Scapegoating Businesses for Bad Government Policy

All too often the media demonizes companies for responding to the incentives politicians give them.

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An Epi-Pen

There's a disturbing and counterproductive tendency to scapegoat individual businesses for responding predictably to conditions established by the choices politicians make. A recent example is a replay of last year's attacks on Mylan, which manufactures the popular epinephrine auto-injector EpiPen and is still apparently being blamed for problems in the health care industry that were created long ago by bad government policy and sustained over the years thanks to political cowardice.

Last year, Mylan came under intense public scrutiny for raising the list price of EpiPens by 500 percent since it bought them in 2007. This came across as opportunism by politicians seeking to divert attention away from their own failures to fix problems in health care. But even in a free market, which the pharmaceutical industry most certainly is not, public opinion can force companies to reduce prices. That said, it's a rather weak mechanism when compared with true competition.

In his "Adventures in Capitalism" column in The New York Times, Charles Duhigg recently castigated Mylan for not responding satisfactorily to last year's furor. The list price for a two-pack of EpiPens, he noted, is still $609. "Didn't we solve this problem?" he asked. Well, it depends on what problem you are talking about.

For one thing, Duhigg's outrage over what he sees as the excessive price of an EpiPen is just smoke and mirrors. As an excellent piece in Reason by Ira Stoll correctly points out, focusing on list prices for pharmaceuticals is misleading because almost no one actually pays the listed price. And if people do, it's usually only until they hit their insurance deductible for that year, after which most drugs become highly discounted. Companies set unrealistic prices as opening bids for negotiation with insurance companies, not because they expect many customers to really pay those prices.

Stoll adds that Duhigg knows this. He writes, "Twenty-six paragraphs later, way down toward the very end of the article, Duhigg discloses, 'In fact, the company says that since it came under attack in August, nearly 90 percent of EpiPen buyers have paid less than $100 per box because of insurance, discounts or coupons.'" I guess it's hard to write an entire column about the unseemly price of the lifesaving device if you have to acknowledge upfront that this high price isn't what consumers actually pay.

Now, if you think that this is a weird and probably counterproductive pricing system, you would be correct. But unlike Duhigg, don't blame it on Mylan's flouting "the norms of good corporate behavior," because we mostly have the government to thank for it. Politicians turned insurance from a hedge against catastrophic financial loss into a medical prepayment program. Obamacare made it worse, but government distortions at both the state level and the federal level have been contributing to this problem for decades. As the third-party-payer system expanded over the years and patients made fewer and fewer purchases out of pocket, the pricing of drugs and medical care predictably became opaque and unresponsive to usual market pressures.

Compounding the problem is the Food and Drug Administration, which makes developing new drugs prohibitively costly—upping pressure on companies to bring in sufficient revenue through existing drug sales to fund research and development. The FDA routinely blocks new competitors from entering existing markets, too.

Last year, Mylan's primary competitor, Sanofi, discontinued its line of Auvi-Q auto-injectors. Several other companies attempted to enter the market with new products, only to be thwarted by the FDA. If a government agency effectively grants a company a monopoly in a particular market, who is really to blame when that company then behaves like a monopoly?

Closing his column, Duhigg expressed hope that sustained attention might impact the price of EpiPens and urged continued questioning of why EpiPens cost so much. But that's a question better directed at politicians. If only The New York Times had an "Adventures in Government Regulation" column.

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  1. To some extent, I agree with this. The government is driving a lot of the problems in its refusal to deal with some of the health/pharmaceutical industry issues.

    That said, to say that the price of a drug drops significantly requires asking why. If it’s because of deductibles being met, that means that the cost is just spread over a larger population; those who pay for the insurance. Business deserves a reasonable return, but not at the constant expense of the average citizen.

    1. But But But. Anyone who says “but” or “however” after “I believe” is afucking hypocritical dissembling liar.

      Did you not read the article either? The average selling price was $100, not $600.

      Keeristinabucket. Even your ordinary wording is full of weasel words. “Business deserves a reasonable return”, and who the hell are you to decide what is reasonable for some business about which you don’t even know the little that was written in the fine article about the average selling price?

      Fuck off, statist. Get back in that statism closet.

    2. By “…refusal to deal with some of the health/pharmaceutical industry issues.”

      You mean because the government is meddling in the market of health insurance and health care, its driving prices up.

    3. It works like this: government healthcare typically pays pharmaceutical between 40-55% of the list price. Thus the company ups the drug price to get closer to the full value in return.

      This scenario used to happen to me a lot in the days before forced insurance. The pharmacy would ring up a price and then slash it upon learning I had no health insurance. It was exactly the same way with my doctor visits too.

      1. I can say from the health finance side that this is the case at the non-profit hospitals I worked for. If you didn’t have insurance we would often times slash the price in half, at least, even for things like E.R. visits.

  2. It wouldn’t hurt to add that our Eurotard and Canadian betters are enjoying freeloading on the American free market for R&D as well.

    1. And when they need a medical procedure quickly, which their Nanny-States cannot provide, they come here where money talks. All the time their countries are bad mouthing medical care for profit.

