Mylan’s Fix to EpiPen’s High Cost Still Hurts Consumers

When Mylan announced Thursday that it will take “immediate action” to reduce out-of-pocket costs for patients that rely on the EpiPen, it was a last ditch effort to quiet the furor that has battered the company’s image and undercut its stock for the past two weeks.

On Wednesday, Democratic nominee Hillary Clinton became the latest in a chorus of lawmakers to excoriate Mylan’s “price gouging,” kicking off another selling spree on Wall Street, where Mylan’s stock has plummeted roughly 11% and the Nasdaq Biotech index saw a 3.4% decline, the worst of the summer.

“I think that we responded this morning, first and foremost, ensuring that everyone who needs an EpiPen has an EpiPen,” Mylan CEO Heather Bresch said on CNBC early Thursday. Breach, who is the daughter of the daughter of Democratic Sen. Joe Manchin of West Virginia, said that the company would expand its existing patient-assistance program, which provides discounts to those who can’t afford the out-of-pocket price of a drug.

The list price for a pack of two EpiPens, a life-saving medication and unique delivery system for people with severe allergies, now tops $600, up 500% from its $100 price tag in 2007. In the last three years, the price has more than doubled.

But even as the company scrambles to get on the right side of public opinion, advocates for more affordable drug pricing lambasted Bresch’s solution as tepid—a Band-Aid on a sucking chest wound. The company-offered coupon, which will now increase from $100 to $300, still falls short of the high annual deductibles many consumers now face on prescription drugs, especially when they need to buy children EpiPens for home, school and travel.

“Offering a meager discount only after widespread bipartisan criticism is exactly the same tactic used by drug companies across the industry to distract from their exorbitant price increases. … Nobody is buying this PR move anymore,” said Rep. Elijah Cummings, ranking member of the House Committee on Oversight and Government Reform in a statement. “Mylan should not offer after-the-fact discounts only for a select few—it should reverse its massive price increases across the board immediately.”

The problem, advocates explain, is that when Mylan expands its existing patient assistance program, it’ll help only a small number of people who can both demonstrate financial need and already pay a significant portion of their costs out-of-pocket. The move will not help the vast majority of Americans whose insurance companies pay for the majority of their drug costs. In their cases, their insurance companies will continue to pay through the nose for the drug.

And while that might sounds good at first blush—why not make those hated big insurers earn their keep?—it’s worth remembering that insurance companies eventually pass on those higher costs to employers and customers in the form of increased premiums, deductibles, co-pays and co-insurance.

In other words, even if you were not immediately effected by Mylan’s decision to rapidly increase the cost of EpiPens, you’ll end up experiencing the price hike more diffusely—through the rising cost of insurance, or when your employer, burdened by skyrocketing health care costs, can no longer afford to give you a raise.

Mylan’s decision to discount the drug to a small segment of the neediest patients, while perhaps commendable in the short term, doesn’t even begin to address the bigger, endemic problem in the pharmaceutical industry. Namely, that existing patent laws hand drug companies monopoly control over life-saving products—with no checks or balances built in.

Mylan, for example, which owns exclusive patents to the EpiPen Auto-Injector, enjoys de facto monopoly control over a drug that millions of Americans need to survive in cases of extreme allergic reaction. In free market terms, that means that Mylan can charge as much as it wants for its product—and it has a captive consumer base with no other choice but to pay up or take a mortal risk.

Like nearly every other major drug company in a similar situation, Mylan has taken advantage of this market dynamic. After acquiring exclusive rights to the EpiPen from another pharmaceutical company in 2007, Mylan quietly has raised the price of the drug every six months. Between 2010 and 2013, the company quietly increased the price of the drug by about 10% twice a year, and by 2014, it was sneaking in 15% increases. Thanks to the magic of compounding interest, those relatively incremental price increases quietly shepherded in significant increases over time. The price of a two-pack of the injectors leapt from about $100 in 2007 to $609 in 2015.

Every so often, this sort of behavior makes news. Late last year, for example, former Turing Pharmaceuticals CEO Martin Shkreli briefly became a household name after jacking up the price of Daraprim, an anti-parasitic drug, from $13.50 per pill to $750 overnight. Turing, as well as another company, Valeant Pharmaceuticals, which increased the price of the blood-pressure drug Nitropress from from $215 to $881—an increase of 310%—helped precipitate something of a revolt. This spring, lawmakers called hearings, the companies reshuffled their board, and promised to never do it again.

But most of the time, drug companies’ price increases don’t make news. That’s because most drug companies don’t act like Turing or Valeant; they act like Mylan: instead of raising the price of a drug dramatically over night—a risky move that tempts Congressional backlash—CEOs raise the price slowly, incrementally, over the course of a decade But the result is the more or less the same. Last year, drugmakers increased the prices of their brand-name drugs in the U.S. by an average of 16.2%, according to Express Scripts’ Prescription Price Index. That’s on top of average price increases of roughly 10% for the past five years and counting.

AstraZeneca’s high cholesterol drug Crestor shot up 40% between 2011 and 2015; Sanofi-Aventis’ diabetes drug Lantus Solostar shot up 241% over the same time, according to IMS Health. Between 2010 and January 2016, the drug company AbbVie increased the list price of its best-selling anti-inflammatory drug Humira by 138%, according to Trven Health Analystics. Two doses cost $1,600 in 2010; now they ring up at $3,800.

The pharmaceutical industry defends these relentless but incremental price hikes on the grounds that researching and developing a new drug is risky and expensive, and once they acquire a patent on a successful drug—which gives them legal monopoly control over a product—they have to make a profit on it before generics or other competitors enter the market place and undercut their bottom line.

In the EpiPen case, for example, its possible that Mylan’s executives, which purchased rights to the drug in 2007, were deliberately driving up its price before the expected arrival of a generic version, developed by Teva, last year. But when Teva’s generic version was rejected by the Food and Drug Administration, and a direct competitor, developed by the drug company Sanofi, faced dosing issues and was discontinued, Mylan retained its monopoly control.

Most health care experts agree that creating incentives for pharmaceutical companies to invest in developing new products is important, but there needs to be a balance. “The bottom line, absolutely, is that Americans want innovation—we need it,” Len Nichols, the director of the Center of Health Policy Research and Ethics at George Mason University told TIME earlier this year. “But right now, we’re over-incentivizing it, it’s out of whack, and the profit margins prove it.”

As of now, the drug industry boasts some of the biggest profits of any industry. In the first quarter of 2016, AbbVie posted a net profit margin of 23%—almost modest compared with Amgen’s 34%, Biogen’s 36% and Gilead Sciences’ 46%. (By comparison, Google’s parent company posted a 21% quarterly net profit margin in 2016; Walmart’s average is 3.5%.) Since 2005, Abbie has made more than $53 billion from sales of Humira, according to IMS Health. By 2020, it expects the drug to deliver $18 billion in sales per year.

Mylan’s finances fit the same bill. According to proxy filings, Mylan CEO Bresch’s total compensation leaped nearly 700%—from $2.5 million to $18.9 million—from 2007 to 2015. That’s the same time period during which she quietly jacking up the price of a pack of EpiPens.