The media storm that erupted over huge price increases for the Epipen, a medication delivery device that provides an automatic injection of epinephrine to an individual suffering a severe allergic reaction, had everything a muckraking editor, or ambitious politician, could hope for: The manufacturer is a highly profitable pharmaceutical company, Mylan, led by a highly compensated CEO, who also happens to be the daughter of a member of the US Senate. In addition, the Epipen device itself is considered so vital, so irreplaceable, it is stocked in the nurse’s office of approximately one-half of all schools in the United States.
Newspaper editors across the country responded with righteous outrage. Some, like the St Louis Post-Dispatch, called for Congress to institute price controls on pharmaceutical products. Liberal politicians saw an opportunity to transfer blame for the steep rise in costs under the Affordable Care Act, aka Obamacare, to corporate America. Television reports showed anxious parents wondering if they’d be able to afford a potentially life-saving medication. Under withering criticism, Mylan expanded its support program for patients, and eventually announced it would produce a generic variant of the device that would retail for about half the cost of the original Epipen.
So, a pretty open-and-shut case of corporate greed, right? Maybe, but the salient point goes far beyond a simple, pat answer. Further investigation provides a glimpse into the convoluted way prescription medications are marketed and sold in the US, and how little the average consumer knows about the process.
Mylan acquired the generic drug division of the Germany-based Merck KGaA in 2007. That purchase included the rights to Epipen. The company soon began a marketing campaign to raise awareness of the danger of severe allergic reactions to things like food, insect stings, and medications. The worst reaction, anaphylaxis, is characterized by an itchy rash, swelling of the throat or tongue, shortness of breath, vomiting, lightheadedeness, and low blood pressure. It has a rapid onset from within minutes to hours of exposure, and can be life-threatening. Mylan began a marketing program, Epipen4Schools, in 2012, and, as stated earlier, more than half the schools in the US have participated. While some have criticized the company for fanning fear among parents re the possibility of their child suffering such an event, it’s estimated that as many as 1 in 13 kids have food allergies, and up to 43 million Americans are at risk for anaphylaxis. In a 2013-2014 school year survey of 76,000 schools, more than 1000 cases of anaphylaxis were reported, with 75% treated with an epinephrine auto-injector. 40% of those treated utilized an Epipen provided through the the Epipen4Schools program. 25% of the cases occurred in individuals with no known allergies. The Epipen marketing campaign has proven to be a huge success for Mylan.
Probably the most galling aspect of the controversy is that epinephrine, the medication contained in the Epipen device, only costs about a dollar per pen. That’s scant consolation to the parent who’s seen the price for a two-pack of Epipens jump from $200 to over $600 in less than a decade (Ed. Note: It is recommended that two pens be immediately available in case the first delivery doesn’t impact the reaction sufficiently. The epinephrine in the device has a rather short shelf life, as well, so Epipens need to be replaced relatively frequently, adding to the price shock). Some families have more than one child with allergies, so the cost is multiplied for each extra pair of devices required. Needless to say, price has become a defining issue, especially for parents of children with severe allergies whose lives could be at risk if Epipens became unaffordable.
But, hold on, most people have insurance, don’t they? Why would parents have to fork out the entire $600 bucks for a pair of auto-injectors? It turns out that the move to curb health care costs plays a significant role in emptying the average consumer’s pocket, and involves more players than just an upstart pharmaceutical company.
Insurance, Deductibles, & Pharmacy Benefit Managers. Strange Bedfellows.
The ever-increasing cost of health care was a main driver for passage of health care reform in 2010. The Affordable Care Act, President Barack Obama’s signature domestic legislation, promised reduced premiums and better benefits. One of the ways insurers lowered premiums was to offer plans with high deductibles. In exchange for lower monthly payments, individuals and families are responsible for much higher out-of-pocket costs before their insurance kicks in. These high deductible plans often include drug costs in their calculations. A family might be required to spend thousands each year before their insurance plan shoulders any portion of the cost. People used to paying relatively modest co-pays for brand-name medications were now paying much, much more.
As the insured began to fully understand the impact of their low premiums/high deductible health insurance, they reacted, and loudly. Those companies tasked with overseeing the price and availability of medications, mostly Pharmacy Benefit Managers (PBMs), who negotiate drug prices on behalf of employers and insurance companies, responded by charging the pharmaceutical industry with gouging patients and insurers. Pharma companies blamed the PBMs for using retail drug prices in their claims, prices PBMs never pay due to the rebates and discounts that manufacturers provide as an incentive. Liberal politicians used the Epipen controversy to insulate themselves from criticism that their highly touted health care reform legislation was an expensive failure. Conservatives got to say, “I told you so,” despite never championing a market-based plan of their own until the beginning of the 2016 national election campaign. About the only thing all sides could agree on was that it wasn’t their fault. Meanwhile, the people who actually need Epipens are stuck holding the bill. So, what’s the answer?
