The pharmaceutical marketplace is dysfunctional

The controversy over the steep price of EpiPen—an injectable device used to treat severe and potentially life-threatening allergic reactions—is among the strongest signals to date that the pharmaceutical marketplace is dysfunctional, and that Congress needs to step in.

EpiPen’s list price jumped nearly four-fold in five years, from $165 to $608.   The generic drug in EpiPen costs pennies to make and the device has been on the market for over a decade.

Of course, prescription drugs like EpiPen deliver enormous benefits, improving health and extending lives. They can also save money relative to other forms of treatment. But, over the last few decades, the pharmaceutical industry has become the poster child for poor business ethics and, more recently, out-and-out price gouging.

Since 1990, for example, the federal government has fined drug companies $15 billion for “off-label” promotion of their drugs—marketing them for uses that the FDA has not approved. Drug companies have also tested their drugs on people in developing countries in unethical and sometimes illegal ways. And, they have been caught hiding study results that show their drugs may not be as safe or as effective as they claim.

The only justification for raising the price of the EpiPen so substantially was greater profits.  Sales of the device jumped 10-fold from $170 million in 2007 to $1.7 billion in 2015.  That’s primarily because the drug’s manufacturer, Mylan, has a near monopoly in this medical niche, allowing the company to raise the price of EpiPen as high as the market would bear. And, since insurers and the government do most of the buying, Mylan knows that most consumers were shielded from the direct impact.

But, we all pay the bill in the end, indirectly, through higher insurance premiums, deductibles and copays and in taxes that support public insurance programs such as Medicare and Medicaid.

Despite this, Mylan’s response to public pressure to simply lower the price of EpiPen has been to act primarily (and predictably) in its own interest and in the interest of its shareholders and the other companies that take the drug from manufacturer to market, including wholesalers and pharmacies.  All take a bite out of the price of every drug.

First, Mylan agreed to increase the co-pay assistance to people who need but can’t afford the drug.   That’s helpful, but it requires consumers to jump through hoops to qualify and is limited.  When that didn’t quell the outrage, Mylan announced on August 29 that it would sell its own generic version of EpiPen for half the price of the brand-name product—around $300 instead of $600.

That move keeps the money flowing into Mylan’s coffers and does not anger the supply-chain companies.  It also may stall other generic companies—one is known to be waiting in the wings—from bringing an EpiPen competitor to market.

What Mylan’s move will not do is make this essential medicine—which, again, probably cost less than $30 to $50 to make—affordable for all who need it and fairly priced for the system as a whole.

For example, some middle-income families who don’t qualify for the assistance but who have high-deductible health plans or steep co-pays would still be stuck with a sizable out-of-pocket expense for generic EpiPen at $300.

For the rest of us, EpiPen’s still-too-high price gets built into the cost of insurance, both public and private—along with the rising tab for all prescription drugs.

As such, EpiPen’s unjustified price hike is the latest reminder that drug pricing needs major reform. We allow drug companies to take advantage of their monopoly power to gouge consumers and undermine people’s health and financial security. And the FDA does not help matters when it is slow to allow competition, preserving drug company monopoly power.

Here’s more from Just Care:

• Drug company charity programs help drug company profits
• Regulating Medicare drug prices is long overdue
• International online pharmacies can save you money
• Six tips for keeping your drug costs down if you have Medicare
• Federal policy promotes high drug prices