The high cost of insulin has been a major issue for over 7M Americans:

• Insulin prices have risen over 600% in the past 20 years.
• 14% of US insulin users spent at least 40% of their income on the drug.

Three companies dominate 90% of the insulin market: Eli Lilly, Novo Nordisk and Sanofi.

In recent weeks, Eli Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO) made headlines by lowering prices on insulin by as much as 75%. Sanofi is expected to follow.

Has big pharma turned a new leaf?

According to Bloomberg’s Lisa Jarvis, these weren’t “acts of altruism” or a reaction to the public’s outrage over rising prices. Instead, it has to do with how Medicaid subsidizes drugs.

The subsidy is determined by factors like the drug’s age, insurance coverage, and rising prices.

Important note: The more drugmakers raise prices, the lower their drugs are subsidized.

But a change in the American Rescue Plan Act of 2021, taking effect next year, will impact how these subsidies work.

Harvard Medical School researchers explain (BBG):

• Since companies increased prices so much — instead of Medicaid subsidizing the drug, companies would actually be paying Medicaid.
• With the change, drugmakers could owe Medicaid hundreds of millions yearly if they didn’t lower prices.

By lowering insulin prices, companies would avoid millions in potential payments to Medicaid.