Untangling the Mylan EpiPen Controversy

Mylan, maker of the epinephrine auto-injector EpiPen, recently increased the price of a two-pack of the anaphylaxis drug from $100 to over $600. Meanwhile, the EpiPen has the epinephrine market cornered, with only one other competitive product on the market. However, the EpiPen is widely preferred over the Adrenaclick (epinephrine injection, USP auto-injector; Amedra Pharmaceuticals), due to brand trust. Because of this, soon after the price increase was announced, Mylan faced a wave of backlash from consumers, health workers, and lawmakers.

Many words are being angrily bandied about to describe Mylan’s pricing strategy for its EpiPen auto-injector: outrageous, brutal, morally-bankrupt, corrupt, cruel, and many more. But esteemed health care economist Uwe E Reinhardt, PhD, professor of economics and public affairs at Princeton University, chose to describe Mylan’s actions as “savage,” in a recent Health Affairs blog post.

Most, if not all, of Mylan’s critics would agree. After all, Mylan’s latest price hike came weeks before hundreds of thousands of young allergy sufferers and asthmatics headed back to school, meaning EpiPens needed to be restocked in schools, day care centers, and at homes across the nation because the drug only has a 1-year shelf life. Furthermore, the price of a generic vial of epinephrine is about $2.50, making the $600 price tag seem almost unconscionable. 

However, Dr Reinhardt’s use of the term “savage” was not part of a rage-filled diatribe. Nor was it a conveniently timed, politically motivated denunciation of Mylan and other profit-driven pharmaceutical companies. Rather, he used the term to explain why and how the pharmaceutical industry has gotten to this point. 

In his piece, Dr Reinhardt explained that the United States practices one of four types of Western capitalism, known as “savage capitalism.” Under this type of system, a for-profit company’s sole obligation is “to maximize its profits while engaging in open and free competition without deception and fraud,” wrote Dr Reinhardt, quoting Nobel Laureate economist Milton Friedman.

By that definition, Mylan and other drug makers who regularly raise prices on long-available, cheap-to-make medicines are perfectly within their rights to do so. It’s legal and the market continues to pay for it, so it must be okay, goes the reasoning. But is it okay? And more to the point, is it ethical? 

The Need for Ethical Constraint

Dr Reinhardt explained in his post that Dr Friedman eventually came to realize that society’s ethical customs should factor into a company’s business equation. But because ethical constraint is “not explicitly stated anywhere,” he suggested that some companies seem to forget that it is there. 

Dr Reinhardt concluded with an ominous warning for the pharmaceutical industry.

“Failure to appreciate this ethical constraint may impair not only the corporation’s image, but that of the firm’s entire industry,” he wrote.

We turned to our panel of managed care experts to analyze the various dynamics tied to this issue. Specifically, why, after decades of steady price increases, is there now mass outrage over EpiPen’s cost? Do coupons being issued by Mylan actually reduce the price of the product? How much will a generic version of the auto-injector help? And what else is Mylan doing behind the scenes even now to protect its market share and bottom line.

Mylan’s EpiPen pricing strategy has unfolded over a 9-year period since it bought the product from a subsidiary of Merck. Over the past 5 years, it has raised the price 32% most years, taking it from $165 in 2011 to its current price of $609 for a two-pack, according to reports. Prior to selling to Mylan, the Merck subsidiary upped the price by a reported 65% between 2004 and 2007, from $57 to $94. 

In the Public Consciousness

The final tipping point for Mylan seems to have been an enormous increase in out-of-pocket spending for health care consumers, according to Barney Spivack, MD, national medical director of Medicare case & condition management at OptumHealth, and a member of the First Report Managed Care Editorial Advisory Board.

“It’s in the public’s consciousness now,” Dr Spivack said. “The percentage that families have to shell out for health care has gone up dramatically in recent years. At the same time, wage growth has hardly moved at all.” 

Others experts agreed with this sentiment. “There is no question that people are more sensitive to [drug price increases] because they pay more,” added a pharmacist who requested anonymity because of his employer’s ties with Mylan. “It’s not just the underemployed who are feeling the pinch. People who I would consider well off are also affected.”

