The Progressive Ensign

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Category: Drug Pricing

States Move Ahead of Fed To Reduce New Drug Prices

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab.)


Several states including New York, Vermont, Massachusetts and California have begun initiatives to take on drug companies for the their exorbitant prices of new drugs.  New York is taking a price versus effectiveness approach with a new drug called Orkambi for cystic fibrosis.  The New York state Medicaid department is demanding a lower price as it is not clear the drug helps patients with the disease better than existing treatments. Vertex,  the manufacturer of Orkambi made $1.3 billion in sales from the drug which is a high sales level for a drug that is marketed to only 26,000 eligible patients.  Vertex prices Orkambi at $272,000 for one year of doses. The drug costs so much that some insurers pass on the high costs to patients in some cases $3000 per month.

Dr. Steven D. Pearson, President of the Institute for Clinical and Economic Review is working with New York officials on a state board case against Vertex to bring the price down.  The state board found that Orkambi did not meet the effectiveness claims by the manufacturer so New York should receive a 77 % discount.  Dr. Pearson said his evaluation of the costs indicated that the drug could be discounted by 77 %.

Major states like New York and California are taking on the drug companies with renewed interest as their Medicaid costs soar in part from new drugs where companies like Vertex price the medication at extreme multiples of a fair cost. While the GOP Administration has promoted some ideas to bring the cost of new drugs down, nothing to date has been done.

The U.S. is alone of all major developed countries in not directly regulating drug prices.  In Europe health services officials do not accept high prices for drug with marginal value and negotiate using their purchasing power to bring the price down.  Congress has consistently bowed to the drug lobby by not speeding generic drugs to the market and not including in any drug bill the power for Health and Human Services to directly negotiate the price of all the medications it covers for U.S. patients.

Source: Bloomberg – 5/11/18

In 2014, U.S. patients paid the most of ten developed countries at $1,100 per year out of pocket and for many patients with difficult treatment diseases the costs per year are significantly more.

Next Steps:

Time is up for the drug companies and insurers gouging patients with soaring prices while they make hefty profits and executives pocket huge compensation packages.  Drug companies need to stop buying back their stock, wasting the money that could be used to bring the price of their drugs by billions of dollars.  Congress needs to give HHS the power to negotiate prices and effectiveness limits on drugs of dubious value the way most developed countries in the world do today.  Over the past decade pharmaceutical companies have found that their exorbitant prices have not stuck in Europe or other developed country market, so they jack up the price of the medication in the U.S. where there is little regulatory constraint.

Bi-Partisan Support to Cut Drug Costs – Stalled by Brand Drug Companies


In an unusual development in the Senate, senators from the Republican side like Sen. Ted Cruz – (R- TX) to Democrat Sen. Diane Feinstein (D – CA) agree that the process of converting brand name drugs to generics needs to be sped up and reduce drug costs.  With 23 co- sponsors the CREATES Act would require brand name drug companies to provide large enough quantities of samples of their drugs to generic manufacturers in a timely manner and that are safe.  At the present time brand name drug manufacturers often do not supply the quantities necessary or block access due to safety concerns – unnecessarily delaying the conversion of a brand name drug to a generic.  The bill provides a remedy for generic manufacturers by allowing them to sue the brand name manufacturers for not providing the necessary samples.

Sen. Patrick Leahy (D-VT) a bill sponsor, says the Congressional Budget Office estimates the bill would save the federal government about $3.8 billion over a decade in drug costs.  The Congressional Budget Office and the Generic Pharmaceutical Association estimate a total savings of $250 billion in 2013 by using generic drugs versus brand name drugs.

Source: CBO, GPha – 2014

As we have noted before drug companies are running their companies focused on making unreasonable levels of profit through $50 billion stock buy backs to increase executive and shareholder compensation and paying $1 billion a year in direct advertising to consumers for prescription medications. If the drug companies allocated these wasted funds toward price reduction we would see a dramatic reduction in drug prices.  The CREATES Act is a good bi-partisan way to at least begin to tack down agreement on drug price reductions in a fair way.

