Public Backlash
After information surrounding the exploitation of Mylan's monopoly on EpiPen came to light, the public was understandably outraged. Patients, lawmakers, investors, and even people with no stake in the issue spoke out against Mylan, and used it as an example of corporate, and more specifically big pharmaceutical greed.
Writer and management consultant Daniel Kozarich, who specializes in pricing and customer strategy, offered his ethical evaluation of the situation. He used a five-step test from the book, The Strategy and Tactics of Pricing: A Guide to Growing More Profitability, to evaluate if the price was ethical. Mylan passed 3 of the 5 tests, because the price was paid voluntarily, they provided their customers with ample information about the product, and they offered coupons and programs to allow for equal access of the good regardless of financial status. The part that they failed (miserably I might add) stipulates that sellers cannot exploit a buyer's essential needs, and the price of the product must be justified by the costs.
When competitor Sanofi was forced into a product recall and left the EpiPen market, Mylan once again had a monopoly on the product. Over the next two years the price doubled from $300 to $600, and Mylan reported a net profit margin of 8.9%, but some speculate the profit margin for EpiPen itself was closer to 55%. This is a clear exploitation of their customers dire need for the product and the monopoly that so conveniently fell into Mylan's lap. Although Mylan did spend as much as $1 billion to enhance the awareness of their product and set up programs for its distribution, there is no excuse for a six-fold price increase. Their $10 billion overall revenue tells me that they had the ability to take the $1 billion expense without too much trouble.Their other justification regarding the amount of profit that middlemen receive is understandable, but they still had breathing room in their profits to lower the price to compensate for that.
Joseph Palermo, a professor of history at California State University, was unhappy with Mylan's actions for other reasons. He emphasized CEO Heather Bresch's $17 million raise following the price gouging scandal that her father, Democrat Senator Joe Manchin, helped write laws to enable. This was after Mylan had already "left the US" by inversion, a tactic where a US company "merges" with a foreign corporation to avoid paying US tax rates but keeps its headquarters, assets, and market in the US.
These circumstances surrounding the scandal caused Palermo to question American capitalism's legitimacy. He compared it to 18th century mercantilism, and the East India Company utilizing its financial and economic power to enforce unjust rents and fees on the rest of society and controlling mechanisms of government. The fact that our political representatives allowed for a failed health care system to facilitate extortion to this degree leaves him asking why we even have elections or representatives at all. I agree with him in the sense that we can't continue to use a system that has allowed this to happen. Clearly there are medicinal products that have only a few different producers, and these products need to be monitored in order to ensure that pricing is fair. This could be done by the government through an agency like the Food and Drug Administration.
When CEO Heather Bresch went for a congressional hearing, she faced some of her toughest questioning. A clip here shows just some of the frustration from the lawmakers with her incompetence answering direct questions:
After she failed to come to the hearing with some of the financial statements and specific numbers referring to revenue that they requested, congressmen were extremely aggravated at her lack of preparation. From all the videos I have watched of this hearing, the thing that stood out to me the most was the way that Bresch failed to answer extremely simple and direct questions. She seemed to have 4 or 5 statistics, namely referring to unit price and unit wholesale expenses, that she continually went back to those numbers instead of just complying with the line of questioning. This is exactly what she did in a lot of her interviews, claiming that people were uninformed instead of just admitting her guilt. The lawmakers also emphasized the fact that EpiPen is not something optional for these patients. It is a 100 percent necessity for these people to have an EpiPen within arms reach at all times. Exploiting a product that is life or death, is the absolute worst thing a pharmaceutical company could do.
Sources:
Media Sources:
Writer and management consultant Daniel Kozarich, who specializes in pricing and customer strategy, offered his ethical evaluation of the situation. He used a five-step test from the book, The Strategy and Tactics of Pricing: A Guide to Growing More Profitability, to evaluate if the price was ethical. Mylan passed 3 of the 5 tests, because the price was paid voluntarily, they provided their customers with ample information about the product, and they offered coupons and programs to allow for equal access of the good regardless of financial status. The part that they failed (miserably I might add) stipulates that sellers cannot exploit a buyer's essential needs, and the price of the product must be justified by the costs.
When competitor Sanofi was forced into a product recall and left the EpiPen market, Mylan once again had a monopoly on the product. Over the next two years the price doubled from $300 to $600, and Mylan reported a net profit margin of 8.9%, but some speculate the profit margin for EpiPen itself was closer to 55%. This is a clear exploitation of their customers dire need for the product and the monopoly that so conveniently fell into Mylan's lap. Although Mylan did spend as much as $1 billion to enhance the awareness of their product and set up programs for its distribution, there is no excuse for a six-fold price increase. Their $10 billion overall revenue tells me that they had the ability to take the $1 billion expense without too much trouble.Their other justification regarding the amount of profit that middlemen receive is understandable, but they still had breathing room in their profits to lower the price to compensate for that.
