Mylan Pharmaceuticals has captured significant attention in recent months as questions regarding the rapidly increasing cost of their Epinephrine auto-injectors, also known as the EpiPen.
When Mylan purchased the drug, the price for a pack of two was roughly $100 in 2007 and have arisen to now over $600 in 2016.1 Currently, the Epinephrine auto-injector is classified as a generic drug, a classification which requires fewer rebates to be paid to the government as compared to branded drugs. As a result of the September 28th hearing with US Senate, Heather Bresch, CEO for Mylan, agreed to change the classification of the drug from generic to branded beginning in April of 2017 and agreed to pay a settlement of $465 million dollars for the time period in which the drug was misclassified.2 The said rebates are currently confidential.
With a monopoly, Mylan is able to dictate the price of the Epinephrine auto-injectors as it determines. The price, according to Bresch is set to cover the total cost of manufacturing the drug, distributing, enhancing the products, as well as subsidizing the cost of sales to the rest of the world. Net sales are roughly $137 per pen, according to Bresch, and arguments related to research, development and litigation are used to support the continuously increasing costs.3
Mylan Pharmaceuticals is not the only company to be capturing attention of consumers, healthcare administrators and the government. Recall the attention placed on Valeant Pharmaceuticals as its prices began to hike after purchasing the rights to old heart drugs, Nitropress and Isuprel. After being subpoenaed, CEO J. Michael Pearson testified that the pursuit of increasing drug prices was a mistake, a demonstration that did not elicit any sympathy from either the Republican or Democrat Senate members.4 The more than 300 percent and 700 percent increases for Nitropress and Isuprel, respectively, exhibits the company's objective to increase profits as opposed to providing access to these lifesaving drugs.4
Mylan and Valeant are just two examples of drug companies that are sparking debate. In fact, in 2015, there was a 21.5% increase in spending for specialty medicines with only a 1% increase in prescription dispensed from prior year.5 Price transparency, or lack-there-of, leads to heated debates among pharmaceutical companies and consumers because of what appears to be randomized increases in prices. Some shocking and recent examples include antibiotic Doxycycline hyclate, which soared from $20 for 500 capsules to $1,849 in just 7 months or cholesterol medication Pravastatin sodium which climbed from $27 to $196 for a year supply.6 What most find troublesome is the fact that drug prices are increasing faster than inflation, to be exact, more than eight times higher than the general inflation rate.6
Due to the fact that main buyers of drugs are private insurance companies and the government, pricing decisions are generally not considered on an individual's ability to purchase. Either way, prices are ultimately passed on the consumer through increasing deductibles, copays and premiums for insurance plans. In a study presented to American Hospital Association and the Federation of American Hospitals by an independent Chicago research firm, inpatient spend on drugs on a per admission basis, increased by 38.7% between 2013 and 2015.7 The growth of spending on inpatient drugs exceeded the spending on retail drugs at 11.8% and 7.5% respectively, according to the study.7
In reaction to the scrutiny surrounding the increase in price for patients with high deductible health insurance plans or patients without insurance, Mylan is providing $300 saving cards and doubling eligibility for assistance programs to 400% the federal poverty level.1 This type of quick response begs to question if the increase in prices were really related to research and development or to cushion salaries of the executives such as Len Schliefer, CEO of Regeneron, who made $41.97 million in 2013.8 What are solutions to tackle a growing issue as such? Market place competition, government regulation and increased transparency are essential to preventing continued challenges.
The age old economics philosophy remains true: enhancing market place competition can significantly reduce prices. Many have lobbied for generic drug development and decreasing the time of patent on brand-name drugs. At this time, pharmaceutical companies have the ability to increase prices on drugs that are patent protected to off-set the loss on previously patented drugs that are now generic. The current patent protection lasts 20 years after the drug has been invented, by reducing this protected period, generic drug companies are able to increase competition. Any minor change to the formulary can allow the company to secure another patent for 20 additional years. Responding to the market trends, generic drug prices are also increasing9 and companies are racing to the highest cost per drug, a phenomenon opposite of how competition in the marketplace typically works. Currently, regulation stops US citizens from purchasing drugs outside of the country. By removing the ban against importation of pharmaceuticals and creating policies to allow consumers to purchase drugs from credible companies in other countries such as England, the US can alleviate any drug shortages that have increased price or monopolies that have taken over the marketplace. Currently, the United States does not have the same type of negotiation ability as countries with a state health system due to the number of drug purchasers and middlemen involved in the distribution and utilization of drugs, allowing consumers to purchase drugs directly from the pharmaceutical companies can reduce the layers of additional costs that are added to the bottom line.