Catherine Cooke, PharmD, research associate professor at the University of Maryland School of Pharmacy, noted that the problem lies in the need to constantly replace expired auto-injectors, making consumers more conscious about the amount they are spending on a product they rarely use.

“More people are carrying epinephrine auto-injectors, such as EpiPen, with the hope of never using them,” she said. “You have to replace unused prescriptions when they expire, which requires paying for something you never used.” 

Moreover, she said that because children cannot carry the product, “families must often purchase multiple sets. One set remains with the school nurse, one with the child-care facility, and one with a parent or at home.” 

Ashwani Garg, MD, a family physician who practices in suburban Chicago, provided a window into the extreme measures some are being forced to take.  He recalled a mother with three children who has to buy three sets of devices every year.  “Because of a high deductible, she has to pay the full cost,” he said. “She does not qualify for patient assistance or discount programs. So, she's ordering from Canada.” 

The same Mylan EpiPen product costs less than $500 for the three sets, compared with more than $1800 if purchased in the United States.  

“Considering that this medication is precautionary and thus unlikely to be used and thrown away after it expires in a year, that $1500 savings difference is precious,” added Dr Garg. 

Dr Cooke said she has seen the EpiPen placed on higher tiers by some insurance plans, which also increases out-of-pocket costs. She said that under those circumstances, “it’s difficult not to notice increases reported to be at least $100 more for one set of EpiPens, and consider the impact if having to purchase multiple sets.”   

Heather Bresch, CEO of Mylan, has tried to explain that the company does not take in as much profit as the public might think. Norm Smith, president of Viewpoint Consulting, Inc, which surveys managed markets decision-makers for the pharmaceutical industry, articulated what is behind the actual cost of the EpiPen.

“There is a big difference between the wholesale acquisition cost price and the net price,” he said. “Oftentimes, legislated rebates are part of the equation.”

He added that states get their discounts via Medicaid, and the federal government does through Medicare, as well as mandates for disproportionate share hospitals that care for large numbers of the uninsured. 

He explained that Ms Bresch is correct that Mylan’s profit is not derived simply from the highest price listed, thanks in part to layers of bureaucracy. In television interviews, Ms Bresch has claimed Mylan receives about $274 per pen. Furthermore, during a recent congressional hearing, Ms Bresch stated that the company only makes a profit of $50 per EpiPen. However, she was unable to provide any concrete evidence to support these figures. 

The Auto-Injector’s Value

But what of the product’s value, not just of the epinephrine solution itself, but the patented auto-injector that makes administration easy? Most experts acknowledged the value, but quickly added that Mylan has exploited this to a selfish extreme, especially when you consider that the injector was developed in the 1970s, long before Mylan owned EpiPen.  

“The auto-injector is very easy to use,” noted the pharmacist that requested anonymity. “Kids with these allergies can get in trouble really, really fast. So I agree that the ease of use is a consideration.” 

“Some ask ‘Why don’t you just buy a vial of epinephrine and a syringe?’” he said. “In a critical situation, a nonhealth professional could find that problematic.” 

He added that “Mylan’s technology is still the best on the market, and other products have not come close to it.” For that reason, EpiPen’s price should exceed that of competitors, he said, but not to this extent. 

Dr Garg also praised the auto-injector technology, but was quick to express the frustration that he and his patients deal with at the practice level.  

“I agree that the injector device is great,” he said. “[Patients] really want the Mylan product because it's used by most and is standard. The cheaper Adrenaclick is okay, but schools aren't trained on it. Still, the injector device is certainly not worth $600. You're talking about a spring-loaded injector. You can buy a laptop for the same price!”

Disingenuous Solutions

In the face of ire from consumers and lawmakers, Mylan has attempted to quell it with cost-cutting strategies, including offering a prescription savings card, promising a generic version of the injector, and supporting the addition of the EpiPen to a federal list of preventive devices, which would eliminate consumer out-of-pocket costs. Yet,these announcements have been met with unenthusiastic skepticism. 

