the Clayton Act, Section 2 of the Robinson-Patman Act, and the Sherman Act.

Exclusionary rebates that foreclose competition from less expensive alternatives may constitute unreasonable agreements in restraint of trade under Section 1 of the Sherman Act; unlawful monopolization under Section 2 of the Sherman Act; or exclusive dealing under Section 3 of the Clayton Act. Moreover, inducing PBMs or other intermediaries to place higher-cost drugs [and/or medical devices] on formularies instead of less expensive alternatives in a manner that shifts costs to payers and patients may violate the prohibition against unfair methods of competition or unfair acts or practices under Section 5 of the FTC Act.

Finally, paying or accepting rebates or fees in exchange for excluding lower-cost drugs may violate Section 2(c) of the Robinson-Patman Act, which prohibits payments to agents, representatives, and intermediaries who represent another party's interests in connection with the purchase or sale of goods."

In spite of the revised FTC policy statement, formulary exclusions are actively being marketed by vertically-integrated PBM's to medical device manufacturers and drug/biotech companies as a way to preclude any genuine competition. Excluding your competition sounds alluring to the manufacturers (even if it's illegal according to FTC).

Peculiar PBM Mathematics on CGM Sensor Coverage Using the Pharmacy Benefit Coverage of Insurance

For 2023, several of vertically-integrated PBMs published lists of their formulary exclusions, and guess what? Less costly CGM used to monitor blood glucose levels are actively being excluded to force patients to buy more expensive CGM's instead.

One resource open to patients can use to check prescription prices is Costco's Member Prescription Program If Costco Pharmacy actually carries a particular item, the items and their prices are listed on Costco's Member Prescription Program's website. Costco Pharmacy apparently carries CGM sensors from both Dexcom, Inc. and Abbott Laboratories, Inc. As of the day I write this letter, the prices are as follows:

  • 1 Box of Dexcom G6 Sensors (each box contains 3 sensors) is $183.84 (or $61.28 per sensor)
  • 1 Box of Dexcom G7 Sensors (each box contains 3 sensors) is $171.99 (or $57.33 per sensor)
  • 1 Box of Abbott Freestyle Libre 3 Sensors (each box contains 2 sensors) is $118.51 (or $59.26 per sensor)
  • 1 Box of Abbott Freestyle Libre 3 Sensors (one box contains just 1 sensor) is $59.65

So, in other words, the cash prices for CGM sensors ranges from $57.33/sensor to $61.28/sensor. But the cost calculation is NOT complete yet. The reason is because the wear-time for CGM sensors varies. For example, Dexcom G6/G7 sensors enable users to wear the CGM sensors for 10 calendar days, while Abbott Freestyle Libre 3 sensors can be worn for 14 calendar days. More frequent CGM sensor replacement costs patients more money out-of-pocket unless insurance covers a portion of the cost. Hence a true cost comparison for CGM sensors must also calculate the cost of wearing the CGM sensor on a daily basis.

Using the per sensor CGM costs computed above, then the cash cost per day of wearing CGM sensors is as follows:

  • Dexcom G6 Sensors $6.13 per day of usage
  • Dexcom G7 Sensors $5.73 per day of usage
  • Abbott Freestyle Libre 3 Sensors $4.23 per day of usage

The cost of using the lowest-price Dexcom CGM device (G7) therefore costs 35.5% MORE than using an Abbott Freestyle Libre 3 CGM device costs unless a patient's insurance pharmacy benefit assumes some portion of the cost. Of course, patients might still consider Dexcom anyway in spite of a higher cost. For example, the company has the most partnerships signed on Automated Insulin Delivery ("AID") systems (see, and peer-reviewed medical research studies have shown that patients using AID systems have generally superior glycemic control, and those systems also make life vastly easier for patients, so they may still decide a higher price might still be worth it. But the decision to pay more should not be forced on anyone.

Nevertheless, CVS Health which owns/operates my own insurance carrier Aetna has chosen to cover just enough of the cost of using a CGM device to make it more attractive for me as a covered patient to use my own employer-sponsored insurance pharmacy benefit rather than bypassing my insurance. If I were paying the costs completely out-of-pocket, my cost would have been $6.13 per day for a Dexcom G6 CGM sensor if I bought it at Costco Pharmacy. It's cheaper for me to use insurance.

Caremark's 2023 Formulary Exclusion list (found at, beware: the exclusion list is subject to change at any time), and if one searches under "Diabetes Supplies, Test Strips and Kits", CVS Caremark is currently excluding Abbott Freestyle Libre CGM's as well as "All other continuous glucose monitoring systems that are not DEXCOM brand".

I am covered under an employer-sponsored high-deductible insurance plan which has a $3,000 annual deductible which must be satisfied before any pharmacy benefit becomes effective, with a few exceptions such as for some (but curiously, not ALL) items the IRS added in the July 17, 2019 expansion of "preventive care" benefits (see; also see Notice 2019-45 at that may be provided by high deductible health plans (HDHP) prior to satisfaction of any deductible (curiously, Aetna/Caremark/CVS Health only selectively covers the items on the IRS expanded list, for example, it does not cover any statin drugs for treatment of hypercholesterolemia, and instead charges patients more than they can acquire those drugs elsewhere. I found it cheaper to bypass the pharmacy benefit of my Aetna insurance plan to buy a statin drug, hence I don't involve CVS Health/Caremark/Aetna in the transaction to acquire those generic drugs, but my Aetna high-deductible health plan oddly does cover insulin pre-deductible, but patients are expected to use the brand/variety Caremark prefers based on legally-exempted kickbacks rather than the one their doctors would necessarily prescribe.

Anyway, my Aetna healthcare insurance plan, on May 10, 2023 (prior to having satisfied my annual deductible or maximum out-of-pocket expenses incurred) charged me a price of $116.50 for a box containing 3 Dexcom G6 CGM sensors, which works out to a cost per day of usage of $3.88, which compares to the Costco Member Prescription Program cash price of $6.13 per day of usage if I had paid cash for the same CGM sensor. While my Aetna plan does not cover Dexcom G7, Dexcom offers a $200/month coupon to bypass my insurance if I wish. CVS Health/Aetna/Caremark has chosen to cover SOME of the cost (by my estimate, about half the cost), or else it might risk my simply bypassing my own insurance to buy the CGM sensors and losing any rebate dollars Dexcom might have paid the company as a "rebate". Rational patients might otherwise decide to choose the 35% less costly Abbott Freestyle Libre 3 CGM system which can be worn for 14 days rather than only 10 days with Dexcom, but if they did so and insurance paid nothing, Caremark would collect absolutely nothing in rebates. In other words, the CVS Health decision to cover part of the cost of the CGM sensors was executed with near-surgical precision.

Anyway, since insulin prices are now (finally) moving downward from their artificially-inflated peak, it is appropriate to ensure FTC has knowledge of exactly how corrupt (and possibly illegal) PBM business practices are still impacting patient out-of-pocket costs by demonstrating what we are currently encountering with rebates paid contingent upon formulary exclusions for CGM's. In other words, PBM's have moved on from insulin rebate capture to CGM rebate capture instead.

This is an important factor which needs to be considered in the FTC's 6(b) study of vertically-integrated PBM business practices. Remember what Pembroke Consulting's Adam J. Fein said about formulary exclusions: "[Formulary] exclusions are one of the key factors behind the large gap between list and net prices for brand-name drugs. They can also affect a patient's out-of-pocket costs and access to a particular therapy."

1 comment:

Scott K. Johnson said...

Thank you, Scott, for always pushing such important issues forward so thoughtfully and eloquently. I was pleased to hear about the response from Lina Khan.