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P R E S S R E L E A S E

Contact: The Type 1 Diabetes Defense Foundation Files
Communications Director
New Lawsuits Alleging Overpricing, Requesting
(541) 257-8878
media@t1df.org Disclosure of Manufacturers’ Effective Net Realized
www.t1df.org Prices for Test Strips, Glucagon

Issues:
Drug pricing, insulin,
For immediate release.
glucagon, test strips,
emergency care for severe Summary: On May 24, 2017, the Type 1 Diabetes Defense
hypoglycemia, Foundation filed two new lawsuits in federal court with class-action
law firm Keller Rohrback, L.L.P., seeking disclosure of manufacturers’
discrimination, patient
net realized prices on blood glucose test strips and emergency
advocacy organizations
glucagon kits, both used in diabetes treatment. Following on T1DF’s
insulin pricing lawsuit filed March 17, 2017 (Boss, et al. v. CVS, et al.),
Websites: T1DF now joins with individual plaintiffs in test strip claim Prescott, et
www.krcomplexlit.com/ al. v. CVS, et al. and glucagon claim Bewley, et al. v. CVS, et al.,
currentcases/glucose-test- expanding its consumer rights campaign against the unconscionable
strips-overpricing/ pricing of essential pharmaceuticals. These lawsuits are consistent
with T1DF’s opposition to “rebates” and other hidden pricing
www.krcomplexlit.com/ practices that raise list prices for diabetes drugs and supplies while
disincentivizing innovation, promoting clinical inertia, undermining
currentcases/glucagon-kit-
therapeutic adherence and encouraging discrimination against
overpricing/
people with diabetes.

June 15, 2017 - Eugene, OR. Glucagon rescue kits provide an emergency injection of
glucagon, a hormone that raises blood sugar, in case of life-threatening severe low blood
sugar. For people with diabetes who depend on insulin to stay alive (all type 1s) or to
manage diabetes (a significant percentage of type 2s), glucagon is a vital tool to prevent
the serious health damage or death that can result from severe hypoglycemia, an
inherent risk of insulin therapy. The Glucagon Pricing Scheme alleged in Bewley, et al. v.
CVS Health Corporation, et al. (2:17-cv-00802) explains how the three largest PBMs,
Express Scripts, OptumRx, and CVS Caremark, sell exclusionary or preferential access to
their formularies in exchange for price concessions, including rebates and other fees paid

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to the PBMs by Eli Lilly and NovoNordisk, who manufacture the only two glucagon rescue
kits sold in the United States. These price concessions decrease the cost of glucagon kits
for the PBMs and some of their client payers, but drive up the cost for uninsured
consumers and for insured consumers whose pre-deductible or coinsurance payments at
the pharmacy point of sale are based on the unrebated “list” price.

Overpricing glucagon injures both the patients who purchase it and those who—as
a result of high prices—do not. Coupled with Eli Lilly and Novo Nordisk's refusal to supply
their FDA-approved glucagon to third parties for remarketing, the anticompetitive dual-
pricing scheme has also disincentivized investment in more effective delivery systems.
The glucagon pricing crisis, along with the documented high rate of delivery failure from
thirty-year-old glucagon kit designs, now undermines patient therapeutic adherence and
contributes to clinical inertia in treatment intensification, thus broadly extending the
clinical and economic implications of the Pricing Scheme.

T1DF has also joined individual plaintiffs in Prescott, et al. v. CVS Health
Corporation, et al. (2:17-cv-00803), filed by Keller Rohrback against the largest PBMs and
the four dominant blood glucose test strip manufacturers, Abbott, Bayer, Johnson &
Johnson, and Roche, who produce the brands FreeStyle, Contour, OneTouch, and Accu-
Chek. The complaint alleges a similar pricing scheme for the test strips that people with
diabetes use to monitor their blood sugar: rebates and other price concessions from the
manufacturers decrease the cost of test strips to PBMs and some insurers, while driving
up the unrebated list price many consumers pay. Even for test strip purchases that take
place over the counter, a network of confidential agreements works to keep prices
artificially high. As a result of this pricing scheme, people with diabetes face significant
financial hardship and may also face harmful health consequences, including higher risk
of severe hypoglycemia, if high prices prevent them from testing their blood sugar with
sufficient frequency to safely manage their condition.