Joseph Palermo, a professor of history at California State University, was unhappy with Mylan's actions for other reasons. He emphasized CEO Heather Bresch's $17 million raise following the price gouging scandal that her father, Democrat Senator Joe Manchin, helped write laws to enable. This was after Mylan had already "left the US" by inversion, a tactic where a US company "merges" with a foreign corporation to avoid paying US tax rates but keeps its headquarters, assets, and market in the US.
These circumstances surrounding the scandal caused Palermo to question American capitalism's legitimacy. He compared it to 18th century mercantilism, and the East India Company utilizing its financial and economic power to enforce unjust rents and fees on the rest of society and controlling mechanisms of government. The fact that our political representatives allowed for a failed health care system to facilitate extortion to this degree leaves him asking why we even have elections or representatives at all. I agree with him in the sense that we can't continue to use a system that has allowed this to happen. Clearly there are medicinal products that have only a few different producers, and these products need to be monitored in order to ensure that pricing is fair. This could be done by the government through an agency like the Food and Drug Administration.
When CEO Heather Bresch went for a congressional hearing, she faced some of her toughest questioning. A clip here shows just some of the frustration from the lawmakers with her incompetence answering direct questions:
After she failed to come to the hearing with some of the financial statements and specific numbers referring to revenue that they requested, congressmen were extremely aggravated at her lack of preparation. From all the videos I have watched of this hearing, the thing that stood out to me the most was the way that Bresch failed to answer extremely simple and direct questions. She seemed to have 4 or 5 statistics, namely referring to unit price and unit wholesale expenses, that she continually went back to those numbers instead of just complying with the line of questioning. This is exactly what she did in a lot of her interviews, claiming that people were uninformed instead of just admitting her guilt. The lawmakers also emphasized the fact that EpiPen is not something optional for these patients. It is a 100 percent necessity for these people to have an EpiPen within arms reach at all times. Exploiting a product that is life or death, is the absolute worst thing a pharmaceutical company could do.
Sources:
- fortune.com/2016/09/27/mylan-epipen-heather-bresch/
- https://www.huffingtonpost.com/joseph-a-palermo/mylan-epipen-rip-off-expo_b_11754234.html
Media Sources:
- https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEglciR20wUlx_aKbcQv-wOHj0JUZwfqVwLAOxCm252c_fVzDddA2Sj28lieYpoa6t0MJP_NkAAjGEPzX0e_opbYY5x_qNM2OtLUo01XeOUgeiVsNSv5lg5lQeVOO6k3_7y66NIZKaS3shgq/s1600/EpiPen-Net_Sales_and_Operating_Profits-2008-2016.png
- https://americansfortaxfairness.org/files/1.png
There was a lot at stake when the reveal took place. It’s completely understandable that all the reactions were negative from Mylan’s unethical decision of the price increase. I liked the point Joseph Palermo, the professor of history at California State University, brought up because it mentions the deeper roots to the problem going back to how our political representatives allowed for a failed healthcare system. I found Bresch's way of avoiding the direct questions super funny. It seems like a lot of research was done.
ReplyDeleteAlthough I place the blame solely on Mylan and its executive for the EpiPen issue, I do believe that the U.S. healthcare system is seriously flawed. It is great that Mylan has found a way to expand themselves and become an international provider of medicine, but I feel that the pharmaceutical industry needs to be regulated in a way that prevents US pharmaceutical companies from having this much influence. This would come with huge skepticism and surely people would contest that the government should not be involved in business, but the simple fact is that cases of price gouging are too common and the public is suffering.
DeleteI liked how you gathered a wide range of opinions to this issue, as it showcases the flawed operations within Mylan. Daniel Kozarich's test supports my primary concern with this problem, the fact that such a necessity is being held up for a ridiculous price. Mylan's domination within the pharmaceutical market proves that the company was able to take the extra $1 billion, without raising any initial concerns. Bresch's tone and vague presentation of statistical data, just re-iterates how guilty she is in this situation.
ReplyDeleteOther than her tone, frequently when asked questions about EpiPen she laughs or grins as if the question is illegitimate or she hasn't heard it before. This crass and arrogant attitude was able to fly with TV interviewers, but when she got to the congressional hearing she wasn't able to tip toe around the questions. They grilled her with harsh questions and when she provided vague answers they continued to probe her, pointing out that they would not be manipulated. She seemed frustrated with this but it is pretty obvious that it was her own attitude that led to this.
DeleteI really liked Palermo's comparison of the past to the situation because it really shows that history does end up repeating in one way or another. It does frustrate me that there wasn't enough regulation to prevent this in the first place.
ReplyDeleteThe congressional hearing is really disappointing to hear because not only does she not bring more information to diffuse confusion/anger to the situation, but she continues to evade the blame.
Regulation has to be the next step for the pharmaceutical companies. No matter how large they are and how much influence they have, at the end of the day they are all businesses and they need to be kept under a microscope. A congressional hearing and slaps on the wrist aren't enough, because as you said it is easy to deflect blame. They need to have sustained and repeated evaluation of these companies operations.
Delete