Tag Archives: martin shkreli

U.S. Healthcare Actually Isn’t Broken

The header image was part of an article by Bloomberg that was written more than two years ago (May 2014). The data itself goes back nine years. Mylan’s price gouging was front and center recently, this week, but the gouging issue has been percolating for years. It has erupted before, and it will erupt again. Everyone’s squawking, and legislators are “looking into it,” but it won’t be solved this year — or even this election cycle. Here’s why:

Mylan’s pricing controversy with EpiPen is the same controversy that plagues much of U.S. healthcare. As a country — and as individuals — we don’t like it when there’s a BIG, obvious imbalance between the cost of healthcare and the need for it at scale, especially for kids. Our indignation is righteous.

The EpiPen delivers about $1 of a drug (epinephrine) easily and quickly to avoid a life-threatening condition (anaphylactic shock). The company that manufactures the EpiPen (Mylan) has raised the price dramatically through the years, especially relative to the cost of either the drug or the delivery mechanism. We can’t really claim ignorance here; EpiPen is one of the drugs from that Bloomberg chart in the header. As hard as it may be to believe, the reason for all the increases isn’t complex or complicated at all, it’s simple. Mylan raise prices because it can — and the EpiPen is a BIG moneymaker for the company.

But the EpiPen controversy isn’t unique to Mylan. It’s the exact same controversy in that Bloomberg chart and the one sparked by Martin Shkreli last year (with the drug Daraprim). Shkreli was my pick for the No. 1 quote in my Top Ten Healthcare Quotes for 2015:

I probably would have raised the price higher … is probably what I would have done. I think healthcare prices are inelastic. I could have raised it [Daraprim] higher and made more profit for our shareholders, which is my primary duty — and again — no one wants to say it, no one’s proud of it — but you know this is a capitalist society, capitalist system and capitalist rules, and my investors expect me to maximize profits.

Not surprisingly — Shkreli was publicly supportive of Mylan’s pricing increases. However, Ralph Nader referred to Mylan as “greed on steroids.”

See also: EpiPen Pricing: It’s the System, Stupid  

Valeant Pharmaceuticals is another company like Mylan and Turing, and they, too, have generated similar controversies through the years with their price increases.

The pattern is well-documented and easy to see.

But there’s a really hard truth to these hemorrhoidal flare-ups of price gouging. We resent it, but not enough to understand it, and that’s a big problem. There’s also a collective problem in trying to make real, substantive changes.

Real change is difficult — and it requires a deeper understanding. We need to go beyond the headlines and understand how drug pricing fits into our whole healthcare system design. All too often, we simply throw up our hands and falsely conclude that our healthcare “system” is broken. The hard truth that we must face head-on is that it really isn’t.

We think it’s “broken” because we don’t understand the evolutionary design of our healthcare system. There’s an urgent immediacy to our culture that makes history too long, too boring, too difficult — but it always bites us. As the author Michael Crichton said:

If you don’t know history, then you don’t know anything. You are a leaf that doesn’t know it is part of a tree.

In fact, there’s another quote — by another author — that I like to use to highlight our specific challenge with that deeper understanding of our healthcare system.

On the release of his book Flash Boys, author Michael Lewis was interviewed by Steve Kroft on “60 Minutes,” and a quote from that interview was both the inspiration and influence for my book Casino Healthcare:

If it wasn’t complicated, it wouldn’t be allowed to happen. The complexity disguises what’s happening. If it’s so complicated that you can’t understand it — then you can’t question it.

What Lewis was referencing was high-speed trading on Wall Street, but the quote could just as easily be applied to all of U.S. healthcare. In fact, it’s tailor-made. Our healthcare system has become so complicated that we can’t understand it. But that complexity is also by design as a way to avoid the hard questions.

See also: Our Real Problem With Drug Pricing  

We desperately want someone — or something — to just fix healthcare. We thought Obamacare might do so — and some truly believed it could — but Obamacare is really just a single step out of our healthcare wilderness, the same wilderness we’ve been wandering around in for decades. At different times we’re angry, lost, confused, frustrated and hurt — and it winds up being more of a ghoulish nightmare than a wilderness.

But the hard truth in this wilderness is that in our Casino Healthcare (including big-side stories like EpiPen), all the players are complicit. Payers, providers, pharma, politicians and suppliers are all aligned to a primary objective: their objective. These objectives are unique to them individually, but they’re the same collectively. It’s the for-profit business of revenue, stock price, shareholders, risk capital and campaign contributions. Safety, quality and equality in our system are secondary objectives, even though there are many that push hard for the full attention they deserve (myself included).

Mylan is simply doing what for-profit companies are legally required and expected to do : work in the best interests of their board, their investors, their stockholders — and, yes — themselves. Like her or not, the CEO of Mylan is doing exactly what she is paid (very well) to do. If she were fired tomorrow, any replacement would simply dial back the pricing to avoid the heat and slowly ratchet it back up when our anger and frustration moved on. It always moves on.