Administration Drug Price Reduction Plan Falls Short


Photo: NASHP – National Academy for State Health Policy

The Administration last week announced a series of proposals to reduce the price of medicines for seniors and the general patient population.  The policy initiatives include: review ways to speed generic drugs to market,  placing trade restraints on countries until they pay their fair share of a drug’s costs, lowering out of pocket expenses for patients, require drug companies on TV ads to list the price of the drug advertised, updates to a Medicare drug pricing monitoring tool, and not until 2020 more transparency on drug list prices to consumers, drug rebates from manufacturers will be passed through to consumers, considering a requirement that middlemen like pharmacy benefit managers act in a fiduciary role for clients (consumers), and a report on how to use the Medicare Part D (drug) plan to negotiate for services Medicare Part B (services).

When investors and drug and biotech companies saw how vague the plan was, and the fact it did not give Medicare the right to negotiate prices stock prices went up after the 11 am announcement:

Sources:, Axios  – 5/11/18

Today, biotech stocks were up another 1.0 % and health insurers Aetna and United Healthcare saw stock price moves up almost 2.0 %.

POTUS promised repeatedly during his 2016 campaign that drug companies were ‘getting away with murder’ on pricing.  He even promised to Rep. Elijah E. Cummings (D- Maryland) in March of 2017 that he would seek Medicare authorization for drug price negotiations.  He did not provide for direct negotiation by Medicare in this set of proposals, basically selling out the American people to the drug and biotech industries.

Next Steps:

Until we get closer to policy solutions that address the ability of drug manufacturers to set whatever price they want and increase prices year after year, we may only be scratching the surface of this problem.” — Juliette Cubanski, a health-care expert with the Kaiser Family Foundation.

Ms. Cubanski perfectly outlines the problem; drug company pricing power is out of control, shows not restraint and little regard for the common good.  Drug companies are making money off of people that are sick or dying.  They have a social responsibility for the common good of all people to ensure their drugs are safe and offered at the lowest possible price.  We have proposed previously and continue to believe that just showing list prices for advertised drugs is not enough – prescription drug advertising on TV should be banned as it is in all countries of the world except New Zealand.  Banning advertising would give the drug companies at least $ 1 Billion per year they could put into research and development or to cut the cost of drugs.  The pharma industry is one of the worst offenders in manipulating stock prices in a misleading way, and juicing executive compensation with stock buy backs.  Companies like Amgen and Abbvie plan to buy back shares totaling $20 billion in 2018 which could be better used to lower prices or increase productivity, if the whole industry is considered it is over $50 billion.

Source: Company filings, Axios 5/11/18

Stock buy backs can be banned by an SEC policy change and do not require Congressional approval it should be done now covering all health industry companies not just pharma companies.

We are pleased to see the Administration moving on stock rebate discounts going directly to consumers as we have noted in the past.  Yet, these proposals are so vague, are missing timelines and will need to be supported by officials in the Health and Human Services organization whose Director came from Eli Lilly.  What we think will really happen is these proposals will be used as PR pieces to the voters for the mid-term elections while industry lobbyists water down the key provisions in back rooms.  Certainly, the drug companies and investors see nothing to be concerned in the POTUS plan – so if it doesn’t hurt their valuation then these policies may be really don’t really have any bite. We want our drug industry to be profitable and thriving but at the same time it needs to take social responsibility for its products. Since the industry can’t seem to focus on a fair profits for its products,  our government needs to bring these companies into alignment on the common good for all the people.

Employers Not Passing Along Drug Cost Rebates

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Fridays we spotlight in more depth solutions to issues we have identified. Please right click on images to see them larger in a separate tab.)

Image: Kaiser Health Network

Almost 70 % of all employers who are the payers for employee drug insurance programs do not pass along the rebates they receive from insurers who receive them from drug manufacturers. Employers say they use the funds to reduce costs.  Though we do see corporations passing along the costs to employees with higher deductibles according to the Kaiser Family Foundation research report discussed in our blog on Health Insurers and keeping the rebates to themselves.

Source: Pharmacy Benefit Management Institute, The Wall Street Journal – 3/6/18

What is really happening is drug insurers like United Healthcare, are offering discounts to employers who can pass them along to employees but they don’t pass the dollars along. Instead they say they put them into reducing the costs of drugs overall.  Yet, that is not happening, as a Kaiser survey found that with drug costs going up 58 % from 2006 to 2016 yet the cost of worker contributions went up 78 %.  Companies are picking up a health insurance reduction premium saving it for themselves of 20 %.

