The Tragedy of the Commons – Drug Shortages and Our Patients’ Health

There has been, rightfully, a great deal of controversy related to the EpiPen pricing issue1; a preparation sold for $83 by Merck (Rockville, Md) a decade ago is now priced at $600. The fury directed at the company now marketing this drug-delivery device – Mylan (Canonsburg, Pa) – came from patients, families, and legislators; lives are on the line, people suffering from anaphylaxis will die if they do not have rapid access to epinephrine. The response of Mylan was, initially, to shrug their shoulders: it is capitalism after all. Their secondary response, outlined by Fromer2 in this issue of The American Journal of Medicine – and commented upon by us3 – was to shift this obscene cost to employers, insurers, and our government. This is truly a tragedy of the commons: an entity benefitting from the commons without contributing to it.4 Mylan’s final response to the increasing public outcry and governmental scrutiny is the release of a “generic” EpiPen at half the current price, $300 for 2 injectors as opposed to $600, still nearly triple the price charged for the EpiPen as recently as 2007.5

Why is this happening? Those of us who practice medicine know, intimately, about drug shortages (detailed updates at http://www.ashp.org/menu/DrugShortages/CurrentShortages).6 The literature is replete with discussion of these7, 8, 9 and include: 1) Competition forcing weaker generic manufacturers out of the market, leaving a stronger company – such as Teva (Petah Tikva, Israel) – in control of 20% of the world’s supply of generic drugs; 2) The Food and Drug Administration (FDA) approval process for each generic drug is slow, creating barriers to new entrants; 3) Manufacturing problems, supply chain issues, FDA compliance problems, and business failures have decreased the numbers of suppliers; 4) Finally, the emergence of companies with avaricious pricing strategies – such as Mylan, Turing, and Valeant – are illustrative of a new pharmaceutical business model in which research and development are not performed. Rather, the company acquires rights to an old drug with a natural monopoly and engages in price gouging.

The issue of drug unavailability where the reason is not regulation, primary material shortage, or manufacturing mishap, but price – or price gouging, in the case under discussion – is different. Health care economics is not the same as automobile manufacturing economics. Customers purchase cars from dealers, have a series of options to choose from, and live within a stable construct to execute the purchase in a well-thought-out way; our patients are not – in the sense of having choice when they are acutely ill – “customers.” Health care is different in as much as its receipt – including drugs – may involve the very being of the person under consideration. Furthermore, the market approach to health care breaks down the moment a patient enters a health care system. No one suffering from acute illness is able to “shop around” for his or her care. Similarly, when one company – Mylan – through a legal monopoly, controls the only epinephrine injector presently marketed, some patients are forced to carry expired injectors due to cost-associated barriers10; others do not have the device at all.

We need to be able to reward individuals and companies who innovate to create new drugs, especially if at a lower cost. We must not, however, allow the health of our patients to be held hostage to individuals or companies who hoard a drug through its patent/production, and then gouge the commons. This is not modern regulated capitalism; it is a monopoly capitalism that has gone off the rails. When Adam Smith wrote about an “invisible hand of the market,” he was not referring to some pricing self-correction mechanism. Instead, the context was “the market” preventing industrialists from moving to lower-cost countries to maximize profit11; that this was a mistaken concept is self-evident. Centrally, there must be appropriate regulation to prevent this abuse from occurring.

Mylan’s strategy dictates the Chief Executive Officer’s plan, who frankly admits, “I am running a business.”12 Yet this strategy betrays the rules of modern capitalism. In a true competitive environment – at least in theory and when multiple firms produce similar products – the market price is beyond the control of any individual firm, and there is no need for anyone, government or private, to set a fair price. Steady increases in anaphylaxis-related diagnoses or hospitalizations, representing increased “customer” demand, would result in firms entering the market, increasing production of the epinephrine delivery device and putting downward pressure on the device’s price. A lack of competition – as in this case – informs the conditions for a firm’s profit maximization. The monopolist raises the price – gouging “customers,” the government, and insurers – as long as it can recruit consumers, and regardless of the device quantity. The result is, as we have seen, a troublesome clash between the individual pharmaceutical company’s bottom line and our health system. We acknowledge that a firm investing significant capital in drug research and development should recover their cost and make a profit; this is not the case with Mylan or the EpiPen.

To read this article in its entirety please visit our website.

-Andrea Gabrielli, MD, MBA, Nicolas T. Layon, BA, Holly L. Bones, PharmD, A. Joseph Layon, MD

This article originally appeared in the December 2016 issue of The American Journal of Medicine.