Friday, August 26, 2016

Drug Pricing In The US And EpiPen Price Increase

EpiPen is a product that can save lives for those with allergies.  The firm that owns the patent has been raising the price of its product for the last six years.  Drug companies tend to raise prices to milk as much profit as they can prior to the appearance of less expensive generic drug.  The firm created a political storm when it recently increased the price of the EpiPen by 400%.  The CEO of the parent firm defends its price increase in this article.  Her defense is quite simple.  She is the CEO of a for-profit firm and she is responsible to her shareholders.  The anticipated generic competitor to EpiPen has not been approved by the FDA so the firm can raise the price without the fear of price competition.  The only problem with the CEO's decision is that the high price might make a life saving  product less available to customers with deadly allergies. 

For most of EpiPen's customers, who have commercial health insurance or government insurance, the price increase is not a real problem.  The real story is about the market for drugs and other healthcare services in the US. In the first place, the consumer will only pay a small portion of the price increase in the form of a deductible.  The bulk of the price increase will be paid for by the insurer or by government.  That will cause insurance premiums to rise so that insurers can recover the higher cost.  The real price negotiations are between insurers and healthcare providers.  As long as insurers can pass the costs on to their policy holders everyone is happy.  Healthcare providers have considerable pricing freedom, which is good for profits, and consumers with insurance have access to life saving products and services.  The only problem with this system is that healthcare spending in the US is almost twice as high as it is in other rich countries.  Insurance premiums, and, or government spending on healthcare, will continue to rise.  The higher our spending on healthcare, the less we have to spend on other things.

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