When companies reduce health costs, the result is increased profits (made from increasing costs to employees), which increase the value of company stock which is held mostly by executives and shareholders who are in the top 10 % in income.

Next Steps:

We applaud that United Healthcare is going to begin offering next year direct to consumer drug rebates for a subset of their employer based programs.  Yet, that not enough, we see a need for legislation calling for transparency in drug pricing and insurance similar to the laws in place on bank mortgages disclosing the real cost of a home loan.  Second, we recommend legislation  that requires drug insurers pass along any drug manufacturer rebates, discount or other cost savings directly to consumers to prevent the cost reductions from being syphoned off by employers.

In the end, the added layer of insurers we don’t need when we already have the Medicare program in place for 55 million Americans and 44 million of those are enrolled in Medicare Part D for drug insurance.  We have one drug formulary in Medicare, let’s use it, let the Medicare administration to directly negotiate drug prices, end stock buybacks by drug companies and direct advertising of prescriptions drugs, then we would see a significant reduction in drug costs.

Health Insurers – Your Free Ride Is Over: Time for Single Payer Health Insurance

The View: 

The Health and Human Services administration just announced that the average premium for patients on the health insurance exchanges will increase by 25 % in 2017.  For those covered in employee insurance plans they are being squeezed between stagnant wages and increasing premiums and high deductibles.  The health insurers have a business model that creates profits for them, but creates gaps in coverage (as when a worker is unemployed) with high premiums and high deductibles.  Insurers spend billions of dollars on stock buybacks to drive share prices up to increase executive stock compensation.  Plus, they spend millions on lobbying Congress to keep their business model in place.  These monies could be better spent bringing costs down and reducing premiums.  In the final analysis as a country, we don’t need two accounts payable departments – private and Medicare. Let’s move to one single payer system, though it may take years to implement.  The Action: Cover the remaining 9 million uninsured with a public option on exchanges, end state by state plans and replace them with a national insurance pool of 360 million, create individual health accounts funded by payroll deductions from salaries for workers and for the uninsured federal basic health and drug insurance would be offered, end COBRA accounts by implementing national health insurance accounts available regardless of employment status, transition employer plans over to health accounts over a 4 year period similar to 401k rollovers into IRA accounts, end penalties for not having health insurance, use the Medicare drug formulary for the industry, end stock buy backs, require full disclosure on health and drug pricing.  To implement and guide development of the new health account program we should look at Affordable Care Act exchanges that work like California and those faced with challenges like Oregon.  Plus, let’s enlist our progressive investor partners to build new health insurance business models and organizations necessary to make this transition successful.

The Story:

Last week, this author received in the mail a notice from his drug insurer announcing rates for 2017 – a 38 % increase in a standard medication because it was moved to a non-plan brand tier from a generic (it is still generic) and premium increase of 33 %! Recently, my wife made an inquiry about coverage for one her medications where the insurer said her medication was covered was covered but she would have to pay 100 % of the cost because of the tier it was on. What kind of double talks is this? Related to health care, prior to the Affordable Care Act my son couldn’t afford doctor visits because he didn’t have insurance – he would have to pay $150 for a visit instead of a $10 copay. Fortunately, he didn’t have much income so MediCal helped out.  It seems that most families or someone you may know has had an issue with a health insurer.  Yet, this business model for insurers stays in place. Insurers have designed an inequitable structure to ensure they make money, while those with no insurance or high deductibles are paying exorbitant fees.

How big is the problem with drug and health insurance? According to the Kaiser Family Foundation insurance costs are going up for those under employer sponsored plans too –29 percent of all workers were enrolled in high deductible plans up from 20 percent in 2014. From 2006 to 2016 workers incurred a 58 % increase in premiums for employer sponsored plans. (click on image to enlarge)



