Labor Day lessons from Mylan's EpiPen price gouging

by Daniel Hoffman

Published Sep. 2, 2016, 11:16 a.m. ET

When a pharmaceutical company creates a scandal, its media relations personnel and so-called independent observers invariably come forward in an effort to clean up the mess left by management. Occasionally even their spin, excuses, and misdirection provide an opportunity to learn something, although the lessons are generally not those that they intended.

Such an opportunity arises in the wake of the public's perception that Mylan has gouged patients who use its EpiPen injector. Since buying EpiPen from another company in 2007, Mylan has continually raised its price for a package of two injectors, from $94 in 2007 to $608 in 2014, a rise of 547%.

One revealing spinmeister is Mylan's CEO, Heather Bresch. In an August 25 interview on CNBC, Bresch said, "It was never intended that a consumer, that the patients, would be paying list price, never. The system wasn't built for that."

Presumably that means Bresch believes the system was designed so that manufacturers would first soak the insurers who would then recover their losses by raising premiums and increasing the deductibles and co-payments they require consumers to pay.

That sure absolves Mylan of any excessive greed, doesn't it?

Then there is venture capital operator Bruce Booth who started out well in a post he wrote for Life Sci VC. The EpiPen story, according to Booth, provides a glaring example of what's wrong with the entire health care system. It involves "a politically-connected company, selling a half-century old generic product that's simple to make...[and managing] to exploit its government influence-peddling muscle to drive relentless price increases."

In Booth's narrative, Mylan's political connections created legislation that increased demand for EpiPens by requiring schools to stockpile epinephrine injectors. Mylan then lobbied to twist the rules even farther by inserting product specifications that made their EpiPen the only acceptable epinephrine injector.

Booth continued in the right direction by faulting pharma's price-based business model, writing that "the simple fact is the industry...[has become] irresponsibly addicted to large biannual price increases for most of its products. Price rather than volume drives the revenue growth for many specialty products today."

But Booth then ran off the rails, concluding that good pharmas must do more to distinguish themselves from bad pharmas such as Mylan. What he calls "Innovator" pharmas should not allow themselves to be lumped together with "Exploiters."

That might help to erroneously improve the public's perception of the industry as a whole, but it wouldn't do anything to alter the structural conditions that make pharma a predatory price gouger. Any such impression of a substantial difference between Black Hats and White Hats in pharma would be wrong because the so-called Innovators abuse consumers and taxpayers as much as the Exploiters.

A perfect example is Gilead, which purchased Pharmasset in 2012. Pharmasset received federal money that enabled it to develop its hepatitis C wonder drug, Sovaldi. Sovaldi is truly a breakthrough medication that improved the cure rate for people with hepatitis C from 50% to approximately 95%. Yet Gilead decided to price Sovaldi at $1,000 a pill, thereby breaking the budgets of the Veterans Administration, several Medicaid programs, prison systems and many other agencies, and forcing them to ration care.

Some observers claim vigorous competition in the marketplace is the answer to all problems related to high prices. Paul Howard, a director of health policy at the Manhattan Institute, a rightwing think tank, proclaimed the competition cure-all last week in The Hill.

The market idolators are wrong. As Melody Peterson wrote in the Los Angeles Times, "even when Sanofi, a competitor, introduced another automatic epinephrine injector in 2013 to challenge Mylan, it charged exactly the same price" for EpiPen.

Peterson gave another example in the case of ursodiol, a decades-old, generic drug for treating gallstones. Plenty of companies compete to sell ursodiol, including Lannett Co. of Philadelphia, Epic Pharma, Teva Pharmaceuticals (with U.S. headquarters in North Wales), Avkare Inc., Marlex Pharmaceuticals and Major Pharmaceuticals. In early 2014, ursodiol's wholesale price was 45 cents a capsule. Then in May 2014, Lannett raised its price to $5.10 per capsule and the others followed along.

In most cases, several companies compete to sell each generic compound. Nonetheless, Peterson found, "eight of the 10 drugs that had the biggest percentage price hikes in 2014 were generic medicines made by multiple manufacturers."

So much for competition keeping drugs affordable.

Most political solutions fail to adequately address the problem because they are too superficial and timid to attack the holiest of holies: America's for-profit health care system. So for example, Hillary Clinton's platform calls for capping out-of-pocket expenses on covered prescription drugs at $250 per person, per month.

No good. Insurers would then have to pick up more of the outrageous drug costs and that would only motivate them to raise premiums. Higher premiums would then propel a "death spiral" where healthy people drop their coverages, leaving mostly the sick to enroll in health plans.

So from the lame excuses and half-assed solutions that emerge from a pharma scandal, it's possible to learn that predatory drug companies, profit-over-all insurers and self-regarding providers share the blame for unconscionable drug prices that soak American consumers and taxpayers. One might even conclude that all the major sectors of the U.S. health care system operate with amoral greed.

That's not a bad lesson to learn during a holiday to honor American labor.