EpiPenalty vs. EpiPenance

Sept. 16, 2016

The brilliant minds at beleaguered Theranos Inc. must have heaved a sigh of relief as Mylan Pharmaceuticals usurped as much negative publicity as word leaked out the company had been price gouging for years its EpiPen product that delivers life-saving epinephrine quickly to those suffering allergic reactions.

Online message boards and social media outlets erupted at the gall, lambasting Mylan’s actions and for the CEO’s reported exorbitant compensation package, she the daughter of a U.S. Senator, which somehow made it even more heinous.

Armchair moralists cried foul, calling for boycotts (unrealistic), government intervention (do we really want federally mandated price controls?) and all sorts of compensatory and punitive punishments for the CEO and her C-suite cronies. One commenter even suggested that the way for the CEO to make amends is to dedicate one full year of her compensation package to a trust fund designed to support those organizations and individuals who cannot or may not afford to pay for access to the desired product. Good luck with that.

But such a magnanimous gesture may not be part and parcel of her personality. Maybe it wouldn’t even be in ours were we faced with such opportunity. After all, we live in a capitalistic, free-market economy. Prices are set based on supply and demand, as well as what the market allows and will bear, but especially what the general public will accept.

To counter the vitriol aimed at its pricing structure, Mylan introduced a generic alternative at half the price. Critics remained unimpressed. Was the product as potent as the brand-named version? Would you need to buy more to achieve the same outcomes as the original? Was this a way for Mylan to retain its profit quotas and expectations?

Mylan may have “cut” the price via generic alternative as a “magnanimous” gesture, but the real issue is that our system enables all of this behavior. This really doesn’t represent a capitalistic free-market economy. After all, if it did, people would protest and stop buying the product once competitors emerged or were forced by government edict/executive order, shifting to lower-priced competitors (if they existed), which would drive Mylan to reduce their prices.

The issue here is that Mylan raised prices to an egregiously obnoxious level over a 10-year period, justifying it partly on the high quantities of free product they have to give to schools. To some, that redefines the concept of “free” markets. To others, it’s merely the Sheriff of Nottingham canceling Christmas while Robin Hood rallies the educational system around unfunded charity mandates.

This doesn’t mean schools and other organizations should not have access to EpiPen inventory. It just means that everyone should realize the fundamentals of economic inertia: For every action/decision, there is an equal but opposite reaction/decision. You poke a balloon on one end and if it doesn’t pop you’ll find a protrusion on the other end.

Gravity, physics and good sense. Sigh.

Perhaps the better — or at least less sticky and stinky solution — is to allow the feds a little regulatory latitude, albeit heavily checked, for them to require that any product brought to market has a generic alternative readily available to guarantee competition right from the start. The caveat? The generic version would have to be owned by a completely separate company with no shared stockholders or venture capital investment houses. This way, the market can be allowed to dictate pricing. This also means that Mylan would have to divest its generic version either as a spin-off or outright sale to another company. Sound draconian and intrusive? Maybe. Maybe not.

There’s something of a precedent in the telecommunications industry. Back in the go-go 1980s, the perceived hegemonic monopoly AT&T (colloquially known as “Ma Bell”) had to divest a variety of assets (a “voluntary” settlement as a hedge against federal fiat). AT&T spun off its research and development conceits and its local calling operations, but retaining the long-distance calling market. The local calling operations broke into smaller regional corporations to enable competition. Furthermore, as communication technology started migrating to fiber-optic cable from copper wire, these regional companies and their “Baby Bell” subsidiaries (I worked at Illinois Bell Communications, for example) were “encouraged” to lease “available” lines to smaller companies to engender competition.

About the Author

Rick Dana Barlow | Senior Editor

Rick Dana Barlow is Senior Editor for Healthcare Purchasing News, an Endeavor Business Media publication. He can be reached at [email protected].