Experts noted that the timing of these announcements makes them seem disingenuous, stating that these solutions don’t mean much, or point to the fact that what Mylan has been doing all along has been insufficient. In his Health Affairs blog post, Dr Reinhardt explained that any improved assistance programs for low-income families “suggests that previously the program had been inadequate.”  

Some argue that by offering $300 discount cards to select groups that qualify, Mylan is really upping its profit potential through expected volume increases. Add to that the fact that in most cases payers will be making up at least some, if not all, of the difference, then ultimately Mylan is really not decreasing its price at all. 

“What they’re doing with those cards will impact only a small number of people who are on commercial plans,” said Dr Spivack. “It’s basically a ploy to maximize return.”

According to Dr Garg, the savings card strategy is ultimately proof that the EpiPen is an overpriced product.

“The very fact that a $300 savings card is available shows the drug is overpriced,” he said. “The card allows the company to still charge the higher price and get paid for it most of the time. Otherwise, they wouldn't have a savings card.” 

Moreover, Dr Garg noted that many in his state cannot use the cards, since half the children in Illinois are on Medicaid. 

“The discount is not being passed to Medicaid because the government is prohibited from negotiating price.” Dr Garg further noted that the cost is passed on to taxpayers.  

The pharmacist who requested anonymity pointed out that this is nothing new because a lot of companies use similar cards, and said that it could just be a PR strategy aimed at temporarily appeasing the public and the media.

“It does save money for some,” he said. “But often you have to jump through hoops just to get the cards, and then you have to find a pharmacy that will honor them.” 

In the end, he explained, it is not a savings, but instead a cost-shifting tactic, as some of the cost burden is taken on by the insurance company. But even in these cases the consumer is likely to pay the piper eventually, in the form of increased premiums. As has been seen with the Affordable Care Act, when insurance companies pay more for something, they almost always increase their customers’ premiums the following year. 

In late August, Mylan announced it would begin producing a generic version of the epinephrine auto-injector at half the price of its branded version. Experts noted that this seems to be a move motivated solely by public outcry and bad press. However, this announcement has also led experts to wonder how Mylan can justify selling two identical products at such different price points. In response, Mylan has pointed to brand loyalty and an already established trust in its branded product as justification. 

Dr Garg reiterated that such trust should not come at twice the price. 

“There is no difference between the generic and brand product,” he said. “The only difference is a perceived one, and that is what Mylan is capitalizing on.” 

Like the discount card strategy, offering a generic version will essentially allow Mylan to drive more revenue and profit through additional sales, experts contended. 

Working Behind the Scenes to Get Protection

Mylan is also attempting to reduce the out-of-pocket costs for consumers by adding the EpiPen to a federal list of preventive medical services. However, getting such a designation would not be easy, since the decision is left to the US Preventative Services Task Force (USPSTF), and currently there are no prescription medications for diagnosed illnesses on the list. Instead the list is limited to vaccines, counseling services, and disease screenings.  

“The USPSTF details primary prevention strategies, and EpiPen is really a secondary prevention or an actual treatment,” Dr Spivack noted.

This has not stopped Mylan from backing the attempt from behind the scenes, according to a recent article in The New York Times. The report noted that the company paid a medical writing consulting firm to help draft and revise a recently-published article in the American Journal of Medicine that proposed adding EpiPen to the federal list. The Times also reported that Mylan “acknowledged financing ‘research, resource development, and travel’ of a nonprofit coalition… to help push for the change.”

If EpiPen should somehow make the list, the price relief afforded to consumers would allow Mylan to keep its price high, and perhaps raise it even more, experts suggested. Meanwhile, the federal government, payers, and employers would be left to foot the bill. Experts noted that again in this scenario, price protection would be temporary, as higher insurance premiums would eventually loom. 

Dr Spivack stated that this complicated business situation, where nonprofits and medical journals appear to be pawns in a business strategy highlights the need for greater scrutiny. 

“It points to the need to follow the money to get to the root of the issue,” he said. “It’s a ploy, plain and simple—an example of what US Sen Richard Blumental (D-Connecticut) called ‘the dark side’ of pharmaceutical marketing.” Or simply put, a product of what Dr Reinhardt calls “savage capitalism.”