Recently, Colorado took a bold stance against the pharmaceutical and health insurance industries by capping the price of insulin — a life-saving medicine used by more than 7 million Americans — at $100 per month for each patient, regardless of how much insulin is needed.

I followed this story closely not just because I’m a Coloradoan, but also because I’ve been a Type I diabetic for 35 years.

I’ve spent my whole life wrestling with diabetes and have seen first-hand how the prices have gone up over time. When I was a child, insulin cost less than $50 a bottle. Today, the over-the-counter price for a single bottle of insulin is approaching $300, if not more — and I use two bottles a month.

Before the Affordable Care Act (aka Obamacare), I couldn’t even get private insurance due to my “life-threatening” pre-existing condition. Thankfully, Cover Colorado, Colorado’s high-risk insurance pool, was available to me at that time.

But even now with the ACA, my plan’s high deductible means I still pay for my insulin out of pocket most years. That’s a chunk of change for anyone, but imagine that burden on someone in a low-wage or underpaid job.

Insulin literally keeps people alive. I will die in a matter of days if I can’t access it. Yet, due to the rising cost of healthcare, people actually ration their insulin because they can’t afford it — sometimes with dire consequences.

It’s great that Colorado passed this law to cap the price of insulin, but it is really a reaction to some broader legal issues: artificial patent extensions and anticompetitive price control.

Insulin’s Patenting Problem

The first form of insulin was patented nearly 100 years ago. The inventors believed it was unethical to profit from a life-saving drug, so they sold it to the University of Toronto for $1. The sale also gave drug companies the right to manufacture and improve it as they pleased.

That’s where part of insulin’s patent problem lies.

Even though the basic formulation of insulin is nearly a century old and the original patents are expired, refinements have been constantly made over the years. The compounds have been changed and improved to the point where the pharmaceutical companies have been able to (what most say, artificially) extend the terms of these patents. This is essentially over-patenting, sometimes known as “evergreening.”

In the case of Sanofi, more than 70 patent applications have been filed in the U.S. on one form of their insulin, which could hold off competition for decades. It makes it almost impossible to have a generic version mimic what they’re doing.

This is commonplace and completely legal. Broadly speaking in the pharmaceutical industry, those companies have been able to file new patent applications on improvements to the drug. Building a robust patent portfolio based on improvements is a strategy that’s employed across most pharmaceuticals and drugs. We counsel clients on these strategies all the time, just not typically in the pharmaceutical industry.

However, in the case of insulin, it’s remained virtually unchecked. The drug companies say that rising prices are simply “the cost of innovation”.

The Question of Insulin Price Control

The second part of Colorado’s price cap is not really a patent law issue, it’s an insurance law issue and a question of competitive pricing.

First, a state can generally tell insurance companies that if they want to do business there, the state has the right to regulate those insurance practices. Insurance companies were in the bargaining room when Colorado was trying to get this regulation passed. To their credit, many feel that they were generally cooperative in getting this legislation passed.

The second part is about pricing, which is where there’s a deeper problem.

In a normal business environment, if there is competition, especially for the exact same product competing for identical customers, prices should go down. A company should be doing everything they can to get that same customer, which usually means they’re going to offer it for a dime less than the competition and people are going to opt for the cheaper of the two.

In the case of insulin, that hasn’t happened.

A century after the first patent for insulin was sold, we have only three companies that manufacture insulin and they all happen to sell it at roughly the same price point. Prices have steadily gone up in lockstep with each other, defying a normal competitive environment. Looking at the prices historically, Drug Company A will increase their prices by $5 a bottle, and then immediately Companies B and C do the same thing.

That’s not healthy competition. It’s too coincidental that their prices have mirrored each other over the years — which many feel reeks of some type of anti-competitive price-fixing behavior. It implies that there’s some sort of behind the scenes discussions saying, “Hey, let’s all set our prices at the same level.” And that’s illegal.

In fact, Colorado Governor Jared Polis publicly called it “price gouging”. Part of the new Colorado price cap includes an investigation by the state attorney general into the rising costs of insulin. That rabbit hole will likely extend to other states and the federal government as well.