EpiPen’s Price Surge: FDA or “Because Capitalism”?

--“The current controversy over the price of the EpiPen, manufactured by Mylan, Inc.,” blogger Greg Calcaterra opines, “is quite instructive with respect to the nature of capitalism.”

Halle Tecco, professor at the Business School of Colombia, agrees, stating that the price gouging is simply a “byproduct of free-market capitalism.”

“Because capitalism,” in short, seems to be the go-to reason why a pharmaceutical company can jack up the price on a life-saving medical device over 400% in the span of a few years. Not an obscene lack of competition.

Noooooooooooo. Don’t be absurd.

An estimated 43 million Americans are at risk of falling to a life-threatening allergic reaction. Most of them rely solely on one company to save their lives if the nightmare of a severe allergic reaction becomes reality.

But should the villagers holding pitchforks really be forced to rely on just one greedy, evil monolith to provide these lifesaving devices? What if, heaven forbid, millions of EpiPens are thrown into the market with defects, and the market doesn’t figure it out until it’s too late? What’s the alternative?

If this were an open market, competitors would be champing at the bit to steal market share away from Mylan. Long before any outrage was warranted, before the company had the chance to raise prices to absurd levels. In fact, it’s possible the price never would’ve been able to rise much higher than $60 — what it was when Mylan bought it out.

The problem, then, is clear…

There are gatekeepers which threaten to throw people in cages if they dare challenge the EpiPen monopoly (and help save lives) without their permission.

(You get one guess.)

And if that’s what we call the “free market,” I’d like for someone to, please, define “free” for me. Because I’m confused.

Free, I presumed, would imply the absence of arbitrary protections and meddling.

Alas, as Bob Livingston of Personal Liberty points out, there’s very little capitalistic about our current healthcare industry — or our economy in general, for that matter: “Government meddling in the insurance market — first simply through the regulatory process and via Medicaid and Medicare and now through Obamacare — has completely distorted the pricing structure of health procedures, physician charges and pharmaceutical prices.

“In fact,” Livingston goes on, “government meddles in the price of everything through the obscene regulatory structure, the tax structure, via subsidies and price supports and corporate welfare, all of which drive up the prices of products and services. This is especially true of most of the foods you buy: from sugar to rice to chicken to raisins.

“America is not a capitalist system and has not been for more than 100 years… nor is there one in existence much of anywhere. What there is is a marriage between big government and big business. It’s called fascism — or it was in Italy. And now we have the same thing.”

So, who, really should we be pointing the Finger of Blame at?

To gently guide said finger in the proper direction, we turn to recent graduate of Auburn University, Jonathan Newman. Today, Newman’s going to show us why, rather than capitalism, the FDA is (once again) to blame.

Read on.

The Lack of EpiPen Competitors is the FDA’s Fault

Jonathan Newman via the Mises Institute

There’s a new bout of outrage over an expensive medicine or medical treatment. While the good in question changes each time, the blame always seems to fall on greedy corporations who just aren’t regulated enough. Free markets and capitalism are the scapegoat, even when nothing remotely resembling unhampered markets in health care is in place in the United States.

This time, it’s the EpiPen, a device that easily and safely injects epinephrine to quickly open up airways for people undergoing severe anaphylaxis because of an extreme allergy. It has saved the lives of countless people who are allergic to bee stings, certain foods, or other drugs because it can be administered on the spot by somebody without any medical training.

EpiPen is sold by Mylan, and the price for a pack of two has increased from about $100 in 2007 to over $600 as of May 2016. Mylan has tried to quell the storm by pointing out that many of their customers pay nothing for the drug because of insurance. Their deflection has been unsuccessful.

The economist looks for competitors in cases like this. A firm cannot just willy-nilly raise their prices without a competing firm leaping in to give consumers what they want at a lower price. As it turns out, Mylan has a great friend who keeps would-be competitors out of the market, or at least makes it so difficult for them that they eventually go out of business. That friend is the FDA.

With the FDA, patents, and cozy insurance relationships, Mylan has been able to steadily increase the price of EpiPens without significant market repercussions. Though, the current backlash may push many patients and doctors to look for alternatives. The only problem is that alternatives are few and far between because of government interventions.

Epinephrine is extremely cheap — just a few cents per dose. The complications come from producing the easy auto-injecting devices. Mylan “owns” their auto-injector device design, so competitors must find work-arounds in their devices to deliver the epinephrine into the patient’s body. This task, coupled with the tangled mess of FDA red tape, has proven to be difficult for would-be EpiPen competitors. It’s like expecting somebody to come up with a new way to play baseball without bases, balls, gloves, or bats, but still getting the game approved by the MLB as a baseball game substitute.

A French pharmaceutical company offered an electronic device that actually talks people through the steps of administering the drug, but it was recalled because of concerns about it delivering the required dose. Just this year, Teva Pharmaceutical’s attempt at bringing a generic epinephrine injector to market in the US was blocked by the FDA. Adrenaclick and Twinject were unable to get insurance companies on board and so discontinued their injectors in 2012.

Adrenaclick has since come back, but it is still not covered by many insurance plans, and the FDA has made it illegal for pharmacies to substitute Adrenaclick as a generic alternative to EpiPen. Another company tried to sidestep the whole auto-injector patent barrier by offering pre-filled syringes, but the FDA has stalled them, too.

Mylan has been repeatedly protected from competition, and it has repeatedly (and predictably) increased the price of EpiPens in response. Allowing all of these companies to compete in producing epinephrine auto-injectors would be the best course for all of the many patients who want a cheaper solution for severe allergic reactions.

One thing is for sure: capitalism is not to blame. Government regulations have choked this market and many others. What we need is a big dose of freedom.

[Ed. note: Jonathan Newman is a recent graduate of Auburn University and a Mises Institute Fellow. This article originally appeared at the Mises Institute, right here at this link.]

Jonathan Newman
Mises Institute Fellow

Chris Campbell

Written By Chris Campbell

Chris Campbell is the Managing editor of Laissez Faire Today. Before joining Agora Financial, he was a researcher and contributor to SilverDoctors.com.