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EpiPen price hikes reveal big drug industry flaws

As much as we all love Pinterest and YouTube tutorials, there are some things that most people agree shouldn’t be DIY. Normally medical treatment, devices, and equipment are near the top of that list, but in the wake of extreme price hikes EpiPens seem to have fallen off the list all together. Surging EpiPen kit prices, which have spiked from around $100 in 2009 to over $600 today, have forced some people to start making their own, using materials that cost between $8 and $35.

There has been a lot of outrage about the price hikes, with have been happening yearly since the pharmaceutical company Mylan bought the rights to the product in 2007. The latest price increase in May of this year brought the price
from $461 to $608.61 and drew attention and criticism from the media and Congress. Using words like “sickening” and “disgusting,” the House Oversight and Government Reform Committee berated Mylan’s CEO Heather Bresch about the EpiPen’s pricing in a hearing that was surprisingly bipartisan. It turns out demonizing Big Pharma is one of the few things that can break the gridlock in Washington. But as much fun as it is to crucify big, greedy corporations, the situation is, as usual, a lot more complicated than that.

Firstly, it’s important to understand how that $608 price tag is distributed.

On the supplier end, Mylan claims to only get $274 from each sale, with the rest going to distributors and middlemen. Of that $274, only $100 is pure profit. Besides the long line of middlemen and the cost of the supply chain, pharmaceutical companies also have to invest in research and development, which is an absurdly costly yet vital portion of their business. Without robust research and development programs medicine would stagnate, and vital improvements and medicines might never be developed. Since acquiring the EpiPen in 2007, Mylan claims to have spent nearly $1 billion on research and development.
On the buyer side of the equation, the price to the consumer really depends on their individual insurance plan. Some plans cover the complete cost of the EpiPen so the consumer pays nothing, while people with no insurance or high deductible plans can end up paying the full price.

The Affordable Care Act helped dramatically decrease the number of uninsured people, hitting a record low of 8.6 percent in September, but a lot of people who were previously uninsured opted for high-deductible plans that leave them just as vulnerable to the price hikes. According to CNBC, in the first three months of this year 40 percent of nonelderly people with private health coverage were enrolled in a high-deductible plan. People who opt for high deductible plans usually do so because they cannot afford the more thorough plans with higher premiums, so the full $608 price tag hits especially hard.

Mylan has taken some steps to try and mitigate the impact of the price hikes, offering a $300 savings card for customers who have to pay the full price of the drug and announcing the release of a generic version of the EpiPen that will cost $300. However, the use of the savings card is illegal in programs such as Medicare and unavailable to the uninsured. Mylan holds a patent for the EpiPen’s release device that prevents other companies from producing pens that use the same easy-to-use device that can save lives. The new generic version will still be a Mylan product, perpetuating Mylan’s stranglehold on the EpiPen market. There is no reason to believe that the generic’s price will stay at $300 when Mylan has a monopoly.

The problem of EpiPen prices, and the countless other drugs that have the same story, is a sticky one with no easy solution. On one hand, pharmaceutical companies are, in the end, companies. They need the motivation of profit to function and keep improving. Pharmaceutical companies drop hundreds of millions of dollars on developing new drugs and equipment, and they rely on patent protections and high prices to make that investment worth it. On the other hand, this lifesaving medication is becoming unaffordable for the people who need it.

The solution seems to be increased negotiation and transparency. It’s worth noting that while EpiPens are used around the word, the United States is the only country having this problem. EpiPens in Canada still cost about $100. This discrepancy seems to exist because the Canadian government negotiates and regulates medicine price increases; something the United States government is prohibited from doing.

While in theory allowing the free market to run should be optimal, judging by the current situation this isn’t working. The artificial monopoly created by the long patent period makes it impossible for the free market to function and set a competitive price for medicine.

It seems like the best solution would be for the government to be able to negotiate and yes maybe regulate prices while the patent is in effect. That way prices could be set at a level that would recoup pharmaceutical companies for their costs while making sure they aren’t price gouging people who desperately need the medicine.

When the House Oversight and Government Reform Committee requested a breakdown of Mylan’s research and development costs for last year, the company was unable to oblige. While research and development are undeniably important, they shouldn’t serve as a reason to give drug companies a blank check. Ideally, this kind of information should be public record or at least available to the government so they can monitor the companies for price gouging.

Another commonly cited reason for high drug prices is the long line of middlemen between the supplier and consumer. These middlemen are mostly pharmacy benefit managers, who help market and sell the drug in exchange for a rebate from the drug company. These middlemen make for a long and complicated of people that siphon off the profits made from the sale of a medicine. To compensate for the money that gets diverted to these pharmacy benefit managers, the drug companies hike up prices. If the government was able to prevent them from taking this easy way out and raising prices, they would be forced to restructure the supply chains to be more profit efficient.

The recent EpiPen price scandal is a perfect example of how our pharmaceutical industry is broken. While there are several Band-Aid solutions on the table for this instance, like releasing a generic version or putting EpiPens on the list of preventative medicine insurance companies are required to cover, it’s time we looked more deeply into the problems with the industry as a whole. It’s time for an overhaul.