Under the Affordable Care Act (ACA) corporations can move insurance plan costs over to employees for their health insurance and not be penalized. High deductible plans can cause a barrier to care, because patients looking to reduce costs do not go to their doctor or purchase the medicine they need, resulting in more serious illnesses later. This means that while premium costs maybe held in check, high deductibles are dramatically increasing the costs to patients while middle class worker income has stagnated since the mid 1980s.  Middle class workers and their families are caught in a wage – health cost squeeze, while drug and health care provider executives make 290 % of an average worker income.  The Commonwealth Fund, reports that workers with employer plans spent an average of 6.5 % of their income in 2006 on premium fees and deductibles, this figure soared to 10.5 % by 2015.  The squeeze between wages and health care costs is felt most acutely in those states with lower wages.  For example, in Florida the average worker spent $16,000 in premiums and deductibles per year, in Massachusetts their health costs were $18,000.  Yet, the median income in Florida was $43,401, versus $73,015 in Massachusetts – highlighting the huge squeeze felt in lower income states where wages have not kept up with health costs

Finally, the federal government reports that while another 1 million people will be covered by the public exchanges in 2017 due to the major insurers dropping out, average premiums will be raised by 25 %!  For example, Aetna announced that it was dropping 11 states from its plans due to losses of $430M since January 2014. Aetna wants the game played by its rules.  Last summer, Aetna told the DOJ that it would bow out of state exchanges if it did not approve their merger with Humana, Aetna also spent $1 billion in stock repurchases in 2014 and approximately $750 million in 2015. Anthem has announced that while it is not repurchasing stock now with its pending merger with Cigna, it still has authorized $4.7 billion dollars! Stock repurchases manipulate the stock price (to drive up price); they do not reduce costs, innovate new services, or compensate employees. In 2014, Humana repurchased $500 million in stock driving the price up by one cent over their earnings target of $7.50 per share entitling CEO Bruce Broussard to a $1.68 million bonus.  Middle class workers are caught in squeeze as premiums rise while executives use billions of dollars to increase their compensation that could be used to reduce premium prices.

The success of the public insurance exchanges while contingent on insurer support requires strong state leadership. California supported the public exchange program where 92 % of patients can choose among three or more plans, with increases averaging 15 % for 2017.  Most Covered California plan consumers receive premium assistance and qualify for subsidies.  Other states like Texas, fought the public exchange plan, and did not accept $10 billion in subsidies over 10 years which left many low income Texans without coverage.

The ACA has been a success with 21 million people gaining coverage, while another 9 million remain uninsured, the lowest number on record. Yet, the pricing and coverage model is wholly inadequate for patients to hold premium costs down and health service providers to manage their businesses effectively while ensuring a high quality of health care.

So how does drug and health insurance work?  Drug companies set a price then negotiate an agreement with the health insurer for different tiers of pricing generic (lowest), preferred brand and so forth. The top tier is usually completely uncovered.  The insurers negotiate for rebates and discounts to drive patients to certain drugs that the drug manufacturer wants to increase sales, or where they have the highest profits margins.  Drug prices increased by 12 % last year, however the insurers saw drug costs increasing by only 2.8%, according to IMS Health. The drug store submits a claim under your plan when you want a prescription filled, the price they submit is high, and not what they receive (it looks big to have the consumer think the insurer is paying the drug store a lot) there are rebates and discount lists, then there is the cost to the consumer as a member.  Finally, the plan supposedly pays part of the net amount, but most drug plans make the net figure your out-of-pocket cost.  The pricing structure is completely opaque to the patient.

Health provider costs are negotiated as well.  On an Explanation of Benefits statement the patient sees the amount the service provider charges, which is not the price the insurer pays which is usually a much lower cost reimbursement.  If the patient has no insurance the ‘retail price’ of the service provided is due from the patient. Often these retail costs fall on those patients least able to pay – those with low income or without insurance. Retail costs can be exorbitant for example, an MRI may cost the insurer $1000, while the provider retail cost to the uninsured patient is listed at $10,000.  Incredibly, uninsured patients are forced to pay the most for the health services! There is an obvious message here – ‘we don’t care about uninsured patients and we are going to stick prices to them’.  For most unemployed patients private plans and private plans on the public exchanges have high premiums, high out-of-pocket or high deductibles.  This approach of high premiums, out of pocket and high deductibles don’t work for the consumer!

Insurers have worked hard to keep their business model in place with Congress, Aetna spent over 23 million dollars since 2010 lobbying Congress on legislation that impacted their business, according to the Center for Responsive Politics. Aetna employed 37 lobbyists, with 75 % enjoying a revolving door between government positions and lobbying on behalf of Aetna.  The health insurance industry has spent over 61 million dollars in lobbying efforts between 2010 and 2016.  These insurer lobbyists are not representing patients.

