Why the Generic EpiPen Still Doesn't Solve the Problem

It's the oldest negotiating trick in the book: If you come off the starting block with an outlandish offer, any capitulation feels comparatively reasonable.

After raising the list price of EpiPen, the life-saving severe allergy medication and application device, by 500% in the last ten years—from $100 for a two-pack in 2007 to more than $600 in 2016—the drug company Mylan announced today that it would roll out a new, generic version of its branded drug for just $300 per two-pack for commercially-insured patients.

That's a 200% increase in price since 2008, rather than a 500% one.

"Our decision to launch a generic alternative to EpiPen is an extraordinary commercial response," Mylan CEO Heather Bresch said in a statement.

The announcement comes after a month of public outrage over the rising price of EpiPens, with lawmakers, Democratic presidential nominee Hillary Clinton, and former Mylan spokeswoman Sarah Jessica Parker accusing the company of price gouging. Netherlands-based Mylan saw its stock fall 12% last week.

On August 25, Mylan it would also expand its patient assistance program, which provides coupons and discounts to patients whose household incomes are four times the poverty level.

The company's generic version of the branded EpiPen is set to launch "in several weeks" and will be listed at 50% the price of the branded version, which has a sticker price of $609 per two-pack. Aside from the cost, the generic version will be "identical to the branded product, including device functionality and drug formulation."

Mylan said it also intends to continue to market and distribute branded EpiPen. Because of the convoluted way that drugs are paid for—insurers pay a negotiated price on certain drugs, consumers pay co-pays and insurance, drug companies provide discount coupons—some insurance companies will continue to cover the branded EpiPen, in addition to the generic version, even though the drugs are the same.

Patients with commercial insurance will need to apply for a $300 savings card to access the generic EpiPen. The "My EpiPen Savings Card®," as its called on the company's website, will then "act as cash" at the pharmacy, bringing down the cost of a patient's co-pay for a two-pack of EpiPens to no more than $300. Patients can use the savings cards on up to six two-packs a year.

This is good news for insurance companies and their customers, who end up shouldering the cost of rising drug prices through rising premiums, deductibles, co-pays, and co-insurance. Insurers will now be able to negotiate new rates for the generic EpiPen.

The insurance industry, however, remains skeptical. "Even though this provides another option for consumers, it raises the question as to why Mylan didn't lower the price of the brand name to start with," said Clare Krusing, a spokeswoman for America's Health Insurance Plans. "There are many factors that go into the utilization of a drug—and provider prescribing is one item to consider. Jury is still out."

The market dynamics are tricky in part because Mylan continues to enjoy a de facto monopoly on EpiPen. A generic version of the drug, developed by the company Teva, was rejected by the Food and Drug Administration last year, and a direct competitor, developed by the drug company Sanofi, faced dosing issues and was recently discontinued too. The result is that Mylan has a corner on a very lucrative market: insurers and patients have no choice but to pay whatever price the company sets.

After acquiring exclusive rights to the EpiPen in 2007, Mylan quietly 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 pushing 15% increases.

Mylan, which has been emphasizing its commitment to patient access in recent weeks, says that in addition to expanding its patient assistance program and creating a generic version of the drug, it will also continue to lobby the federal government to include the drug epinephrine on the federal and private insurance preventive drug lists.

Drugs that are listed in those databases enjoy special protections. In some cases, insurance companies are required by law to pay for them and cannot charge customers co-pays to access them. If Mylan succeeds in adding epinephrine to that list, patients would see their out-of-pocket costs drop, or vanish, but their insurance companies would have to continue to pay whatever Mylan charged for the drug.

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