We don’t like to hear it, but we’re complicit, too, just in a different way. We’re complicit in our ignorance because we don’t dig deeper, we don’t understand the whole design, and the media flare-ups do die down. Valeant, Turing and now Mylan are like accidents on the freeway. We slow down, we’re stunned and aghast at the horror — and then we move on.

See also: How Quote Data Can Optimize Pricing  

So, no, the EpiPen story isn’t rare or all that different. It’s not just a delivery mechanism for epinephrine, it’s an important lens into the whole healthcare debate. It just happens to be the latest in a long line of stories that will continue to repeat until we make systemic changes to the way U.S. healthcare is designed. We can make those changes. We should make those changes, but the first step for all of us is to understand that the system we have — now running at $3.4 trillion per year, more than $10,000 per capita — isn’t broken at all. It was designed this way, and we just need a whole new design. Not a partial one, not just around the edges, but at the core — one that’s not optimized for revenue and profits but one that’s optimized for patient safety, quality and, yes, real equality first.

EpiPen Pricing: It’s the System, Stupid

Drug manufacturers can’t catch a break, but are they the real culprit?

Sure, we could wave our finger at Heather Bresch, CEO of Mylan, but didn’t we just do this to Martin Shkreli from Turing Pharmaceuticals and Michael Pearson from Valeant? The key question isn’t, who’s the offender du jour? Instead, it’s why do these pricing “scandals” keep happening, and is our best offensive strategy public shaming?

Complaining about Mylan is pointless because, as a publicly traded company, it is doing exactly what we would expect it to do to meet the profit and growth expectations of investors. Why is it Mylan’s responsibility to compete against itself? If this were the financial services industry, Bresch would be hailed as a genius.

The real issue here is market failure because of the lack of effective competition. Until we solve this underlying market dysfunction, we’ll just experience the same event again and again, much like Bill Murray in Groundhog Day, just with different names and companies. Maybe the best way to explain the real problem is, “It’s the system, stupid.”

So, what’s the hubbub about?

The EpiPen is a decades-old technology first developed for the U.S. military and paid for by the American people. An EpiPen is a branded auto-injector that delivers a metered dose of epinephrine, a cheap and generic lifesaving drug that has been in use for more than a century. A single dose vial can be purchased for less than $2. Assume another couple of dollars for the auto-injector, add some enormous margins and, voilà, the selling price is $635. This is profitable capitalism — effectively a monopoly.

See also: A Radical Shift in Pricing Cancer Drugs?  

A monopoly for an inexpensive generic drug encased in plastic? Really?

A fair and competitive market requires three things: 1) real supply options, 2) the freedom to choose any of these options and 3) regulations that prevent monopolies and promote the public good. Let’s analyze how the EpiPen fares on each.

First, supply options. Are there alternatives to Mylan’s version of an epinephrine auto-injector? Yes. Two pharmaceutical companies, Amedra and Lineage, manufacture less expensive, directly competitive products.

Screen Shot 2016-08-29 at 12.10.00 PM

Next, how easy is it for us to choose these EpiPen alternatives? This is where the friction starts. Unfortunately, most physicians aren’t aware of the available options because most pharmacy benefit managers (PBM) and health plan formularies exclude them, making choice virtually impossible. To understand why, let’s consider who really makes drug-purchasing decisions. A drug purchase starts with a prescription written by a physician. So are physicians responsible for the EpiPen monopoly? Partially. Rather than prescribing EpiPens, physicians should prescribe epinephrine auto-injectors, of which there are multiple options in the market.

What’s the consumer’s and taxpayer’s next line of defense? Wasn’t this why an intermediary, such as a plan or a PBM, was hired in the first place? Yes. Then, why does our advocate, the intermediary, steer us in the direction of the highest-cost option?

Unfortunately, the financial incentives don’t work the way we think they do. Intermediaries don’t make decisions based on what is best for the actual payer. Rather, they participate with manufacturers in complex rebate schemes (really kickbacks, even if they don’t meet the legal definition), allowing them to collect steep profits on brand drugs.

Bresch states that Mylan pays rebates in excess of $300 to intermediaries who aren’t passing them back to the payer. This isn’t altruism; instead, all drug manufacturers know the intermediaries keep large portions of their rebates. This profit incentive is the mechanism that kicks competing drugs out of PBM and plan formularies, locks out competitors, drives market share and creates monopoly (or near-monopoly) conditions.

