#EPIGATE has taken the media and the allergy community by storm over the last week. Heather Bresch, CEO of Mylan, discussed the “broken system” on CNBC yesterday. We all know that the price of EpiPen is outrageous. But why? Is it all Mylan’s fault?

On the segment, Bresch stated that Mylan’s net sales for EpiPen is $274 per 2 pack box.   $274.  So, how can the price shoot up to $600 by the time the pharmacy is selling it to patients?  I don’t think this is an easy fix and I also don’t think that we can point the finger at one cog in a massive machine.  Yesterday I began asking a variety of chain and independent retail pharmacists to disclose their average EpiPen mark up.  The answers ranged from $50 all the way up to $200.

What does this mean?   The list price (or cash price as the pharmacy will call it) is about $600 but some pharmacies are buying them from their suppliers for $400 while others pay $550.

NA-AZ800_PHARMA_NS_20090818210857This chart  explains a bit of the complexity of the system.

I am in no way shape or form an expert on the whole system of drug distribution but here are the basics:

  • Manufacturers (like Mylan) sell medications to primary pharmaceutical distributors and sometimes directly to pharmacies. These distributors place medication in various distribution centers around the country. This is how a pharmacy can order a medication and have it for you the next day.  For the service and convenience, distributors add to the price of a medication.
  • Pharmacy Benefits Managers (PBM)  negotiate with pharmacies, insurance companies, and manufactures. The PBMs secure a price with the pharmacy and the manufacturer and they pass those price savings onto the insurance company.  Again, the PBM need their cut.  The PBM adds to the price of the medication by adding a service fee or keeping a portion of the rebate.  PBMs are BIG business!  CVS Pharmacy purchased Caremark (PBM) for $21 Billion.  That’s Billion with a B.
  • Additional ways PBMs make money are by processing the prescriptions that the pharmacy fills and by operating mail-order pharmacies.   Ever wonder why your insurance forces you to go mail order?  Now you know.  Let’s not forget about formularies.  Ultimately, PBMs decide which medications will be placed on your formulary or in which tier.  How does a medication get on the formulary or in the preferred tier?  Money.   As a pharmacist, I see insurance companies ( including government-funded programs) that will prefer a brand product over the much less expensive A rated generic.  And I used to think “What the hell?”  But now, I know the reason:  the PBM has set up a situation where there is a rebate on the back-end, behind the scenes.  No doubt about it, it is financially beneficial for the PBM.   Heather Bresch mentioned this increasing covert demand on CNBC.
  • Insurance companies place medications on formularies/preferred tiers based on the pricing negotiated by the PBM. Patients pay copays and premiums.  The copays are contracted prices which is why it’s illegal for the pharmacy to waive your co-pay.  Adding another layer of ambiguity is the fact that neither the patient nor the pharmacist knows the actual contract price.  This is why the pharmacy always tells the patient that we don’t know how much something will cost until we run the prescription (we won’t even get into the donut hole with Medicare–that’s a nightmare!).

Why can’t people with insurance afford medications?  Insane co-pays, high deductibles, and plans where the patients pay the cash prices up front and then get reimbursed after sending in receipts, that’s why.  I have a patient that pays $1200 a pop for his son’s medications. He is reimbursed the next month after filing all the appropriate paperwork.  Who can afford that!  And that’s on top of him paying monthly premiums to have the insurance in the first place.  Plus, certain manufacturer coupons are not eligible for patients on government subsidized insurance plans (Medicare, Medicaid, etc).  The real losers are the patients that have no insurance.

So back to Heather Bresch and Mylan…

Mrs. Bresch says that Mylan cannot decrease the price of EpiPen because decreasing the list price may put in jeopardy the ability of Mylan to get EpiPens into the hands of people who need the medication.   But she didn’t say why.  Is this due to contractual obligations?  Rising cost of electricity, medication components, plastic, distribution, healthcare costs for Mylan employees?  Or simply because they could? I think Mrs. Bresch had a real opportunity to help us understand.  Unfortunately, her responses have been interpreted by the allergic community as passing the buck and political double speak.

Furthermore, how can Mylan afford to give a $300 coupon card if they sell EpiPen for $274 a 2 pack? My guess is because they know that *most* people will not use or need to use the full $300 on a co-pay.  It’s a numbers game.  And a PR issue at this point.  According to analysts, Mrs. Bresch relied on EpiPen to bolster lagging sales of the company’s other products.  In the end, these coupon savings cards could be adding to the overall cost of the medication.  The money to pay for these coupons has to come from somewhere!  I haven’t even discussed the fees charged to the pharmacies just for processing these discount/co-pay cards.  That could be a whole other post.

If EpiPen prices have been steadily increasing for years, why has the story just become “news”?  Again my answer is one of complication.  Since Auvi-Q was recalled, EpiPen no longer has real competition in the market; although we may see  competition enter as soon as next year.  And secondly, I think that the costs were hidden due to the embedded nature of the pharmaceutical distribution system.  It wasn’t until the costs were passed on to the consumer that people actually realized what was happening.

To be devil’s advocate, I will also ask the allergy community these questions:  Do you really want a major player like EpiPen to stop advocating?  Stop donating to FARE?  Stop partnering with schools and Disney? Mylan spent $1.6 Million on just 38 airings of an EpiPen commercial during the Olympics; that’s $1.6 million is just two weeks.

Those calling for a boycott of Mylan products are directing the wrongs of a massive system at one player.  Mylan’s means (advertising/advocating)  to their end (profit)  meant that allergies became mainstream.  Overwhelming media attention has opened the eyes of not just our nation but the world and the life saving medication we depend on has become the big topic, the top story!  While, ultimately there is lots of blame to go around,  something’s gotta give.  Mylan needs to take the lead in finding a solution to this particular problem.  #Epigate should be the jumping off point of a much larger national discussion.

Watch Mrs. Bresch on CNBC’s Squawk Box 


**In the interest of full disclosure, I want to make everyone aware that I participated in a one time, paid advisory board at Mylan in the spring of 2015.  I did meet Heather Bresch briefly as part of the advisory board opening introductions/comments.