Brian Sandoval
Nevada Governor Brian Sandoval. Credit: U.S. Department of the Interior/Flickr

Nevada passed a law on Thursday that aims to make how medical drugs are priced more transparent. Pharmaceutical companies are now required to publicly disclose the cost of producing and marketing diabetes drugs in addition to the rebates they offer, and pharmacy benefit managers (PBMs) must disclose the rebates they receive for those drugs and how much of the rebates they retain.

The Centers for Disease Control and Prevention has declared diabetes in the United States an epidemic; nearly 30 million Americans have diabetes. The CDC estimates that 12.4 percent of the adult population in Nevada has diabetes and that about 10,000 people in Nevada are diagnosed every year. In 2012, Nevadans spent nearly $2 billion on medical treatment for diabetes.

Prescription insulin, which helps the body process and regulate blood sugar levels, is a basic part of treating diabetes. An April 2016 study found that the global pharmaceutical insulin market is dominated by three companies: Danish-based Novo Nordisk, French-based Sanofi, and American-based Eli Lilly. The Journal of the American Medical Association found that the price of insulin, which diabetes patients have been using since the 1920s, nearly tripled between 2002 and 2013. A recent Business Insider investigation found that the price of Novo Nordisk and Eli Lilly’s respective short-acting insulin products have been in virtual lockstep since the start of the millennium. Earlier this year a class action lawsuit was filed in Massachusetts accusing the three companies of colluding on insulin prices.

The Nevada bill, SB539, passed by a Democratic-controlled state legislature and signed by Republican Gov. Brian Sandoval was a second version of a bill he vetoed on June 2. The original bill, SB265, presented by Democrats in the state House, was supported by a coalition of labor unions, casino managers, and insurance companies, all of whom were united in outrage over skyrocketing drug prices. Unite Here, the largest labor union in Nevada with around 60,000 members, has a direct interest in lowering drug prices, especially for diabetics. America’s diabetes epidemic trends closely with America’s class and race divide. Working-class minorities are vastly over-represented among diabetics, and they make up the bulk of Unite Here’s membership.

Just as odd were the groups that did not join in advocating for the bill: the American Diabetes Association, the Nevada Diabetes Association, and the American Association of Retired Persons. The Eli Lilly Foundation donated $2.5 million to the American Diabetes Association in 2015.

The original bill not only sought to force pharmaceutical companies to reveal how they price diabetes drugs and what margins they earn on them, but also to require those companies to reimburse patients and insurers if the cost of certain essential diabetes-related drugs increased by more than a certain amount each year. But Gov. Sandoval sent back the bill, along with a three-page letter that repeated many of the same complaints of pharmaceutical lobbyists. A key pharmaceutical talking point, which Gov. Sandoval repeated in his veto letter, was that PBMs were mostly to blame for increasing costs and should therefore be the target of transparency legislation. Republican state senators had been working on their own bill that did exactly that and Democrats added in text from their bill that did not include components the governor specifically rejected, including reimbursing patients and insurers.

That PBMs have a role in drug prices is without doubt. PBMs are middlemen companies that go between drugmakers, insurers, and pharmacies. Their primary job is to keep track of which drugs patients can receive on a given insurance plan and to negotiate rebates with drugmakers. However, that industry has also become consolidated. The three biggest PBMs control 80 percent of the US market, according to Business Insider. They’ve also vertically integrated; CVS Caremark, one of the big three PBMs, is part of a company that also runs the CVS retail pharmacy company. PBMs keep the rebates they negotiate with drugmakers a closely guarded secret. Pharmacies and consumers have no idea how much of the savings PBMs are actually passing along to them, or even if they’re passing any of them at all.   

However, it’s not clear—in part because the data isn’t publicly available—that PBMs deserve more of the blame for climbing drug prices than do the pharmaceutical companies. Republican state lawmakers’ focus on PBMs, at the urging of pharmaceutical lobbyists, allowed them to simultaneously shield drugmakers while also bolstering their pro-transparency credentials.

Bobette Bond, the health policy director at Unite Here Health, is supportive of the legislation even though it doesn’t have the immediate effect of lowering drug prices. “We watched what happened in California. They and several other states introduced big bills that like just general transparency bills, and they couldn’t get them passed. So we wanted to start with something specific and our data, along with other health funds’ data, showed that diabetes was the number one cost center in the state.”

A recent poll conducted by David Binder Research found that 47 percent of Nevadans support controlling the price of insulin while only 27 percent oppose such a measure.

Showing the inner workings of drug pricing will be a crucial step towards creating future legislation that can effectively target reducing drug prices. Bond told me that other state legislatures controlled by Democrats, like California’s and Oregon’s, are taking notice of the Nevada bill and hope to replicate it. 

“It’s a big breakthrough just to be able to get some transparency. It brings accountability. Pharma has been living in this bubble. This is a first step in getting to the cost levers,” Bond said.

Joshua Alvarez

Joshua Alvarez is a contributor to the Washington Monthly's Political Animal. He edits syndicated opinion columns at the Washington Post, and can be reached at