The following is a statement from the Type 1 Diabetes Defense Foundation:

Since their introduction in the 1980s, confidential dual-pricing reimbursement
contracts have profoundly impacted the U.S. pharmaceutical market, leading to price
discrimination, information asymmetry and significant wealth transfer to non-creative
administrative intermediaries—Pharmacy Benefit Managers and some insurers—at the
expense of innovation and competition on price at the point of sale. Industry actors’ use
of dual pricing has directly contributed to the increase in pharmaceutical list prices and
thus to harmful consequences for the most vulnerable patients who are uninsured, who
have high deductibles or coinsurance requirements on their health insurance plans, or

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who are covered by Medicare Part D. Reimbursement contracts facilitate a collusive
scenario in which certain corporate actors who do not pay list price together engage in
actions that result in patients paying amounts
based on skyrocketing list prices for products “The full benefit of research investment can
that are procured at much lower net prices by
only be delivered if we also address the
PBMs and some insurers. The Boss, Bewley, and
social, economic, regulatory and legal
Prescott lawsuits plainly document the pervasive
and injurious multifaceted effects of dual-pricing roadblocks that currently diminish access to
reimbursement schemes. diabetes care in the United States.”
—Charles Fournier, T1DF Director of Legal
T1DF has reviewed publicly available
Advocacy
industry literature, corporate disclosures, and
technical articles on the production of insulin
analogs, glucagon, and test strips. We derived from these sources that the inflated list
prices for crucial diabetes supplies are not driven by increasing production costs, but
instead seem to correlate with placement on PBM formularies:

• The production cost of biosynthesized insulins (human and analog) should
logically have decreased as manufacturers simplified and optimized production
processes since the 1970s. The current production cost for insulin crystals has
been reported as low as $42.20 per gram. According to this figure, the estimated
production cost for the 35 mg of insulin crystals contained in a standard 10 ml
vial at a concentration of 100 IU would not exceed $1.47. Such a production cost
would be consistent with 1996 list prices for synthetic analog insulins, $24 per 10
ml vial. It does not explain why list prices per 10 ml vial of the same synthetic
analog insulins would increase to current levels (around $255 as of July 2016).

• The price of glucagon—a simpler single-chain peptide, manufactured via the
same biosynthesis process as insulin—follows a similar pattern. Production costs
do not explain why Lilly’s introductory list price for a glucagon emergency rescue
kit, $66 in March 2000, has increased to approximately $300 today, while the
production cost likely remains lower than $4.50.

• It is documented in industry literature that biosensor blood glucose test strips,
manufactured in larger quantities than any other biosensor worldwide, can be
screen printed for as little as 2 cents per strip, yet the U.S. list price for such test
strips can be $1.50 per strip or more.

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Additional information may arise during the course of litigation to further refine these
estimates on production costs. In the meantime, existing publicly available information,
though fragmentary and incomplete, still supports the inference that high production
costs do not logically explain high list prices for essential diabetes pharmaceuticals and
supplies.

Such high multipliers between goods’ cost of production and their list price (or
MSRP) is unique to the U.S. healthcare industry. An iPhone is sold at 1.5 to 3.0 times the
cost of production of its parts (bill of materials or BOM). A Samsung Galaxy retails at
about 3 times its BOM. A car generally retails at 4 to 5 times its BOM. But the list prices for
formulary-preferred diabetes pharmaceuticals and supplies, which are necessary for the
survival of millions of people, are at factors approaching 100 times the estimated cost of
production. Before Representative Jason Chaffetz (R-Utah) asked Americans to choose
between healthcare and iPhones, he should have looked at the numbers: under current
diabetes pharmaceutical models, an iPhone 7 with base 32GB storage would be priced
to the most vulnerable consumers, those with no other choice, not at $649 but potentially
as high as $22,080.