  3. In contrast to Tony’s Cro-Magnon brother, I always knew the shaming of Mylan was fishy. Government has fucked up everything it touches and I knew this would be no different, I just didn’t know how. The FDA being involved of course meant regulatory capture and/or monopoly was a distinct possibility, but the details weren’t worth investigating.

    But I’m glad Veronique de Rugy did do the research. Now that I know the details and see the blind hypocrisy of Tony Cr and Duhigg, I will go back to waiting for someone, somewhere, to toss out one single example of government doing the right thing. I won’t hold my breath.

  4. There’s a disturbing and counterproductive tendency to scapegoat individual businesses for responding predictably to conditions established by the choices politicians make.

    That’s the heart of socialism right there, the idea that human beings won’t respond to incentives to further their own self-interest rather than first and foremost the interests of “society” once they are re-educated. (Contrast Adam Smith’s comment regarding the butcher, the baker and the brewer.) But you always gotta have the re-education first, the new socialist utopia always requires the new socialist man. It’s why socialism always winds up with the mass graves – they try to structure a society based on the way humans should be rather than the way that they are, the way the Top Men would have made humans if God had been smart enough to ask their opinion on the matter instead of the half-assed job He did.

    1. It’s why socialism always winds up with the mass graves

      And not just from famine caused by economic failure of socialism. It’s also a result of the eugenics program to breed the new socialist man. Pol Pot routinely executed people for displaying signs of self interest. Naturally, the program backfired because of the economic failure, so that the only way to survive was to lie, cheat, and steal. Turns out, it’s pretty fucking hard to breed a personality trait that literally works against your survival, especially in conditions where survival is so difficult.

    2. “And lo, on the [day before he made Adam] God created Top.Men. and thus did he beseech them to enlighten his holiness, and it was good.”

  5. The NYT is a rag written for and by morons.

  6. Good luck explaining this to the average NYT or WaPo reader. I’m convinced the vast majority of them can’t read financial statements let alone understand the idea of skewed pricing mechanisms introduced by the government itself run by people who haven’t a clue of how pricing works.

  7. If a government agency effectively grants a company a monopoly in a particular market, who is really to blame when that company then behaves like a monopoly?

    You, Veronique, will blame the government. I will blame the government. Most here will blame the government. Sensible people will see the government’s hand tilting the scale in favor of the monopoly it created, and thus place the blame squarely on the deserving party.

    But little red Marxians, those whose minds orbit planet Marx, will blame “unbridled Capitalism” because exploitation or greed or something. It’s a religion for them.

    1. I’d say the company wasn’t acting “morally” — but then remember that morality isn’t part of any business’ expected conduct. They aren’t churches. They are there to maximize their profits to fund other R & D.

      We spent so much effort in the early 20th Century killing monopolies…then spent the last 30 or so years trying to guarantee monopolies.

  8. A cost of a dose of Epi given using a normal syringe like diabetics use every day is about $2.00. How can a fancy auto syringe cost $100.00?

    1. We have to prove it’s safe. Government pensions are relying on it.

  9. Mylan was also guilty, in that they were using political connections to keep out competitors from the market. As one Congressman said, they got the government involved in their business then wanted to cry foul when they came under investigation for getting the government involved in their business.

    In other words, this is a prime example of both the Government and rent seeking corporations doing the wrong thing.

    1. Don’t take this to mean that it wasn’t rational on the part of Mylan in the sense that regulatory capture was good for them, but at the same time that’s a double-edged sword and they knew full well that it was likely to come back and burn them later on down the line. Look into the connections between Mylans (former?) CEO and her Senator dad.

      Just because you’re ‘acting rational’ when you try to use government force to keep a monopoly on a certain drug/delivery device doesn’t make it ‘right’. If it does, than certificate of need laws are perfectly fine and dandy, yes?

    2. When people ask the government to regulate everything then it becomes a necessary evil for companies to lobby the government to protect them from those rules. companies have no choice but to lobby. Prime example Microsoft used to have two part time lobbyist in DC until the government started talking about breaking up the monopoly. Now Microsoft has over forty full time lobbyist in DC. this is how congress critters become millionairs

      1. I absolutely agree that it’s a rational decision on their part, but at the same time rent-seeking to the point of absolute regulatory capture is massively unethical on the part of both Mylan and the Government. I blame both of them. Giving Mylan a free pass because ‘the government made it possible’ is idiotic in my opinion.

        Certainly only blaming Mylan is idiotic as well, but pretending they were some kind of victim here, or didn’t know what they were doing, is false.

        Remove the power of the government to pick winners and losers in the market, and this problem becomes much less of a problem.

        1. When buying and selling is controlled by legislation, the first thing to be bought and sold are legislators.

  10. “urged continued questioning of why EpiPens cost so much. But that’s a question better directed at politicians.”

    Unfortunately the politician will not look at less regulations to free up markets they will only look at regulations to force the price below replacement/manufacturing cost thus ending its production all together. Then where will people be well the government will have to make it at three times the present cost, but that may be the ultimate goal anyway.

