Jurisprudence

States Can Use the Coronavirus Response to Go After Insulin Price Gougers

A picture of Alec on a coffee table
Nicole Smith-Holt’s son Alec died because he couldn’t afford his insulin.
Kerem Yucel/Getty Images

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The COVID-19 health care crisis is spreading beyond just those with the virus.

As millions of Americans lose their jobs, they also stand to lose the employer-provided health insurance they rely on for life-saving drugs. Without insurance, the costs of those drugs can skyrocket. Insulin alone can cost $12,000 a year.

For the diabetics who will lack insurance during the crisis, insulin costs could outpace government assistance with catastrophic consequences: ballooning medical debt or, worse, an increase in deaths among those who cannot afford care.

Already, one insulin-maker, Eli Lilly, bowed to pressure and capped monthly insulin costs at $35 for most patients, including the uninsured. But the length and scope of its policy is unclear, and the two other manufacturers that control most of the market have not followed suit.

People are now scrambling for solutions. Existing relief efforts may not come soon enough. Federal legislation has stalled, and lawsuits are still working their way through the courts. While most states have triggered emergency price gouging laws that limit raising drug prices, freezing prices at their current levels will not address the underlying problem: Insulin prices are already onerous for the uninsured, and the number of people forced to pay those prices is about to expand dramatically due to mass unemployment.

So what can be done to keep insulin affordable during the crisis?

One solution might come from a novel legal strategy that would test the limits of what constitutes illegal price gouging. It seeks to use the price gouging laws in effect in many states to not just freeze insulin prices, but to force insulin-makers to reduce them during the pandemic. It is a bold and untested theory, but if successful, it could offer a lifeline to millions of diabetics struggling to stay afloat.

The key lies in how different states define price gouging. Most states only limit raising prices during an emergency. Others, however, ban charging “unconscionable” or “excessive” prices without any requirement that prices go up.

Iowa, for example, bans charging “excessive” prices during an emergency that are not “justified by the seller’s actual costs … plus a reasonable profit.” Texas, North Carolina, and Utah ban charging “excessive” or “exorbitant” prices. New York and Oregon prohibit “unconscionably excessive” prices. While some laws reference price hikes as a way to prove a violation, they do not rule out that an existing price could become illegal during an emergency if it was “excessive” or “unconscionable” beforehand.

That arguably has been the case with insulin for years—which is what makes it susceptible to a price gouging challenge. Three insulin manufacturers—Sanofi, Eli Lilly, and Novo Nordisk—have cornered the U.S. market and hiked prices far above their costs, yielding profit margins unrivaled in most other industries. Whereas food and household supplies typically wholesale at slim margins, insulin list prices for the uninsured can exceed 100 times a drugmaker’s costs, according to some estimates. Insulin list prices are 10 to 25 times higher in the United States than in the U.K. and Australia and have more than tripled over the last decade. One-quarter of diabetics in the United States now underuse insulin as a result.

Those types of profit margins may have some argument for drugs that require breakthrough research and development. But insulin first came to market in the 1920s, and experts say modest innovations do not justify such large price increases.

Insulin-makers’ refusal to reduce those prices has drawn mounting scrutiny. Even before the pandemic, critics were attacking insulin prices using the same language found in many price gouging statutes: “excessive” and “unconscionable.” They include prominent voices like the American Medical Association, the World Health Organization, and bipartisan congressional leaders.

One reason insulin prices have stayed so high is that charging excessive prices is normally legal. Most businesses can charge whatever they like so long as they do not engage in collusion, fraud, or other illegal activity. That changes in an emergency. States have greater power to restrain prices to serve the public interest—which is why the current crisis represents a unique moment in the fight over insulin pricing. Prices that have withstood legal challenges for years may now be vulnerable given the shifting legal landscape.

The first step in testing that vulnerability would be for an attorney general—or a consumer, in some states—to file a lawsuit under a favorable price gouging law, i.e., one that bans “excessive” or “unconscionable” prices and not just price increases. The lawsuit could seek money damages and a temporary injunction—to compel insulin-makers to either reduce list prices or provide narrower relief, like an automatic discount program for those who lack insurance.

Whether anyone will sue is hard to know. Until now, there has been little public discussion of a lawsuit. There are some logical plaintiffs, though. New York Attorney General Letitia James is already investigating insulin pricing and would have the advantage of suing under New York’s flexible statute. James has been active during the crisis and is seeking to bolster her progressive standing. A first-of-its-kind lawsuit against insulin profiteering is something her office might consider.

Consumers could also file their own lawsuits. Several states permit private suits, including class actions. Given the size of the $15 billion insulin market, insulin purchasers could likely claim enough losses to make class actions feasible.

A lawsuit would present courts with two unprecedented legal questions.

The first is whether price gouging laws can require sellers to reduce prices during an emergency and not just freeze them. Authorities usually just focus on the latter. Most prosecutions target opportunistic sellers that jack up prices for things like gasoline and generators when demand spikes during a disaster. There is little precedent for targeting controversial prices that were in place beforehand. What matters most to courts, however, is a statute’s text, and several state statutes ban “excessive” or “unconscionable” prices without any language limiting them to price increases. Had lawmakers sought only to ban price increases, one could argue, they would have said so in the statute.

The second question a court or jury will face is whether insulin list prices are “excessive” or “unconscionable.” That is a fact-intensive inquiry. Insulin-makers would likely argue that their prices reflect patented formulas and that few people pay the full list price. Plaintiffs’ counterargument is straightforward: Charging up to $1,000 a month for a cheap, century-old drug that millions need to survive exceeds what is conscionable.

That argument could resonate with a jury. Only 25 percent of Americans trust drugmakers to price their products fairly, and around 80 percent favor greater price controls. Combine that with the turmoil caused by the coronavirus, and insulin-makers could find themselves in an uphill legal battle with significant exposure if plaintiffs are able to overcome some initial hurdles.

Innovative lawsuits have disrupted powerful industries before, including tobacco, automobiles, opioids, and pro sports. A successful price gouging lawsuit could spark a similar reaction for insulin by forcing short-term price cuts while creating precedent that would constrain future pricing decisions. At the very least, it would open a promising new front in an otherwise entrenched legal battle.

For advocates who have fought to curb insulin pricing for years, and for the many more who will become vulnerable during the crisis, a novel lawsuit seems like a chance worth taking.