Bernie doesn’t understand the drug market

I’ll say this up front: if you’re complaining about the cost of something today compared to several decades ago, and your explanation doesn’t include change in demand and the FDA, you’re out of touch with how things work.

Enter Senator Bernie Sanders.

So how can we explain this? Let’s start with inflation. Now inflation alone doesn’t account for a 14-fold increase in price. 21 USD in 1996 is equivalent to about 37 USD today. So that’s only about 16 USD of the nearly 300 USD increase. Hmm…

So what about change in demand? Across the last 25 years, how has the demand for insulin changed? A. Fucking. Lot. But enough to account for a 14-fold increase in price?

According to the Centers for Disease Control, about 10.5% of the population in 2018 has diabetes – about 34.2 million people – and about 1.5 million people are newly diagnosed each year. And the prevalence of diabetes has gone up significantly over the last 20 years among adults, from about 9.5% to 12%.

Now that alone also doesn’t account for a 14-fold increase. According to the United States Census Bureau, there were approximately 209 million adults in 2000, compared to 258 million in 2020. That means the total number of diabetics increased from shy of 20 million in 2000 to almost 31 million in 2020. A greater than 50% increase.

Okay so change in demand plus inflation should mean the price of insulin should be… about 55 USD, right? Not quite. Because there are a ton of other factors that determine the price of insulin.

First is the capability to meet that demand. Making insulin isn’t easy. Just like… really any drug that needs to be synthesized in mass. Drug makers, just like all manufacturers, have only so much manufacturing capacity. I mean it isn’t like we can just conjure it via a Star Trek replicator. (Boy wouldn’t that solve a lot of problems!) The price they charge to buyers acts as a valve on that demand. So it becomes a balancing act.

So if drug makers cannot meet demand, we just need more insulin makers, right? Well yes, that’s the easy answer. But reality isn’t so simple.

Enter the United States Food and Drug Administration – the FDA. They are the gatekeepers to the drug market in the United States and one of the primary gatekeepers to the health care market. Anyone who wants to make insulin or a vaccine or anything to be offered as a treatment for anything must go through them. First to be licensed as a drug maker (along with any State licensing) with periodic renewal fees, then the insulin you do make has to be licensed before it can be offered for sale.

Insurance definitely doesn’t help here either. And the effect insurance has on the price of everything in health care is pretty well established. (Hint: it’s one of the leading reasons health care costs so much.)

So why is insulin up 14-fold over 25 years ago? A combination of factors.

  1. Substantially increased demand
  2. FDA preventing new insulin makers from entering market
  3. Insurance hiding the cost of insulin allowing drug makers to inflate the price merely because they can

So greed is a factor, but it isn’t the ONLY factor. And I wouldn’t consider it a substantial factor either. Especially since the drug makers also have programs wherein they give away drugs to those who need them (with a proper prescription, of course) if they are low-income and meet other qualifications. And the cost of those programs is passed onto everyone else.

Then there’s the cost of what is needed to produce insulin. And not just the components, but the labor and machinery. I’ve already mentioned the FDA, but regulatory compliance is also another hidden cost. And all costs of business get passed onto the customers. Meaning the cost of the product goes up with the cost of production.

So there are a ton of factors going into why the cost of insulin – and really everything in health care – is higher compared to 25 years ago.