    1. Do you really think that government is ever going to force prices below the manufacturing costs? That’s hard to foresee when lobbyists have so much power.

  11. “There’s a disturbing and counterproductive tendency to scapegoat individual businesses for responding predictably to conditions established by the choices politicians make”
    … I’m imagining Libertopia, in which all sorts of regulations and laws pertaining to employer/employee relationships are repealed. So no laws about overtime, sick leave, safety standards, and so-on and etc.

    Now, we know what companies do when they don’t have to ensure the safety and health of their employees. We know because we see it all the time, in America present, American history, and abroad. They get rid of safety concerns that impact profit, expect employees to work stupidly long days, even when they’re sick, and so-on.

    And all of that would be buisnesses responding predictably to conditions established by the choices politicians would be making.

    And the libertarian/Libertarian argument has always been that it would be social pressure and such that would keep all those predictably horrible outcomes from happening.

    And here Reason is saying that social pressure, aka “disturbing and counterproductive tendency to scapegoat”, is a bad thing.

    So once again, I’m left with the conclusion that libertarians/Libertarians are only fine with their own libertarian solutions to human problems when they don’t work. The moment they have a possibility of working (for example, a business going out of business because of a boycott) it becomes a horribly unjust travesty.

    1. It’s slavery I tell ya, and the only way to be free is to give everything we have to the government to protect us! Otherwise corporations will KILL us and once they have no workers or customers they win!

      Reason is not saying social pressure is a bad thing. They’re saying its misplaced.


    2. And the libertarian/Libertarian argument has always been that it would be social pressure and such that would keep all those predictably horrible outcomes from happening.

      And here Reason is saying that social pressure, aka “disturbing and counterproductive tendency to scapegoat”, is a bad thing.

      …And yet in the article…


      Last year, Mylan’s primary competitor, Sanofi, discontinued its line of Auvi-Q auto-injectors. Several other companies attempted to enter the market with new products, only to be thwarted by the FDA. If a government agency effectively grants a company a monopoly in a particular market, who is really to blame when that company then behaves like a monopoly?

      It doesn’t matter how outraged people might have been, this whole travesty is a direct result of the government enforcing an effective monopoly giving Mylan the ability to do whatever they want, which they did and they did badly.

      Obviously, when a market can not be described as a ‘free market’ in any way, shape, or form it will not behave like a free market. How you walk away with the impression that any of this has anything to do with ‘social pressure’ is a mystery. In fact, the only ‘social pressure’ in the story resulted in Mylan using gimmicks to lower the price of their drug because of public outrage. So does ‘social pressure’ work? Apparently, it does, even in a de facto government granted monopoly which is pretty impressive yes?

    3. In Libertopia because the government isn’t stifling the free market there are so many jobs no sane person would work for such a company. The leverage would be on the side of the worker not the company.

    4. You don’t quite understand libertarianism.

      Briefly, in a libertarian world, companies WOULD be responsible for the safety and health of their employees for the harm that the company caused. Radiation, tool damage, particulate matter, lack of safety equipment, etc.Think of nearly any example of an employee being hurt at work, duty of care, assumption of risk, res ipsa loquitur and modified comparative negligence theories solve any issues there.

      Take for example a 200-ton press that can only be operated via a fail-safe mechanism, e.g., the press won’t work unless the operator is x feet away standing on a pressure plate with two hands on the controls. If the employee gets hurt with such safety precautions, the company is 100% liable, res ipsa. If the employee gets hurt reaching into the machine because the safety precautions don’t work, company is 100% liable, res ipsa again. If the employee disables such measures & gets hurt, there is an issue to be decided under modified comparative negligence.

      Once, a friend said to me, “If I see an employee fall, he’s fired before he hits the ground.” I told him he was an idiot. If he’s an employee when he hits the ground, the company is golden, he gets worker’s comp and can’t sue. If he’s just Joe Public, he can sue you for all that you’re worth.

      And, for the record, companies can expect employees, especially salaried ones, to work stupidly long days, without overtime, even when they are sick, NOW. I think that would probably be a wash.

  12. Hmmm, you mean like when the government forced banks to ignore good lending policy, to have more homeownership, giving mortgages to people, the banks know will never be able to make the payments?
    Followed by seeing those same evil banks blamed for deceptive lending practices, when the borrowers can’t make the payments?
    No, that would never happen, would it?

  13. When laws create perverse incentives for businesses, often that is because those businesses lobbied for those laws. In that case, the businesses are directly responsible for the system as well as their use of it.

    But even when those businesses didn’t get those laws adopted, the people running the businesses are still responsible for the good and bad of whatever they do. Significant wrongs can’t be excused by profit, so they are also not excused by laws that make the wrongs profitable.

  14. If regulation tends to create monopolies and high revenues for drugs, then I suspect the American Pharmaceutical Association will lobby against any real reform of the drug approval process, while continuing to publicly complain about it and supporting think tanks like Cato who rail about it ineffectually.

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