While manufacturers have been blamed for price gouging, the reality is more
complex and responsibilities are shared among several participants. For brand-name
diabetes drugs and supplies, the PBMs play a central role in managing a confidential
network of reimbursement contracts that channel back to them and some of their payer
clients a growing percentage of the list price in the
“When Jason Chaffetz made his form of fees, discounts, sales incentives and other
price concessions. For some analog insulins, these
infamous healthcare-iPhone consumer
kickbacks may be as high as 70% of list prices,
‘choice’ remark, he overlooked that
possibly higher.
under current U.S. diabetes
pharmaceutical pricing models the most In the absence of the dual-pricing reimbursement
vulnerable Americans could be paying schemes targeted by these lawsuits, manufacturers
$22,080 for a standard iPhone 7.” of insulin, test strips and glucagon would compete
directly on accuracy, innovation, and price to
—Julia Boss, T1DF President
consumers at the point of sale. Instead, they
compete on kickbacks, and the resulting high list
prices produce several forms of individual harm: (1) Financial harm in the form of higher
out-of-pocket payments, distorted OTC or uninsured prices, and possibly higher
insurance premiums. (2) Medical harm in the form of reduced clinical adherence, as
patients treat less effectively to ration supplies of insulin or test strips, or clinical inertia,
when a doctor pulls back from intensive insulin therapy because high prices for test strips

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and hard-to-use glucagon rescue kits mean patients can’t access the tools they need to
prevent or efficiently manage severe hypoglycemia. And (3) social stigma along with
employment and insurance discrimination, when insurers, the media, value-pricing
experts or politicians present artificially inflated list prices as the “cost” of treating
diabetes, leading the public to believe that plans pay list price for pharmaceuticals and
that those skyrocketing list prices could cause their health care plan costs to increase.

For too long we’ve seen industries that treat patients as commodities further
commoditize patients’ stories in support of a status quo that serves the interests of the
dominant pharmaceutical companies, PBMs or insurers rather than the interests of the
human beings who most need access to affordable drugs. In this David and Goliath fight,
T1DF’s lawsuits focus on the direct and indirect harm to consumers perpetrated by the
pricing schemes we have alleged for insulin and now allege for glucagon and glucose
test strips. In the short run, we hope to expose these as individual instances where
Americans’ access to the standard of care for chronic disease management has
deteriorated as a result of collusive behavior by parties to reimbursement contracts that
benefit certain corporate actors who do not pay list price, at consumer expense.

In the long run, T1DF seeks to grow into a policy-driven, patient-perspective
watchdog organization. Until now, even ostensibly reform-oriented organizations—such as
the Evidence Driven Drug Pricing Project or the Institute for Clinical and Economic Review
—have primarily worked within the dual-pricing reimbursement model. They advance as
innovation esoteric value-based variations on the current rebating scheme, industry-
sanctioned variations on price negotiations between insurers and manufacturers that
would further distort the relationship between the cost of goods and services patients
actually receive and the amounts patients pay via cost-sharing or premiums, with
continuing inflationary implications for list prices paid by the uninsured and for all those
who pay out of pocket for needed medicines.

T1DF embraces, instead, patient-centered inclusive policy solutions, from the
perspective of—and in the interest of—individuals with diabetes. In the consumer realm,
we advocate for an end to a convoluted dual-pricing reimbursement regime that has
burdened the healthcare industry with red tape and warped incentives since the 1990s.
We support regulatory frameworks in which manufacturers compete directly on
innovation and price to consumers and where drug channel actors can engage in open
and efficient price arbitraging, without price discrimination and asymmetries of
information. We urge a return to a transparent pricing regime that fairly rewards creative
actors for technological innovations and manufacturing improvements, rather than
transferring wealth to non-creative administrative intermediaries at the expense of the

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most vulnerable patients—whether uninsured, on high-deductible ACA or employer
policies, on health plans with high cost-sharing requirements, or covered by Medicare
Part D.

About T1DF. The Type 1 Diabetes Defense Foundation is a nonpartisan Oregon-based
nonprofit 501(c)(3) dedicated to advancing equal rights and opportunities for all people
with type 1 and other forms of insulin-dependent diabetes. We focus on the significant
social impact of living with a condition that requires patients to make constant dosing
decisions with a drug that, without careful management and constant monitoring, can kill
them. T1DF strives to improve the regulatory, legal and social ecosystem essential to
development and adoption of new technologies and therapies, with an explicit
commitment to inclusive policies that will deliver for all Americans with diabetes, insured
and uninsured, equal access to standard-of-care pharmaceuticals and equipment. T1DF
accepts no funding from the pharmaceutical, pharmacy benefit management, or
insurance industries.

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