When the health insurers; Aetna, Cigna, Humana, Anthem threaten the DOJ with leaving the public exchanges and then leave as they did last month, they are clearly undermining the goals for the ACA. They were upset with DOJ for suing all four firms to stop their planned mergers.  We need an attitude shift here, how can they make insurance work for all of us.

We have come a long way with the ACA and concessions by the insurers, but they continue to focus on the healthiest patients, increases in deductibles, increasing profits and maintaining high executive salaries. This is all at the cost of patients – all citizens have a right to good, high quality healthcare throughout their life.

The Action

The core need is to provide low cost effective health insurance for people, so when illness strikes patients receive high quality care and become healthy again. Why do we need multiple insurance payers – private and the federal government?  If we were running a corporation we would not have two accounts payable departments?  We need to transition to individual health accounts that stay with the patient regardless of employment status beginning at birth.  Here are ideas on how this transition could work.

Complete Analysis of ACA – We need to learn from the public exchanges that work – California’s public exchange has been quite successful covering new patients, and keeping costs reasonable for low income patients.   Yet, we also need to look at why those exchanges like Oregon are not working well and expensive. Let’s summarize the analysis and publish the results so we can build a consensus around the solution, extending what works and recommendations for changes.

Priority One Cover the 9 Million Uninsured – those not covered by insurance need insurance now, we need to figure out how to cover 100 % of our citizens immediately. Offering a public option on the exchanges for basic health services and drug coverage would be a good start.

End State by State Coverage – state pools not large enough to make insurance work for all.  With 360 million people in the US we can make our health insurance pool work to reduce costs. Plus, legislation needs to be passed to reverse the Supreme Court decision to allow states to opt out of subsidies.  For example, Texas opted out on $10 billion subsidies leaving many low income families without insurance or very high premiums they cannot afford.  Interestingly, a few months ago I talked with a small business office manager in Texas, she complained that ACA was not working (her firm did not offer health insurance), for her hourly staff. Obviously, one reason is that Texas opted out of the subsidy program. Using a national pool would help to spread out the disparities between regions in terms of the rising cost of insurance versus stagnant wage increases.

Create Individual Health Accounts – funding can be setup via a payroll tax, accrued to a personal national health insurance account when working (if they don’t have employer options – to be transitioned later). For individuals or families below the regional poverty level they would pay no health payroll tax. For those individuals who are not contributing to their health account, the federal government would fund a basic health and drug account by progressive taxes on wealthy individuals over $250k and the increase taxes on corporate profits. Corporations can offset the increased tax, by offering lower cost insurance, medigap plans or encouraging their employees to move to the basic national health insurance program.

End COBRA – by setting up health accounts regardless of being employed, there is no need for COBRA plans.  Otherwise, for those unemployed to continue coverage often they have to pay soaring COBRA premiums up to 400 % of their employed premium rate.  For this author, two major illnesses occurred when I was unemployed, often with the stress of being unemployed is the time we need health insurance.  COBRA is another example where health insurers are charging outrageous rates to those who need the insurance badly but can least afford it. For the unemployed they could rely on basic health coverage in their individual health account.

Transition Employer Plans – convert employer plans over 4 years into a national personal health care account. Rollovers can be accomplished in a similar way to 401K to IRA rollovers (without the penalty for early withdrawal).  Ending employer programs will cut a layer of administration in benefits departments that more rightly belongs to the individual regardless of employment status.

End Penalties For No Insurance – we want to to tax behavior we don’t want and support or subsidize behavior we do want.  All Americans who have Social Security numbers should be able to enroll in a personal health insurance account, if they do not have a employer sponsored program.  Parents can apply for a SSN for their child to be covered.  A public insurance option should be offered to all those families not in employer sponsored programs. The public option run by Medicare is a basic health insurance program run similar to basic Medicare for seniors with medigap plans to cover the other 80 % of coverage needed.

Use the Medicare Drug Formulary – we don’t need multiple formularies and tiers of drug coverage. Medicare already provides one formulary which should be used as the industry formulary.  We need to empower Medicare to negotiate all drug prices and health procedures with providers with provision for regional differences on procedures.  A critical medication list can be created by Medicare for life threatening (Epipens) or serious chronic conditions (diabetes) capped at 5% profit for drug manufacturers.

