California government ill-equipped to enter insulin business – Orange County Register
California’s recently passed $308 billion state budget included a $100.7 million program to enable the state to produce low-cost insulin. Of this amount, $50 million is earmarked for product development and $50 million is for the construction of a manufacturing facility in the state.
“Nothing illustrates market failures better than the cost of insulin. Many Americans face out-of-pocket expenses ranging from $300 to $500 a month for this life-saving drug,” Governor Gavin Newsom noted when announcing the insulin plan’s passage. “California is now taking matters into its own hands.”
While it is very unfortunate that Americans pay high prices for life-saving insulin, high insulin prices are caused by a maze of regulations, bureaucracy, and drug benefit managers who drive up the costs. Although California’s efforts are well-intentioned, high insulin prices would be better addressed through regulatory reform and private initiative rather than a government program administered by a state with a questionable track record of competence and effectiveness. .
Evidence that the private sector can produce affordable insulin is available just south of the border. In Mexico, insulin prices are about one-sixth of those in the United States for a variety of reasons. Some Americans are crossing the border to take advantage of lower costs. Although it is illegal to import prescription drugs into the United States, the federal government generally does not enforce the ban on personal importation until a three-month supply of most drugs. But making regular trips to Mexico isn’t a lasting solution for most insulin users in California.
One of the problems in the United States is the lack of competition arising from patent protection for insulin delivery devices and the barriers to obtaining approval for biosimilar products. There’s promise on the latter front, as the Food and Drug Administration approved two biosimilars in 2021.
But additional reforms will likely be needed to bring U.S. insulin prices back to international levels. Writing in Mayo Clinic Proceedings in 2020, Dr. Vincent Rajkumar of the Mayo Clinic recommended that the United States enter into a reciprocal approval process with Canada and Western European countries. If a drug regulatory body in one of these countries approves a new insulin treatment, it could also be sold in the United States.
Additionally, Rajkumar recommended limiting the duration of initial patents and preventing the use of additional patents on a single drug to extend market exclusivity. Although generous patent protection is championed as a way to encourage innovation, incremental changes in how insulin is produced or delivered may not merit long periods of exclusivity.
Costs could also be reduced if patients could obtain new insulin formulations without a prescription. Early insulin formulations are still available without a prescription, having been grandfathered before the Food and Drug Administration gained authority to classify new drugs as prescription-only. Although over-the-counter insulin represents only a small portion of the market, its availability without publicly reported safety incidents likely suggests that all insulin formulations could be dispensed safely without a prescription.
Some price relief could also come from disruptive new entrants to the market such as Civica RX, a nonprofit generic drug company that plans to sell insulin for $30 per vial. Civica was founded in 2018 with the support of major healthcare systems, including the Mayo Clinic, and major philanthropies (one of which also supports my employer, Reason Foundation). Nonprofits that prioritize social benefits over net income can reasonably be considered a market response, as they meet consumer needs without the coercion and top-down thinking that characterizes government interventions.
For-profit companies may also face the high price of insulin. Mark Cuban’s Cost Plus Drug Company offers prescription drugs at deep discounts by selling directly to consumers, eliminating markups imposed by drug benefit managers and other intermediaries. The Cuban company appears to be working on adding insulin to its low-cost generic drug offering.
Meanwhile, the same state government that plans to enter the complex pharmaceutical industry is struggling with the basics, like upgrading its own computers and information technology systems. Rather than take a state-directed approach to insulin, California could more effectively drive down insulin prices by importing it or buying it from new entrants like Civica RX and the Cuban company. .
Marc Joffe is a senior policy analyst at the Reason Foundation.