The EpiPen’s Real Shock
Mylan CEO Puts the System’s Systemic Denial on Display
Mylan, a Pennsylvania-based pharmaceutical company, acquired the drug in 2007. Since then, the price for a two-pack of single-use injectors has risen from $100 to $608.61, per the New York Times and the Elsevier Clinical Solutions’ Gold Standard Drug Database
Heather Bresch, the CEO of Mylan, appeared on MSNBC last Thursday to defend her company. The nearly 19-minute interview was as impressive to watch as it was frustrating. Bresch did a great job staying on message and the interviewer, Brian Sullivan, somehow resisted the urge to go full Lewis Black on her.
Today, I’ll set aside the necessary nonsense in her interview. Now’s not the time to quibble that there indeed might be people more frustrated by this than her. I’ll believe her that, as a mother, it’s heartbreaking for her to hear about deaths that could have been prevented if an EpiPen was more easily accessible.
Her main point was this:
“I am hoping that this is an inflection point for this country. Our healthcare is in a crisis. It’s no different than the mortgage/financial crisis back in 2007. This bubble is going to burst.”
To Bresch, Mylan is just a scapegoat for a broken system. As proof, she provided an explanatory chart (apologies for the sub-awesome screenshot skills):
Let’s assume this is accurate. Mylan, according to Mylan’s chart, is responsible for less than half of the EpiPen’s exorbitant $608 price tag. The supply chain that gets the drug to the patient (pharmacy benefit managers, insurers, wholesalers and pharmacy retailers) adds the other half.
As a result of this system, Bresch explains “it was never intended that a consumer, that the patients, would be paying list price. Never. The system wasn’t built for that.” Presumably the price tag was set with insurance companies in mind.
She continued: “The patient is paying twice. They’re paying full retail price at the counter and they’re paying higher premiums on their insurance.”
This is where I started making my neighbors nervous.
Let’s pause for a deep breath and to acknowledge that Mylan is one company of the many companies who are doing similar things. Bresch was right: the system is broken. Now….
Here’s a simplified look at insurance premiums are calculated:
- What is the probability something bad (injury or illness) might happen to you?
- What would the cost be to treat that injury or illness?
- Multiply those two together and repeat for every possible bad thing known to man.
- Average it over a larger group (generally your whole company).
- Add some buffer and a profit margin et voila.
If one thing changes in this formula, say the price of a drug goes from $100 to almost $700, insurance premiums will also go up for everyone in the group, even if they don’t have a need for this particular drug.
To keep premiums low for the relatively healthy (and to keep these people buying insurance), a higher percentage of the drug’s cost is now passed on to those who actually use it. This is roughly like using a gas tax to pay for infrastructure — if you don’t use the roads, you won’t have to pay.
However, when the price of the drug goes up and the patients pay close to full price for it, a fun euphemism called “access” enters the conversation. This is code for: the drug is so expensive the people who need it can’t afford (er, access) it. And when the people who need it, really need it (like severe allergy sufferers), and there’s no alternative (like EpiPen), a potential scenario emerges where patients have to weigh whether to pay rent or buy food, or not die from anaphylactic shock.
As you can imagine, that scenario would make awful PR. Mylan began to increase rebate programs for these people. Sullivan asked Bresch why Mylan can’t just lower the price of the drug. She replied:
“Brian, here’s the perverse thing. Had we reduced the list price, I couldn’t ensure that everyone who needs an EpiPen gets one.”
She never explains what this means. My best guess is based on two truths:
- Everyone on Mylan’s chart are businesses looking to maximize profits and keep shareholders happy.
- Rebates only apply to a small fraction of customers and come after the full-price sale of the drug
A discount would mean a lower sale price for the drug. This would lower Mylan’s sales numbers and impact the other companies down the chain, presuming their markups are a percentage of the drug’s price. The cost of a rebate would be covered by the drug company.
With a discount, every customer (patient or insurance company) pays the reduced price. By using a rebate, not only can these companies count the full sale of the drug on their books, they can also limit who gets the rebate. Drug rebates often go to uninsured patients who would pay full price for their EpiPens — an important but relatively small fraction. Insurance companies would pay closer to full price. The restaurants, movie theaters and other businesses where Bresch mentioned she wants EpiPens to be legally required, would presumably pay full price too.
This mix of prices, discounts for some and full price for most, is the crux of the problem.
Those that pay the cost directly, the patients without insurance, pay a price that is closer to what the market will bear. The rebate programs bring the price down to what a patient who needs the drug — in this case, to survive — is willing and able to pay.
But the full price is for those who pay the cost indirectly. The insured but unafflicted who pay higher premiums to cover the exorbitant costs. The government and the taxpayer who cover the burden for those who cannot. When a 600% price hike is spread over millions, it’s barely noticeable.
This is why the system is broken. Not because the chain of companies is too large or too greedy, but because it capitalizes on an inflated price that we all pay, unawares.
Originally published on August 31, 2016. For more, check out frenchpresstheory.com or subscribe to Second Crack, French Press Theory’s weekly email.