End Stock Buybacks by Insurers – insurers need to end stock manipulation and the waste of stock buybacks. Companies like Aetna have spent billions of dollars on stock buybacks which would go a long way to reducing premiums and costs to patients.

Pricing needs to be transparent – similar to a mortgage disclosure statement. The explanation of benefits and drug claim form needs to be clear about the provider or drug price, any discounts and rebates, the price the insurer is paying, the price the provider is actually requiring, the price the pharmacy is paying and the exact out of pocket cost to the patient, with patient accruals in out of pocket and co pays toward insurance coverage.

Do it Without Waiting – let’s get progressive investors to back drug manufacturers that adhere to drug cost reasonable, critical med list, transparent pricing innovative insurance, publicize get more investors on board. Work with Wall Street to setup an ETF stock to focus on companies adhering to the progressive national health programs demonstrating good returns.

Awareness of What Works – A media campaign with surrogates, leadership in Congress, interest groups like the AMA, and the insurers to bring the American people along on the solution journey and to put pressure on Congress to pass the necessary legislation.

Health insurers would focus on medigap plans, taking risk out of innovative drugs to help speed them to market, vision and integrative medicine, personalized medicine, telemedicine – taking their layer out with reduce costs dramatically. They can be contractors to Medicare for transition to health accts. Or insurers can be contract administrators to Medicare, keeping costs low and utilizing their expertise.

Lets establish a lifetime health insurance program that provides good quality care, and low cost medications for all Americans.

(Editor Note: References for this article appear in the Research section of this site.)


Mylan’s Executives Go Too Far: Bring Down the Price of Epipens, End Executive Perks


(Editor Note: August 29, 2016 – Mylan executives announced they would introduce a generic version of the two Epipen product for $300.  This move is a step in the right direction, but not nearly enough, the two pack was priced at $100 in 2007.  So, this price move is a 300 % increase instead of 578 %,  just not enough.  Particularly, when inflation has been on average 1.4 % since 2007,  or 11.2 %.  Our view is Mylan still needs to end stock buy backs in the amount of $1 billion, lower extremely high executive pay based on stock performance, plus, drugs like the Epipen which are life saving should be categorized as  ‘patient critical’. )

The View:

Mylan’s executives have raised the price of two Epipens, used to counteract allergic reactions, over 578 % since 2007.  They made this move because soon a generic alternative was coming on the market from Teva – however the FDA found deficiencies in their product.  So, Mylan has a virtual monopoly.  This gives them extreme pricing power to drive profits for the firm.  While, Mylan has been raising prices, for the last year they have been buying back stock – authorized up to $1 billion over the last year.  Stock buybacks are employed by companies to take stock off the open market, to try to move the stock price up – these funds are not invested in product innovation, worker salaries, or cost reduction.  Mylan’s executives have highly leveraged stock compensation plans, so stock buybacks can put money in their pocket – taking dollars from patients and parents who critically need the Epipen.  Epipen sales are estimated to be $1.7 billion per year, so $1 billion in stock buyback funds would go a long way to reduce the price of Epipens!  While Mylan has spent these funds over the last year ending Aug 27 of this year, they have been issuing corporate bonds for hundreds of millions of dollars. Instead of using debt funds for stock buybacks they could be used to reduce the price of Epipens. While, Mylan says they offer coupons to those with insurance and out of pocket copays it is not nearly enough – they still have not reduced the price of the product. By keeping the product price high they maintain their revenue stream via the drug insurers. Those families without insurance, are paying $608 for two Epipens, the full retail price.  This is an example of a indirect income transfer from the poor and middle class who can’t afford these sky high prices to the top 1 % in executive ranks.  The Action:

  1. End Stock Buy Backs – corporations are using stock buybacks to manipulate and control their stock price without immediate disclosure. Support Senator Tammy Baldwin’s request for disclosure and enforcement of existing laws and write to the SEC.
  1. Sign the Petition – they are collecting signatures to be sent to Mylan CEO Heather Bresch
  1. Convince university and foundation endowment administrators to sell their holdings in Mylan shares until the firm ends stock buybacks and reduces the price of the Epipen product.
  1. Establish a list of ‘patient critical’ drugs, monitor their price, when it moves too high, release PR campaigns directed at the offending firms and demand price reductions (along with stock buybacks that are taking money right out of patient pockets).