Let’s review how drug purchases are made in today’s dysfunctional system:

  • Consumer: Follows the physician’s choice as long as someone else is paying for it.
  • Physician: Prescribes what she is familiar with. She’s not paying for it, so what does she care?
  • Manufacturer: Designs incentives to maximize market share and profitability—and gets a monopoly if all works as planned.
  • Intermediary: Steers consumers to drugs that maximize their profit.
  • Payer: Stuck without data about what works, out-of-control drug spending and no real options.

As John Quelch from Harvard Business School & T.H. Chan School of Public Health, puts it, “Monopolistic pricing is a political issue, especially in healthcare. If the industry cannot self-regulate, increasingly empowered consumers will have their elected officials do the job for them.”

I believe breaking significant healthcare monopolies is not only legal, it’s a regulatory obligation. While policymakers have responded, their strategy unfortunately seems to rely heavily on public shaming. A more useful role for them would be to break existing significant monopolies and create legislation to prevent the formation of new ones. The healthcare industry isn’t going to fix itself. Long-lasting, effective change will only occur when external economic and regulatory pressure mandates it.

Are we dreaming an impossible dream? Not at all.

See also: New, Troubling Healthcare Model  

After we get past the completely understandable anger of millions of Americans, healthcare is no different than many other industries once driven by dysfunctional systems that resulted in similar monopolistic behavior. In fact, our path forward could be easier because of successful precedents in our recent past.

Not too long ago, the travel and financial services industries were also plagued by a dearth of information available to the consumer, a lack of choice to real buying options and lax regulatory oversight. Not only was the fix possible; it happened a lot faster than anyone expected!

Together, we can do the same for healthcare.

See also: Keep the Humanity in Healthcare  

Imagine a world where: we have a functional market because we reward companies that have innovative solutions; the people who actually pay for these products and services have true control; and the ugly veil on pricing and business model opacity is finally lifted.

We need to ensure the dollars we spend directly (and through taxes) are used to solve these problems rather exacerbate them. As Quelch points out, we are either going to have to solve this problem or the government will step in. I believe it’s better we fight to fix it instead of relying on the government to make our healthcare decisions for us. The government needs to ensure a level playing field exists for all, and we need to innovate and offer better solutions for less.

As much fun as it is to shame Mylan, a much better way to punish the company would be to buy the lower-cost alternatives from Lineage and Amedra. That is how a real market system works.

Our Real Problem With Drug Pricing

Over the past few months, many of us have heard of the abuses surrounding Martin Shkreli (who is in the news again after a judge set a 2017 trial date for his securities fraud case) and separately, Valeant Pharmaceuticals, which was recently under fire for drug price increases. What we haven’t heard is that these sensationalized cases are truly insignificant when compared with the enormity of the problem facing America.  Only a few years ago, specialty drugs composed a reasonable-sounding 10% of our overall drug spending.  Last year, it bloated to 38%, and by 2018 it will be an astounding 50%, which is an increase of $70 million … a day.

See also: Cutting Prices of Drugs Dispensed by Doctors  

The reason we pay many multiples more than other countries for the same drug is because we have a rigged system in which America is the only globally unregulated market. Worse, we have actually created laws to protect large healthcare monopolies. So, we as Americans have the worst of all worlds: neither a single payer system with explicit price controls nor a free and fair market.

Consider the hepatitis C drug Harvoni, which sells for about $95,000 in the U.S. for the required 12-week course. The same therapy costs less than $1,000 in India, for products that are officially licensed by Gilead, the manufacturer of Harvoni.

The argument that this is a result of us having to subsidize drug R&D costs for developing countries is a farce. In developed countries such as France, Harvoni is available for about half the price we pay in the U.S.

Unfortunately, the same dynamic extends beyond specialty products into other commonly used drugs. The price for a 30-day supply of Crestor is about $200 at most U.S. drugstores, but the price in India is only $6 for a product that in both cases was manufactured in Puerto Rico by AstraZeneca.

I’m excited that VIVIO Health, which I’ve joined as CEO, is tackling this large and complex problem. We represent the vast majority of Americans, who pay far more than they should for healthcare. I dream of a better country for my three children, and I know you do the same for yours.

I have been asked whether I feel like Don Quixote. No question, reforming how healthcare is purchased in America is a daunting task, but our team has clarity on enough of the puzzle pieces to make a difference. Reform is an achievable goal, with many precedents in other industries, such as travel, stock brokerage and retail.

See also: AI: The Next Stage in Healthcare  

The VIVIO Health solution reimagines the way we buy, use and measure specialty drug therapies. Our solution starts with the outcome and works backward, collecting data at every step. We’ve reversed the current purchasing model that starts with profitability for intermediaries and suppliers and instead prioritize the best alternatives for both patients and employers who foot the bills. The data we collect coupled with external data allows us to answer perplexing questions surrounding cost, efficacy and choice.

We foresee a day, with everyone’s participation, when America saves billions on healthcare costs.  We need your support and are asking you to join us in saying NO to legacy and YES to a better system.