The 5 cost drivers of diabetes care


See what's contributing to this historic epidemic.


We know that the share of spending payers are dedicating to people with diabetes is on the rise. We also know why: the population of diabetics is increasing and the costs associated with treating them are becoming more expensive on a per capita basis.1, 2 However, to get a more complete picture of this cost equation, we need to first examine the cost drivers behind these two factors.

1. A demographic deluge

Currently, diabetes affects more than 29 million people in the U.S., or 1 in 11 Americans.1 Another way to understand the scale of diabetes problem is to consider that 3700 people are now diagnosed with diabetes in the U.S. every day.3 These numbers are considerable in their own right, but what is most noteworthy is that the percentage of Americans being diagnosed is increasing. Between 1994 and 2014, the number of men diagnosed with a type of diabetes grew 113% and the percentage of women jumped 95%.4

Extrapolate this trend and things look even worse. Between 2015 and 2030, the number of people with diabetes is expected to increase by 54% to 55 million Americans.5 Additionally, the costs related to treating diabetes are expected to only increase as the disease becomes more commonplace. The corresponding annual medical and societal costs related to diabetes are expected to increase 53% to more than $622 billion in little more than ten years.5

Here we can see that diabetes ranks among the fast-growing chronic diseases in the U.S.:

Growth rate relative to 2013 chart

But is demography destiny? Perhaps not. Remember that the vast bulk of new diabetes diagnoses are for type 2 diabetes, which is linked to diet and sedentary lifestyles.

2. The prediabetes pipeline

For an indication of the future type 2 diabetic population, one need only look at the current population of people with prediabetes, a condition defined by elevated blood sugar levels.1

Although patients with elevated blood sugar levels can avert type 2 diabetes with changes to their lifestyle, of the 86 million people in the U.S. currently with prediabetes, up to 30% are expected to develop type 2 diabetes.6 That’s an additional 17 million diabetics — nearly 60% growth.

The pipeline is filled with potential future diabetes patients:

Diabetes patient pipeline

Later in this Insight Report we will discuss diabetes-specific management strategies that can help payers better govern medical spending related to diabetes.

As the number of diabetics continues to climb, so will the costs. This projection shows diabetes-related health care spending rising rapidly in the coming 15 years to more than a half-trillion dollars each year:5

Diabetes cost forecast

3. New diabetes drugs continue to enter the market

No matter the scope of the problem, no assessment of diabetes-related costs can stray far from the topic of drug prices. As we have seen, the number of classes of antidiabetic drugs continues to increase. While drugs in a few of the older classes of antidiabetics are actually falling in price, these are more than offset by the rising cost of newer, protected brand therapies (see below).7

Diabetes growth product type chart

As newer therapies gain in popularity, antidiabetic drugs are costing more on a per-dose and per-patient basis each year. For example, three classes of drugs (oral hypoglycemics, incretin mimetics and SGLT2 inhibitors) now collectively account for 31.4% of diabetes spending.7

However, it is important to note that most of the net price growth in recent years was from existing branded drugs, not new drugs. But even within that class, overall costs were down, after rebates and discounts:7

4. The curious case of insulin

Yet, even in aggregate these newer classes of antidiabetic drugs take a back seat to the drug class most responsible for increased spending on diabetes: insulins. In 2014, insulins accounted for 63.3% of diabetes drug spending and 61.3% of spending growth.7

Insulin was the original wonder drug. Discovered by researchers at the University of Toronto, insulin was first used to treat a patient in 1922.8 In the decades since, it has helped turn what was once a fatal affliction into a manageable, if chronic, condition. Along the way, drug manufacturers have continued to modify the chemical structure of insulin in order to improve its efficacy and safety.9

In the 1930s, scientists began to alter the composition of insulin to make it longer lasting, so patients would need fewer injections.9 Later, drug makers learned to combine long-acting and short-acting insulins, allowing some diabetics to be treated with a single daily injection.9

In 1970s, a breakthrough in genetic engineering enabled the creation of the first recombinant DNA human insulin.10 By inserting a cloned human insulin gene into a strain of the E. coli bacteria, researchers produced synthetic human insulin. Doing that eliminated adverse immunologic reactions to nonhuman proteins, which had long plagued some users of earlier insulins, which were based on beef and pork byproducts.10

Today, a variety of short-acting, long-acting and premixed insulins are available.9 While users have benefitted, these improvements have come at a steep cost. Researchers have dubbed this "The Paradox of Incremental Innovation.”11

Unlike most other in-demand pharmaceuticals, by the time the patents expire on a given insulin variation it may already be obsolete.11 Considering the steady pace of incremental improvements, competitors are leery to replicate off-patent insulins, reasoning that the market has already moved on. This need to meet the demands of an ever-evolving marketplace, paired with the complexity of large molecule drug production, has hindered the formation of a generic insulin industry in North America.11

But let’s say a drug manufacturer was willing to produce generic insulin despite the manufacturing challenges and market uncertainty. They would still have to navigate a dense web of patent protections surrounding insulin.12

One enduring irony is that the team that discovered insulin, Frederick Banting and Charles Best, did not want to profit from their discovery at all. The two regarded profiting from a life-saving discovery as distasteful, and they had to be persuaded to even file an application for a patent.8 They subsequently relinquished ownership of the patent to their university in exchange for $1 each.8 They described their hopes when they wrote, “When the details of the method of preparation are published anyone would be free to prepare the extract, but no one could secure a profitable monopoly.” 11

Decades later, the duo’s dream of cheap, universal access to insulin may finally be on the horizon. With several insulin patents expiring, and fewer next-generation insulin products in the pipeline, follow-on manufacturers are beginning to show more interest in the insulin market.12