The Story:

Mylan management employed a standard industry practice (which is debatable ethically) to raises prices of a drug just before the drug goes off patent and a generic competitor emerges.  The firm can milk this income stream before losing market share and price position.  In this case, the executive team went way to far raising prices on a product that is critical for patient health.   Most schools require that parents provide an Epipen for a student who may suffer a major allergenic reaction, thus creating critical demand for the drug.

Does Mylan have the ability to reduce the price by up to 50 %Yes!  a year ago Mylan’s board approved the buyback of Mylan stock in the open market up to $1 billion!   That $1 billion would go a long way toward reducing the price of the product to all patients.  Stock buybacks are used by corporations to drive their stock price up by reducing the number of shares to investors in the open market. By moving the stock price up, they will increase the value of the shares they hold thereby increasing their compensation. Mylan’s stock price hit a high of 76 dollars the summer of 2015, then concerns about the Epipen and other issues saw the stock price fall – which is why the board authorized the stock buy back for one year ending Aug 27 2016 (to make the chart large right click on the image, the bars below price are stock volume for the week):

MyL stock chart 8-26-16

Mylan executives receive the majority of their compensation from stock performance of shares they hold and options on additional shares.  Notice that the stock did move up some last year, but intelligent investors are beginning to question the viability of stock buybacks as they do nothing for the viability of the company in the future. There is no investment in worker salaries, worker development and education, research and development or systems to reduce costs. Please see my blog on Stock Buy Backs Spike Executive Pay for more background and details on this unethical practice.

Mylan says they are helping out with costs – but are they really?  while Mylan says they will help with coupons for out of pocket expenses or copays that is fine. Except, there are many patients and parents of children who need two pens (home and school) who do not have drug insurance and many others with high deductibles which Mylan’s offer does not cover.  Often arrangements between insurers and drug companies are setup where they negotiate the price lower than the list retail (ie two pens for $608), lowering the cost to the insurance firm, but giving the drug company an ongoing revenue stream and access to more patients.  When Mylan picks up the out of pocket expense it is in effect it is subsidizing Epipen’s high price.  Of course, the high prices fall hardest on those with no insurance who pay the full retail price.

Is our federal government indirectly supporting these actions by Mylan executives?  Yes! Federal government policies and tax laws contribute to this unacceptable corporate executive behavior. Corporations receive income tax deductions for corporate executive performance compensation (stock) above $1 million, During the Clinton administration in 1993 this tax provision was approved – in effect subsidizing these exorbitant executive compensation plans when companies are not paying their fair share of taxes, leaving us to pick up the tab.

In addition, Mylan, has purchased the development assets of Abbott Labs overseas and this is able to use a tax inversion (allowing favorable tax treatment for operations in lower tax countries) to move their tax rate on these operations from 25 – 35% to 12 – 15%. It seems if they enjoy this tax break the dollars saved in taxes could go to reducing the price of the drug.

The firm has employed financial engineering to dress up the balance sheet as well.  By using highly leveraged corporate debt used for stock buybacks (they have billions of dollars in debt offerings) these borrowed funds were used to perform the stock buybacks and possible future acquisitions. Instead of using the proceeds of these corporate debt offerings to finance stock buybacks, this money could be used to reduce the price of Epipens.

The Action:

It’s time to take action –

  1. End Stock Buy Backs – corporations are using stock buybacks to manipulate and control their stock price without disclosure. Support Senator Tammy Baldwin’s request for disclosure and enforcement of existing laws and write to the SEC.
  1. Sign the Petition – they are collecting signatures to be sent to Mylan CEO Heather Bresch
  1. Convince university and foundation endowment administrators to sell their holdings in Mylan shares until the firm ends stock buybacks and reduces the price of the Epipen product.
  1. Establish a list of ‘patient critical’ drugs, monitor their price, when it moves too high, release PR campaigns directed at the offending firms and demand price reductions (along with stock buybacks that are taking money right out of patient pockets).
  1. Write to your senator or congressman to end corporate income tax deductions for executive performance compensation above $1 million, and the foreign tax escape of corporate inversions.



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