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EpiPen pricing: financially right, morally wrong

| Tuesday, September 6, 2016

“We refilled Abby’s EpiPens a couple of months ago and the retail price is $875. This is for a medication that for so many means life and death … thank goodness we have good insurance but there are many who don’t and have to pay on their own. Please take a moment and sign.”

That was the Facebook status of my aunt in early August. She wanted us to sign a Congressional petition for investigation into the price of EpiPens, which has increased over 500 percent in the last eight years. And while Congressional petitions may help push the cost of EpiPens back down to something more affordable, it likely won’t be enough to fix the larger problems of pricing in the pharmaceutical industry.

EpiPens are large, pen-shaped needles designed to combat potentially deadly allergic reactions. For people with severe allergies, accidental exposure — anything from someone else’s peanut butter sandwich to an unexpected bee sting — can result in a condition known as anaphylactic shock. This causes the airways to swell dramatically, and a person’s breathing can be stopped within minutes. Thankfully, an EpiPen delivers a shot of epinephrine that keeps a person alive while they get to the hospital. Or at least it can, if that person can afford one.

In 2007 a pack of two EpiPens cost about $100, and was covered by most insurance companies. That same year EpiPens were acquired by Mylan Pharmaceuticals, and now the price hovers around $600. One EpiPen syringe requires about $15 worth of plastic, and the drug itself (about a third of a milliliter of epinephrine) costs around 35 cents. A product that should take less than $35 to make being sold for $600 may be shocking in other industries, but in pharmaceuticals, this price gouging is an all-too-familiar story.

Take, for example, Hepatitis C. Three years ago a patient’s best option was to take a combination of medications for at least six months, each with their own serious side effects, and even then only about 50 percent of patients saw any improvement. In 2015, new research resulted in a series of “miracle drugs” that have cure rates of around 95 percent, and require patients to take only one pill a day for 16 weeks. The problem? They cost anywhere between $80,000 and $120,000, far out of range for most people. Earlier this year Merk Pharmaceuticals introduced a similar drug at a shockingly low price of $54,600. Not surprisingly, consumers are still not satisfied.

The justification for these exorbitant prices is unclear. “We believe the price of [Hepatitis C drugs] reflects the value of these medicines,” a spokesperson for Gilead, one of the first pharmaceutical companies to bring these drugs to market, said. “Unlike long-term or indefinite treatments for other chronic diseases, [these drugs] offer a cure with as little as eight weeks of treatment.”

To rephrase: if people actually want to be cured of this disease, they have to fork over a few tens of thousands of dollars more. The ethics of that statement are questionable at best, but the economics may actually check out.

If a company like Gilead cures a patient, that patient will never buy from them again. If Gilead instead markets a drug that keeps a patient alive but dependent on pain-killers, treatments for side-effects and other long-term care, that patient will continue to shell out thousands of dollars a year for the course of their life. Curing a patient is a loss of revenue for a pharmaceutical company; to compensate for these losses, they ratchet up the cost of that cure. A financially sound move, perhaps, but one that neglects to recognize that while a CEO is lining their pockets, people are suffering.

With EpiPens the pricing justifications are a bit different, but still boil down to sound economics and not-so-sound morality. One defense is that the new health care system forces patients to pay full price for items that would usually be subsidized by insurance companies. This is true for people who sign onto high deductible plans; since their insurance doesn’t kick in until they’ve spent thousands of dollars, many end up paying full price for things like EpiPens. Unfortunately, these clients are often low-income families, who sign on to such plans because the premiums are so low. Should Mylan and other pharmaceutical companies reduce the cost of their products to help families already struggling to put food on the table? Morally, most of us would say yes. Financially, they have a responsibility to their shareholders to increase their profits annually.  

Pharmaceuticals can’t always simply cut the cost of a product, and not just because they need to keep themselves in the green; drug pricing is influenced by the cost of research, drug stores and insurance companies. At the middle of this web sits pharmacy benefit managers (PBMs) who are responsible for mediating these groups and keeping drug prices low. Unfortunately, they often do exactly the opposite by charging their clients exorbitant service fees. Despite the $600 price tag Mylan only nets $274 per EpiPen, and this is largely thanks to the PBMs. By that argument, Mylan may not be able to afford an EpiPen price cut and still make a profit.

Yes, the health care system is changing the rules, and yes, PBMs charge too much. Do these factors justify a 500 percent price increase in eight years? Maybe a little. But in that same time period, Mylan CEO Heather Bresch saw her salary jump from $2.5 to $18.9 million, indicating that her company is far from treading water. Just like the Hepatitis C drugs, EpiPens are being used to line the pockets of corporate execs — and from a business standpoint, that makes sense. But making an EpiPen unaffordable to millions of Americans means risking their very lives. And morally, that is simply wrong.

The views expressed in this column are those of the author and not necessarily those of The Observer.

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