The first biosimilar version of popular brand-name insulin Lantus® (insulin glargine) hit the market late in 2016. While the biosimilar, known as Basaglar®, is available at a lower cost, experts do not expect it to offer the level of cost savings associated with a traditional generic.13

5. Direct and indirect costs

Substantial though they are, rising drug costs are not the greatest cost driver related to diabetes care. Although prescription drugs are the first and most widely-used avenue for medical intervention, it is estimated that inpatient medical costs for diabetics are more than double the cost of all medications dispensed.14

In light of what we have seen regarding diabetes and co-morbidities, it is not surprising that diabetics can have lengthy and expensive hospitals stays.15 In the case of type 2 diabetes, it is estimated that the sickest 20% of diabetics account for more than 80% of all diabetes-related spending.16

Approximately 20 percen to fhte nation's health care dollars go to treating diabetes

One of the biggest causes of diabetes-related hospitalization is a lack of adherence to antidiabetic drugs. People who fail to take their insulin are subject to a vast array of associated conditions and can sometimes end up in emergency rooms.17

Studies of insulin users estimate adherence at 62% for long-term use and may be even less for lower-income patients, where the out-of-pocket cost of medications can be a reason for a lack of adherence.18

It's also worth bearing in mind that the need to track constantly fluctuating blood sugar levels substantially increases diabetes-related spending.14 For diabetics using insulin or other injectable medications, there are a lot of supplies that are needed to properly administer the drug. These include test strips used to monitor blood sugar levels, lancets that are used to draw the blood, alcohol swabs to clean the injection site and needles and syringes to inject the medication. Spending on these items is estimated to be the third-largest component of medical expenditures in diabetes, behind only hospital inpatient care and the cost of prescription medications.14

What’s more, these direct costs of treating diabetes are not the only burden that the disease imposes on payers. Indirect costs include increased absenteeism, reduced productivity while at work for the employed diabetic population, and lost productive capacity due to disease-related disability or early mortality. Taken together, diabetes costs employers $69 billion annually in lost productivity.14

Given the severity and interrelation of diabetes cost drivers, it is now clear that only a broad-based approach to treating diabetes which melds medical, behavioral and pharmacological treatments options is likely to address the problem.

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  1. Centers for Disease Control and Prevention. “Diabetes at a Glance, 2016” Accessed at: https://www.cdc.gov/chronicdisease/resources/publications/aag/pdf/2016/diabetes-aag.pdf
  2. Health care Cost Institute. “The 2014 Diabetes Health Care Cost and Utilization Report.” Accessed at:
  3. Centers for Disease Control and Prevention. “ National Diabetes Statistics Report, 2017.” Accessed at:
  4. Centers for Disease Control and Prevention. “Long-term Trends in Diabetes April 2017.” Accessed at: https://www.cdc.gov/diabetes/statistics/slides/long_term_trends.pdf
  5. National Institutes of Health. “Diabetes 2030: Insights from Yesterday, Today, and Future Trends.” Accessed at: https://www.ncbi.nlm.nih.gov/pubmed/27124621
  6. American Diabetes Association. “Infographic: A Snapshot Diabetes in America” Accessed at: http://www.diabetes.org/diabetes-basics/statistics/cdc-infographic.html
  7. IMS Institute for Healthcare Informatics. “Medicines Use and Spending Shifts” Accessed at: https://www.imshealth.com/files/web/IMSH%20Institute/Reports/Medicines_Use_and_Spending_Shifts/Medicine-Spending-and-Growth_1995-2014.pdf
  8. Nobelprize.org. “The Discovery of Insulin” Accessed at: https://www.nobelprize.org/educational/medicine/insulin/discovery-insulin.html
  9. Journal of Community Hospital Internal Medicine Perspectives. “History of Insulin” Accessed at: http://www.tandfonline.com/doi/full/10.3402/jchimp.v2i2.18701
  10. Gene.com. "Cloning Insulin" Accessed at: https://www.gene.com/stories/cloning-insulin
  11. New England Journal of Medicine.  “Why Is There No Generic Insulin? Historical Origins of a Modern Problem” Accessed at: http://www.nejm.org/doi/full/10.1056/NEJMms1411398
  12. Medscape. “Why are There No Generic Insulins?” Accessed at: http://www.medscape.com/viewarticle/841669#vp_1
  13. Center for Biosimilars. “Insulin Glargine Update: Price Savings with Basaglar?” Accessed at: http://www.centerforbiosimilars.com/news/insulin-glargine-update-price-savings-with-basaglar-
  14. American Diabetes Association. “Economic Costs of Diabetes in the U.S. in 2012” Accessed at: http://care.diabetesjournals.org/content/36/4/1033
  15. Healthcare Cost and Utilization Project. “Hospital Stays for Patients with Diabetes 2008” Acessed at: https://www.hcup-us.ahrq.gov/reports/statbriefs/sb93.pdf
  16. Journal of Medical Economics. “Distribution and drivers of costs in type 2 diabetes mellitus treated with oral hypoglycemic agents: a retrospective claims data analysis.” Accessed at: http://www.tandfonline.com/doi/full/10.3111/13696998.2014.925905
  17. Health Affairs. “Greater Adherence To Diabetes Drugs Is Linked To Less Hospital Use And Could Save Nearly $5 Billion Annually.” Accessed at: http://content.healthaffairs.org/content/31/8/1836.full
  18. National Institutes of Health.  “Adherence to Therapies in Patients with Type 2 Diabetes” Accessed at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3889324/
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