January 16, 2019

Is the 'gray market' for diabetes test strips savings patients' lives—or devastating manufacturers?

Daily Briefing

    The multi-billion-dollar industry for diabetic test strips operates alongside a decades-old "gray market" in which insured patients sell their unused test strips to distributors who resell them for profit, Ted Alcorn reports for the New York Times.

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    A massive industry

    Diabetic test strips were developed in 1965 to provide diabetes patients with an immediate reading of their blood sugar levels, Alcorn writes. The patient simply pricks their finger, places a drop of their blood on the test strip, and inserts the strip into a meter that provides their blood sugar level.

    Originally, these test strips were created for use in doctors' offices, but by 1980, manufacturers had redesigned the strips for home use. Today, at-home test strips are the standard of care for many patients with diabetes, Alcorn writes.

    It's a large industry too, with strips accounting for almost 25% of all pharmacy costs among insulin-dependent patients who monitor their blood sugar, according to a 2012 study.

    The test strips often have a high list prices, but insured patients rarely pay the full amount, according to Alcorn. Manufacturers typically set high list prices for their strips and then offer large rebates to insurers in the hopes of becoming the insurer's preferred supplier.

    But this strategy can leave the uninsured and underinsured paying extremely high prices for their test strips, Alcorn reports. "For a patient testing their blood many times a day, paying for strips out-of-pocket could add up to thousands of dollars a year," Alcorn writes. In turn, "a gray market thrives."

    The 'gray market' for test strips

    The high list prices have given rise to internet companies like TestStripSearch.com and QuickCash4TestStrips.com that buy unused test strips from insured patients and resell them to the uninsured or underinsured. While reselling prescription drugs is against the law, reselling test strips is legal, Alcorn reports.

    The owner of one test strip selling site explained, "I'm taking advantage, as are my peers, of a loophole. We're allowed to do that. I don't even think we should be, frankly."

    This market has arisen in part thanks to a strategy test strip manufacturers use, whereby they sell patients test strips that only work with their own brand of meters, Alcorn writes. When this strategy is in place, if a patient's insurer begins using a certain manufacturer, the patient is often left with a large amount of unused test strips for a meter that doesn't match the strips.

    While some resellers market their strips to patients, they also sell the strips back to retail pharmacies, which can then resell the test strips as new and bill the patient's insurer full price, Alcorn writes. The patient's insurer will then reimburse the pharmacy and demand a rebate from the manufacturer, which already paid a rebate when the strips were sold the first time. According to Glenn Johnson, general manager for market access at Abbott Diabetes Care, test strip manufacturers lose more than $100 million in profits because of this.

    'It's not brain surgery'

    Some consumer advocates have argued that this gray market has grown as a result of inflated retail prices that only benefit manufacturers and pharmacy benefit managers (PBMs). In a lawsuit filed against a group of manufacturers and PBMs filed in New Jersey, consumer advocates said the average wholesale price of test strips has increased by as much as 70% over the past 10 years.

    Gretchen Obrist, one of the lawyers bringing the case, said these prices would be lower if they hadn't been inflated by the resale market. "It's a tiny little piece of plastic that's super cheap to manufacture, and they've managed to make a cash cow out of it," she said.

    David Kliff, who publishes a newsletter on diabetes, said the strips "are basically printed, like in a printing press. It's not brain surgery." Kliff estimated the strips cost less than a dime to make.

    Manufacturers countered this argument by saying engineering advances have made the strips smaller and easier to use. However, according to Alcorn, there isn't much evidence to suggest these improvements have improved health outcomes for diabetes patients (Alcorn, New York Times, 1/14).

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