Insulinpreise in Amerika: Schöne Bescherung! (Teil 1)

Often I just can not think of a headline for my blogs. On the other hand, sometimes I can hardly decide on one of many ideas, including this week. I was alluding to Trump the ironic title “No Collusion – No collusion” occurred. But you probably have enough of that. Another idea was in reference to Obama’s mantra “Because we can”. Then a journalist who had written on the same subject had been faster. In the end, only this very narrow title remained.

Price changes (Jan. 1996-Dec.2017)

Source: www.bls.gov, www.ibm.com/watson-health/learn/truven-health-analytics, insulin.substack.com/p/insulin-list-price-data-sources

A sick market

In my view, the US pharmaceutical market is massively disrupted. Instead of a typical “market”, it is more like a system that aims to cup patients in need. For example, the insulin market consists of 30 million diabetics (including 2.5 million type 1 diabetics). Actually, it is a huge dizziness. In that sense, “The Big Dizziness” would have been a good title for this article.

From the outside, the US healthcare system may be difficult to grasp, especially if you have access to general health care yourself. The logic of a private healthcare system is based on market forces and is justified by the high quality. If that’s true, Americans can pay dearly for it. Our UK equity team recently highlighted the big difference between private health insurance costs in the UK and the US when reviewing Spirax-Sarco’s Executive Board compensation . Now guess what country CEO Whalen lives in!

Source: Corporate Report Spirax-Sarco

Market forces can be distorted in basic care products (such as vital medicines) and tightly controlled (or poorly regulated) supply. If suppliers of these products are allowed to inflate prices significantly above the rate of inflation for 20 years, they must be held accountable. In the case of insulin, this should have happened long before the 1171% rise in prices.

I have written a series on abusive pricing and why fairness can provide competitive advantages (see Part I , Part II and Part III) ). Also, I’ve written about the interface between the healthcare system and market forces (see Human Life: A Cost-Benefit Analysis and Can Technology Revolutionize Drug Development and Make It Democratically? ). Under the slogan “Healthy Healthcare”, our analyzes led to a long-term investment theme for our portfolio.

We believe that companies that achieve better medical outcomes and reduce healthcare costs will generate long-term shareholder value. We believe that this category includes our bottom-up stock selection, including Insulet, Peptidream, Cochlear, Illumina, Penumbra, Medidata, Diasorin, Amplifon, and Veracyte. Conversely, companies doing the opposite should increasingly come under pressure. In many cases, the pharmaceutical companies are targeted because they enforce inappropriate price increases with at most low added value.

Let’s get back to insulin. How and why could prices rise so rapidly? Let’s look at a few reasons.

The dark art of “patented generics”.

In reality, insulin is in my opinion a patented generic. I mean that the insulin formulas have not improved significantly in 20 years. Although the purity was increased and formulas optimized, the costs were relatively manageable. Above all, it was just enough to protect the patent and keep generics off. These improvements justify the annual price gouging. According to the medical journal Lancet, 90% of US patients are treated with the most expensive insulin preparations. I therefore strongly believe that diabetics are being used to massively subsidize research and development in other drug categories. That would be a small consolation.NB: All of this seems perverted, considering that Frederick Banting (who discovered insulin in 1923) thought it unethical to patent his patent or make money. His co-inventors sold the patent for $ 1.

Opaque system

Most diabetics in America need to pay for insulin. So the health insurers take over part of the bill. But if the insurers are asked to pay, why not fight for price cuts or for a regulation of cheaper drugs? This is where the Pharmacy Benefit Managers (PBMs) come in and everything becomes very complicated and opaque. A complete definition of PBM tasks can be found here . In a nutshell, these are purchasing groups that are supposed to lower pharmaceutical prices on behalf of health insurers and patients. As an intermediary, they may put part of the rebate negotiated by them into their own pockets. That sounds pretty reasonable at first glance.The only catch is that they do not have to disclose either the negotiated discount or their own portion of the pie. The net price is a closely guarded secret. Patients can not see how much of the discount will be passed on to them.

Will the goat be made a gardener !?

All PBMs have since been taken over by health insurers. Thus, they cancel out the rebate portion of the PBM and at the same time pass on the increase in prices through higher insurance premiums and deductibles to patients. Based on coordinated competition, insurers pass on price increases for insulin to patients and at the same time receive the share of PBM.

A perfectly functioning system will never exist. The pharmaceutical companies will of course push for price increases. The market mechanism should, however, in some ways keep prices in check. Not even close!

Next week I explain why ……….

 

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