In addition to regulations regarding market place competition, drug price control regulations should be instituted to monitor the rising prices of drugs. This is a common practice in other countries and is part to blame for increase prices in the US. According to Heather Bresch US citizens are subsidizing the rest of the world that are, at present, only paying $100-$150 for the same product because of regulations in their countries.3 US prices, compared to Norway, were higher for 93% of top branded drugs.10 In Norway, the state health system pays for most prescription drugs in the country, keeping high prices at bay with considerable drug price negotiation.10 In England, the cost of Cimzia, a drug used for arthritis, costs $1,117 compared to the $2,357 paid by Medicare in the United States.10 Through regulation, the government can limit the out of pocket costs to patients and the rate of increase in drug prices for insurers. Price regulation would require flexibility when prices of the ingredients in the formulary increase, but to minimize the increases in unnecessary costs. Proven successful in other countries, is the limit of price inflation control to that of the national inflation rate.10
Lastly, price transparency can provide insight to the actual amount of money spent on research and development, the common scape goat for increased drug prices. Similar to the Canadian agency, Patented Medicine Prices Review Board, the US should adopt a system to provide detailed information regarding research costs. The Patented Medicine Prices Review Board is responsible for reporting the annual expenditures for that patentee's research and development activities.11 Price transparency can minimize price discrimination and increase accountability. Without fail, when price control is discussed, concerns are raised that this will lead to stifled innovation- an opinion one may question is driven by the handful of executives of pharmaceutical companies that are at risk of losing their $18.9 million dollar salary such as the aforementioned CEO.12 To combat risks of stifled innovation, incentives should be provided for impactful drug development such as funding or reduction in taxes. It is difficult to believe the colossal pay increases have been used solely for innovation without any transparency in research and development costs. Interestingly, drug companies may spend up to twice as much in the marketing and promoting products—including advertising—as spent on research and development.13 According to the World Health Organization, The United States is one of only two countries that allow consumer facing prescription drug ads, resulting in an additional $5.2 billion in spending, that ultimately are passed to the consumer.14
In the next five years, overall health care spending will total close to 20 percent of the country's gross domestic product.15 The question to be considered through this debate is: are drug companies to blame or is this the standard in an industry with limited regulation in spending and price transparency? Are drug companies the issue or the symptom of a larger problem? Should pharmaceutical companies profit at the expense of patient ability pay for their drugs? Without monumental change in the pharmacological industry, consumers will continue to pay astronomical prices for their medications.
References
1. http://www.latimes.com/business/la-fi-mylan-price-hikes-20160830-snap-story.html
2. http://www.nytimes.com/2016/10/08/business/epipen-mylan-justice-department-settlement.html?_r=0
3. http://www.cnbc.com/2016/08/25/mylan-expands-epipen-cost-cutting-programs-after-charges-of-price-gouging.html
4. http://www.modernhealthcare.com/article/20160427/NEWS/304279996/valeant-ceo-will-cite-mistakes-in-price-hiking-strategy
5. http://www.imshealth.com/en/about-us/news/ims-health-study-us-drug-spending-growth-reaches-8.5-percent-in-2015
6. http://www.aarp.org/content/dam/aarp/ppi/2014-11/rx-price-watch-report-AARP-ppi-health.pdf
7. http://www.modernhealthcare.com/assets/pdf/CH1074451011.PDF
8. http://www.fiercepharma.com/special-report/top-20-highest-paid-biopharma-ceos
9. http://assets.aarp.org/rgcenter/ppi/health-care/i43-watchdog.pdf
10. http://www.wsj.com/articles/why-the-u-s-pays-more-than-other-countries-for-drugs-1448939481
11. http://whoswholegal.com/news/features/article/27744/pharmaceutical-pricing-reimbursement-canada-overview-innovative-drug-manufacturers
12. http://www.forbes.com/sites/emilywillingham/2016/08/23/ceo-of-mylan-pharmaceuticals-sees-671-salary-increase-in-8-years/#61f68ba44b23
13. http://www.consumerreports.org/drugs/cure-for-high-drug-prices/
14. http://prescriptiondrugs.procon.org/
15. http://www.rwjf.org/en/library/research/2016/03/how-price-transparency-controls-health-care-cost.html
About the author:
Paige Laughlin is a Healthcare Administration Graduate student at Virginia Commonwealth University in Richmond, Virginia. She will be finishing her final semester in May 2017. Paige received her undergraduate degree from The Ohio State University in Industrial and Systems Engineering.
The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.