(The Center Square) – Texas Attorney General Ken Paxton has launched an investigation into drug manufacturers, wholesalers and pharmacy benefit managers (PBMs) over potential legal violations related to inflated costs of insulin, a life-saving drug relied upon by millions of diabetics.

Insulin prices are exponentially higher in the U.S. than in other developed countries, but over the last two decades the retail prices for some insulin products have increased by 200% to 1,000% “for a drug that is over 100 years old,” Paxton notes. “The excessive prices have forced millions of Americans to ration their medication or even go without it entirely.”

Paxton’s office issued Civil Investigative Demands (CIDs) to drug manufacturers Eli Lilly, Novo Nordisk, and Sanofi, and PBMs CVS Caremark, Express Scripts, and OptumRx. His office requested a range of information to be provided within 30 days.

“Texans today are made to choose between buying groceries to feed their families and paying sky-high prices for a life-saving drug that’s been estimated to cost around two dollars to make,” Paxton said, adding that his office would hold “all responsible parties accountable if their actions leading to outrageously elevated insulin prices violated the law.”

And while Democrats have argued federal price controls will lower prescription drug prices and introduced a bill to cap insulin costs, the Texas Public Policy Foundation and others argue these approaches won’t lower costs. They also argue they don’t address the root problem: the current pay-for-access prescription drug market controlled by PBMs.

PBMs and insurers have contributed to “the inflationary pressures” and “skyrocketing prices set by manufacturers,” David Balat, director of TPPF’s Right on Healthcare initiative, told The Center Square. He applauds Paxton’s investigation, saying he hopes it will result in transparency and “introduce competitive forces that improve affordability for everyone.”

“PBMs are insurance company-affiliated middlemen in the prescription drug supply chain,” Balat said, which are “the main culprit for rising medication prices such as insulin.”

PBMs “demand drug makers pay enormous rebates – around 50% of a drug’s cost – to secure a spot on insurers’ formularies (the lists of drugs they cover),” which are then added to the overall drug’s cost, dramatically increasing the price, he said in a recent report.

A 2020 IQVIA Institute for Human Data Science study also came to a similar conclusion, noting that net drug prices declined as list prices increased over the same time period. A JAMA study also found that as net insulin prices fell by more than 30% since 2014, list prices increased by 40% over the same time period due to PBM rebates.

Because less expensive medications generate smaller rebates, Balat said, “PBMs have a financial incentive to keep them off formularies.” One unbranded drug, insulin glargine, costs roughly one-third less than its brand alternative but “can’t succeed in the insulin market that’s monopolized by high-rebate, high list-price options.”

Free2Care, which advocates for patients, argues a more accurate description of the process is a “legalized kickback” system that’s responsible for 80% of the cost of insulin. Congress created the problem in a 2003 anti-kickback statute, the group argues, when it granted PBMs an exemption from the law.

The Pharmaceutical Care Management Association maintains that PBMs “protect patients,” reduce drug costs by nearly $1,000 a year and “advocate on [patients’] behalf to reduce prescription drug costs, expand access, and improve health outcomes.”

The PCMA also maintains that “insulin prices are high because there are only a few insulin manufacturers, shielded from competition, and those companies set and raise prices” and “PBMs are creating innovative programs.” These “limit consumer out-of-pocket insulin costs to promote affordable access,” it argues, and “when new manufacturers enter the market at a lower list price, PBMs use the competition to drive costs down.”

However, a two-year bipartisan U.S. Senate Finance Committee investigation concluded that skyrocketing insulin prices were directly correlated to the PBM scheme.

U.S. Sen. Chuck Grassley, R-Iowa, said, “We found that the business practices of and the competitive relationships between manufacturers and middlemen have created a vicious cycle of price increases that have sent costs for patients and taxpayers through the roof. This industry is anything but a free market when PBMs spur drug makers to hike list prices in order to secure prime formulary placement and greater rebates and fees.”

While U.S. Sen. Ron Wyden, D-Ore., called on Congress to “make fundamental reforms to the way drugs are priced and paid for,” no legislation has been introduced to reverse the problem many claim Congress created in 2003.

Three of the companies Paxton is targeting, CVS Caremark, OptumRX and Express Scripts, control 85% of the prescription drug market, David Balto, a public interest antitrust attorney and former policy director of the Federal Trade Commission, explains. In 2021, he also urged Congress to address the PBM issue.

In a column for HealthcareDive, he argued, “Eye-popping list prices for medication are a direct result of PBM tactics. As total rebates have skyrocketed in recent years – rising from $102 billion in 2014 to $187 billion in 2020 – PBMs have created lucrative positions for themselves, pocketing a significant share of these disbursements.”

Balat, and others, are hopeful Paxton’s investigation may do what Congress has failed to do. He also says the Texas legislature can implement reforms to demand transparency.