Price hikes by drug companies are not news; what’s getting attention are companies whose pricing strategies appear exploitive. Mylan, the manufacturer of the EpiPen injectable that’s used in emergencies for severe allergic reactions, has successfully fought off its competition. EpiPen price hikes were scheduled every six months like clockwork, increasing 32 percent in the last year, and the company’s CEO, Health Branch, was awarded $18 million in total compensation last year on top of an earlier one-time windfall of $38 million as a result of the board’s special award.
As a health system, Americans spent $419 billion on prescription drugs last year: 11 percent of total health spending, or $858 for every man, woman, and child in our population. That’s double the average per capita for the 19 most industrialized nations on the planet. Total spending for drugs was up 12 percent from 2014; this year, forecasts are for another double-digit climb. One in three branded products had 20 percent or higher price hikes last year.
Mylan CEO Busch blamed the company’s price hikes on the health system, not the company’s determination it could charge more to enhance its bottom line. “This isn’t an EpiPen issue, this isn’t a Mylan issue — this is a health care issue,” she stated in a CNBC interview. Her position seems at odds with the reality of the company’s systematic price hikes and executive compensation plans.
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There are three important lessons to be learned from the EpiPen story that apply to every organization and company in health care, including not-for-profit hospitals and health systems.
1. Secrets in health care are hard to keep
The Mylan story started last September in Bloomberg’s coverage but the “Stop the EpiPen Price Gouging” petition circulated by a concerned mom and wife, Mellini Kantayya, to 836 of her Facebook friends resulted in 121,000 signatures conveyed to Congress. Mylan became a company of interest to consumers, legislators, regulators, and media. There are no secrets in health care. Patients share experiences. Investment analysts read each others’ research. Employees describe their organizations’ cultures. Congressional staffers listen to company earnings calls. Narcissistic leaders are outed by former employees. And pricing strategies are widely discussed, even if inaccurate. In middle-income households, healthcare spending has increased 26 percent since the downturn in 2007, compared to decreases in housing, transportation, fuel, and food costs (Brookings). As health costs become even more challenging to individuals and families, dinner table discourse about insurance premiums, drug costs, hospital charges, and physician performance will be more frequent. And as employers, insurers, and hospitals face inexplicable price increases for drugs, they’re likely to expose secrets of the system that might be uncomfortable.
2. The buck stops with the board
Boards set the direction for their company. They hire leaders and approve their pay packages. And they sign off on pricing strategies. The balance of profit and social purpose must be on the agenda for every board, and the rationale for pricing strategies transparent to employees, business partners, and the public. As the New York Times wrote on Sept. 3, “The outcry over the EpiPen pricing shows Mylan to be the latest example of a company whose board allowed executives to reap bounties from activities that wound up harming other shareholders.”
3. CEOs must be credible in crisis communication
In the drug and biotech industry, CEOs are highly compensated: the 14 biotech and pharmaceutical firm CEOs in the Standard & Poor’s 500 who served all of 2015 were paid median compensation packages valued at $18.5 million, which is 71 percent higher than the median $10.8 million for S&P 500 executives in all industries, according to Equilar. When a crisis hits a company, CEOs are thrust into the spotlight.