Transparency, Competition, Choice
First, and foremost, consumers need to know what their medications actually cost. As part of the research for this post, I checked with the PBM for my health insurance provider. I haven’t yet reached the individual, or family, out-of-pocket limit for my high-deductible plan this year, so a pair of Epipens would run me a cool $541. Now, is that the actual price my PBM paid the manufacturer, plus a modest profit, or am I paying full, or nearly full, retail price? Is the PBM making out like a bandit after it receives its discounts and rebates from the manufacturer? The only people who know aren’t talking.
There are direct-to-patient (DTC) discounts provided by Mylan, but even then, I still don’t know whether the discounted price is a fair one. There are even some DTC discount cards for other meds that PBMs have refused to honor because they believe them an attempt by manufacturers to skirt paying the PBM. Heather Bresch, the Mylan CEO, has even conceded that in an attempt to make discounts given to PBMs look bigger, manufacturers sometimes artificially boost retail prices, and, by extension, discounts. One would think PBMs would balk at this scheme, but, if they are able to brag to their customers that they’ve scored big discounts, retail price inflation by manufacturers becomes an advantage, not a liability.
That’s yet another reason for transparency in dealings between PBMs and the pharmaceutical industry. A lot of the hanky-panky that surrounds drug pricing would disappear if the man behind the curtain lost his cover.
Competition is almost always a good thing, and promoting competition in the pharma industry has gained new advocates during the furor over the Epipen. The “one drug approved in each class and no more” crowd has been weakened significantly, although Epipen is not a typical example. It is both ingenious device, and simple drug, allowing an affected individual, having been previously trained in its use, to administer the prescribed dose safely, even with one hand. It greatly reduces the risk of misapplication or accidental needle stick. That’s compared to a syringe filled with epinephrine, which asks a stricken person, or other individual, to fill and administer delivery, under stress, without accident, perhaps twice. In addition, any generic version of the device would have to prove to the FDA it can be used without ever failing, so the cost of making a successful generic knock-off is greatly increased.
There had been current, and upcoming competition to Epipen, but Auvi-Q, an auto-injector marketed by Sanofi, was recalled late in 2015 due to a problem with dosing consistency. The license for Auvi-Q is reverting back to the original manufacturer, so the timing of a possible return to the market is a question mark at this point. A generic rival, from Teva, saw its application for approval for sale in the US rejected by the FDA in February of 2016. One other auto-injector, Adrenaclick, by Amedra, does offer an alternative, but operates slightly differently than Epipen, and users would need to be trained in its unique application. Here again, Mylan’s Epipen marketing strategy effectively discourages competition. All the uncertainty about Epipen’s competitors almost certainly contributed to Mylan’s decision to raise prices following its marketing success. Monopolies are rarely beneficial to consumers, even in health care.
Finally, consumers need choice. Choice to purchase their medications in a more direct way from manufacturers. Most manufacturers offer direct-to-consumer discounts, with substantial reductions in cost, but consumers are often unaware of them. Sales reps provide discount cards, vouchers, and even rebates for mail order prescriptions, to doctors’ offices, but the sheer volume overwhelms both staff and physicians, who are already dealing with heavier patient loads and increased administrative requirements. Pharma company websites also offer these incentives, but most patients probably never visit them, or have already filled their prescriptions before they know for certain the name or manufacturer of a new drug they’ve been prescribed. A change in approach by pharma companies could see sales reps spend less time chasing doctors’ signatures, and more time being advocates for patients. A supported patient is more likely to stay compliant on their treatment, and hopefully, see better results.
The outrage over the Epipen pricing debacle creates an opening for a new approach to drug marketing. Transparency in interaction between drug makers and PBMs, and between PBMs and their customers would allow patients to hold both manufacturers, and PBMs, more accountable. Unless the ultimate consumer, the patient, has confidence that they’re receiving value for their money, they may pass on even bothering to fill their prescriptions, and there’s no less effective medication than the one not taken.
Competition needs to be encouraged, not opposed in the hope of forcing ever-greater government intervention. Calls for price controls, and restrictions on competitors, only sets the stage for the next outrage. Restrictions on the number of drugs in a class of medications seems a way to cut costs, until a recall or other problem eliminates substitutes, leaving patients at the mercy of a single supplier, or worse, without any acceptable alternative.
Drug manufacturers can help to restore public confidence by directly engaging the customers who rely on their products to preserve, or restore, their health. The byzantine route medications take from manufacturer to patient needs to be shortened, and clarified. That’s the best way to head off even further government encroachment on the industry, and defuse consumer anger.
Raymond T Kyle
Copyright 2016 Kyle Policy Partners