On most afternoons, people arrive with backpacks and plastic bags filled with boxes of small plastic strips, forming a line on the sidewalk outside the store.
Hanging from the awning, a banner reads, “Get cash with your extra diabetic test strips.”
Each strip is a laminate of plastic and chemicals a little bigger than a fingernail, a single-use diagnostic test for measuring blood sugar. More than 30 million Americans have Type 1 and Type 2 diabetes, and most use several test strips daily to monitor their condition.
But at this store on West 116th Street in New York’s Harlem, each strip is also a lucrative commodity, part of an informal economy in unused strips nationwide. Often the sellers are insured and paid little out of pocket for the strips; the buyers may be underinsured or uninsured, and unable to pay retail prices, which can run well over $100 for a box of 100 strips.
Some clinicians are surprised to learn of this vast resale market, but it has existed for decades, an unusual example of the vagaries of U.S. health care. Unlike the resale of prescription drugs, which is prohibited by law, it is generally legal to resell unused test strips.
And this store is far from the only place buying. Mobile phones light up with robo-texts: “We buy diabetic test strips!” Online, scores of companies thrive with names like TestStripSearch. com and QuickCash4Test-Strips.com.
“I’m taking advantage, as are my peers, of a loophole,” said the owner of one popular site, who asked that his name not be used. “We’re allowed to do that. I don’t even think we should be, frankly.”
FAMILIAR PRODUCT
Test strips were developed in 1965 to provide an immediate reading of blood sugar, or glucose, levels. The user pricks a finger, places a drop of blood on the strip, and inserts it into a meter that provides a reading.
The test strips were created for use in doctors’ offices, but by 1980 medical-device manufacturers had designed meters for home use. They became the standard of care for many people with diabetes, who test their blood as often as 10 times a day.
Test strips are a multibillion-dollar industry. A 2012 study found that among insulin-dependent patients who monitor their blood sugar, strips accounted for nearly a quarter of pharmacy costs. Today, four manufacturers account for half of global sales.
In a retail pharmacy, name-brand strips command high prices. But like most goods and services in U.S. health care, that number does not reflect what most people pay.
The sticker price is the result of behind-the-scenes negotiations between the strips’ manufacturer and insurers. Manufacturers set a high list price and then negotiate to become an insurer’s preferred supplier by offering a hefty rebate.
These transactions are invisible to the insured consumer, who might cover a copay, at most. But the arrangement leaves the uninsured — those least able to pay — paying sky-high sticker prices out of pocket. Also left out are the underinsured, who may need to first satisfy a high deductible.
For a patient testing blood many times a day, paying for strips out-of-pocket could add up to thousands of dollars a year. Small wonder, then, that a gray market thrives. The middlemen buy extras from people who obtained strips through insurance, at little cost to themselves, and then resell to the less fortunate.
That was the opportunity that caught Chad Langley’s eye. He and his twin brother started the website Teststripz.com to solicit test strips from the public for resale. Today they buy strips from roughly 8,000 people; their third-floor office in Redding, Mass., receives around 100 deliveries a day.
The amount the Langleys pay depends on the brand, expiration date and condition, but the profit margins are reliably high. For example, the brothers will pay $35 and shipping for a 100-count box of popular brand Free-style Lite in mint condition.
The Langleys sell the box for $60. CVS, by contrast, retails the strips for $164.
The Langleys are mainly buying up excess strips from insured patients who have been flooded with them, sometimes even when not medically necessary.
Although patients who manage their diabetes with non-insulin medications or with diet and exercise needn’t test their blood sugar daily, a recent analysis of insurance claims found that nearly 1 in 7 patients still used test strips regularly.
The market glut is also a consequence of a strategy adopted by manufacturers to sell patients proprietary meters designed to read only their brand of strips. If a patient’s insurer shifts her to a new brand, the patient must get a new meter, often leaving behind a supply of useless strips.
DOUBLE DIP
While some resellers use websites like Amazon or eBay to market strips directly to consumers, the biggest profits are in returning them to retail pharmacies, which sell them as new and bill the customer’s insurance the full price.
The insurer reimburses the pharmacy the retail price and then demands a partial rebate from the manufacturer — but it is a rebate the manufacturer has already paid for this box of strips.
Glenn Johnson, general manager for market access at Abbott Diabetes Care, which makes about 1 in 5 strips purchased in the United States, said manufacturers lose more than $100 million in profits a year this way, much of it in New York, California and Florida.
The markups on strips look particularly stark when compared to the cost of producing them.
“Test strips are basically printed, like in a printing press,” said David Kliff, who publishes a newsletter on diabetes. “It’s not brain surgery.”
He estimated the typical test strip costs less than a dime to make.