Pricing structure, not profits, are the problem in the EpiPen scandal

The House Oversight Committee finally got the hearing it requested weeks ago from Heather Bresch, CEO of Mylan over the price-gouging tactics involved with the EpiPen. While an entertaining spectacle of public flogging of Heather Bresch by Congress, the Committee largely missed addressing the real issues in drug price inflation.

Instead, they spent most of their time flagellating Bresch repeatedly with numbers, repeating to her Mylan’s marketing costs, executive compensations, profit margins, market caps, etc.

However, it is not a crime to get rich. In fact, some would say that is indeed the American dream. It is, however, a role of Congress to legislate checks to ensure patient access to life-saving medicines. Shaming the CEO of a pharmaceutical company doesn’t address why drug prices are a problem.

In the weeks leading up to the hearing, media has already been on a rampage, revealing the sordid tale that put Bresch in the hot seat in the first place:

{mosads}In 2007, Mylan purchased the EpiPen from Merck for $6.7 billion. The EpiPen was sold as a single EpiPen for $56.64 at that time. Over the next few years, Mylan increased the price of the EpiPen to its now $600-per-twin-pack price, changed the packaging of EpiPens to only be in twin-packs (2010), and also put significant lobbying and marketing dollars into making EpiPens pervasive in every school and public place in America.

In 2009, Mylan filed suit against Teva who had came out with a generic EpiPen. The case was settled in 2012, where Teva agreed to not go to market until 2015. There is now current speculation this settlement involved a “pay for delay” deal where a brand-name drug manufacturer pays its generic competitor to delay their release to market, a scheme that has been ruled in courts as anticompetitive.

In 2012, Bresch’s mother, Gayle Manchin was the president of the National Association of State Boards of Education (NASBE) when it launched its epinephrine policy initiative to encouraged states to require schools to purchase medical devices for anaphylaxis. Mrs. Manchin filled this role after being appointed to the West Virginia Board of Education by her husband and then-governor (now-Senator) Joe Manchin.

Soon after, Manchin’s daughter and Mylan’s new CEO, Bresch, announced its EpiPens4Schools program offering discounted or free EpiPens to schools, but with a clause in its contract as recently as June 2015 stating that schools could “not in the next twelve months purchase any products that are competitive products to EpiPen Auto-Injectors”.  Investigations now exist as to whether this violates antitrust law through Section 5 of the Federal Trade Commission Act, “Unfair or Deceptive Acts or Practices” and Section 2 of the Sherman Act, “Monopolizing Trade a Felony”.

Price hikes continued, and documents now show Mylan contributed $60,750 to father of Heather Bresch and now-Senator Joe Manchin (D-WV) between 2011 and 2016. Mylan’s PAC has also given $13,500 since 2014 to four members of the Senate Judiciary Committee, and $60,000 to 11 members of the Judiciary committee since 1999.

In 2014, amidst further price hikes, EpiPen became the first Mylan product to reach $1 billion in net sales. Ironically, there has since been concerns that Mylan underpaid Medicaid and Medicare for the EpiPen by classifying the device as a generic rather than a brand-name product.

Now, in August of 2016, articles in the media led to the firestorm that brought Bresch to Congress.

Price-gouging is certainly a problem, and Mylan is the new “it” kid for corporate greed. While Congress repeatedly brings up her $18 million salary, to put it frankly, no one would put Warren Buffet on the stand for being filthy rich.

The real problem in this Mylan scandal is the network of pharmaceutical and drug sale schemes that has shifted corporate greed onto the backs of unassuming constituents and the healthcare system as a whole.

Discounts, rebates and coupons dominate the smoke and mirrors of pharmaceutical sales. In fact, these pricing tools are the exact tools that Ms. Bresch used to play fast and loose with the numbers Congress kept throwing at her during the hearing. The healthcare marketplace is not a simple equation of cost of a good, sale price of a good and a simple transaction of funds.

Drug purchasing involves multiple prices, primarily because in instances like Mylan’s EpiPen, they are not vertically integrated for a drug. There is first the drug manufacturer, who in this case is not Mylan but Pfizer. Pfizer’s subsidiary Meridian Medical Technologies makes the EpiPen and holds the responsibility for cost of raw materials (which can vary based on its suppliers), manufacturing, etc.

Meridian then sells the EpiPen to Mylan for the Wholesale Acquisition Cost (WAC), or the price that Mylan pays for the EpiPen before any discounts. This is similar to the Average Manufacturer Price (AMP), which is the average price Meridian sells each EpiPen for after discounts.

From there, Mylan now resells the product for a price that is listed either as a price to a pharmacy or direct to the consumer. This can then be modulated by prices like Dispensing Fees (an amount reimbursed to pharmacies for the product), or Federal Upper Limits (FUL) (price ceilings set by CMS for certain medications).

As if that wasn’t complex enough, now throw in multiple more agents: Pharmacy Benefit Managers who administer drug programs for insurance plans and may receive rebates, Group-Purchasing Organizations who leverage purchasing power for hospitals and may receive kickbacks, government insurers and private insurers.

It is readily apparent from the Congressional hearing that Congress has a poor understanding of this web of drug pricing, as would most Americans. Except for just a couple committee members, few deviated from the numbers-shaming of Bresch.

The understanding of drug pricing, insurers, middleman and the healthcare system as a whole, however, is the first key step to de-bulking the bloated industry, not finding out if Bresch travels on a Learjet or a Kia. Investigations into Mylan bring attention to the critical issue of drug prices, but our investigation should be less on Mylan and more on the system as a whole.

Amy is an emergency physician, published writer and national speaker on issues pertaining to healthcare, with work featured in Forbes, Chicago Tribune, NPR, KevinMD, and TEDx. amyfaithho.com 

The views expressed by contributors are their own and not the views of The Hill.