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President's Blog: How are we different?

By Gerald Glandon, PhD posted 09-13-2016 16:19

  

How are we different?

Contemplating how our graduates get jobs and pursue their career within healthcare leadership is front and center for all of us. More than jobs and careers, however, we hope that our graduates have the competencies to provide beneficial services to society. Certification and accreditation to help assure competencies on all fronts, but the news cycle constantly assaults us with examples that either confirm our effort or at times call our leadership education efforts into question. In particular, I was disturbed by the recent Mylan Pharmaceuticals controversy surrounding price increases for the EpiPen. This case brings our educational role clearly in focus. I wonder what you all think.

Mylan and its CEO, Ms. Heather Bresch, made the news recently when it became apparent that the company increased the price of it EpiPen from $57 when it acquired the device from Merck in 2007 to $600 per two application doses today. The device which administers epinephrine to someone experiencing an anaphylactic response to allergens can be life saving. While the underlying drug has been around for many years, the application via the pen is relatively new and does a great deal to make the drug quickly available in the appropriate dose. Restaurants, schools and those with known allergies routinely carry the EpiPen just in case. Its value as a potential life saving medical device is not in question.

My traditional, free market economics training initially suggested to me that in a market economy, the price should be allowed to clear the market. Good for Mylan and why did they not raise the price to $700. However, upon reflection, the EpiPen does not operate in anything that resembles a competitive market for a number of reasons. First, most consumers have insurance that shields them from the full cost of the EpiPen at the time of purchase. For many, costs are mostly covered by their insurance company making the price less relevant to the individual consumer. The increase in insurance deductibles in recent years has reduced that shield somewhat but the full cost is not paid by consumers generally. Also, the FDA regulates the use of the EpiPen and determines   who and under what conditions the pen can be distributed. In 2008, the application of the pen was expanded from those with proven anaphylactic response to allergens to those at risk of anaphylactic response. Many more individuals were allowed to have the pen available. The government intervened directly in the size of the market. Finally, there are currently no competitors to the Mylan Product given that it has about a 98% market share.

Adding to the difficulty with the Mylan case is the apparent link between the reward structure for Mylan senior management and the company’s financial performance. The incentives that executives receive at Mylan are directly tied to financial performance thus a potential motive for the price increase appears to be enrichment of those in charge. EpiPen is only 10%-11% of revenue for Mylan but represented about 40% of profit in 2015 so it would be a likely target.  Further, when you have 98% of the market, the only way to expand revenue is to raise the price.

How do these issues relate to us as health management educators? Our educational models blend an emphasis on the resources necessary to care for patients with the business of healthcare. Our membership and the content of what we teach reflects widely diverse perspectives and we work diligently to find the appropriate blend of these two perspectives along with a strong dose of ethics and social responsibility.  We have long had a health and healthcare component to our education because our students are indirectly in the caring professions. Many of our graduates are providers but most do not treat patients directly. They all work closely with a wide variety of direct providers and enable treatment through their management and leadership. We also clearly recognize that much of the healthcare system consists of organizations that should be run as a business thus we also emphasize conventional finance, strategy, marketing, organizational theory, human resources, information technology to name a few business themes. Both our curriculum and the composition of our typical faculty reflect that diversity as well because our core faculty often includes individuals with clinical, business, health administration and other disciplines.

Over the years, we have found that too much emphasis on any one aspect of what we teach at the expense of the other can detract from the value of health management education. We carefully balance and benefit greatly from having a membership that includes programs and faculty with different perspectives. I would hope that our graduates would approach the EpiPen in a different manner. They would certainly adjust the price to meet market conditions but would carefully balance the impact of those changes on the care of individual patients, the bottom line and access to care in the community.

The tone of the defense that Ms. Bresch took reflected a lack of understanding of insurance, who pays for healthcare and social responsibility. I understand that there are potentially many more factors to consider but it appeared that she cared less about the impact of the price increase on consumers as long as her stockholders benefited. We need to remember that the increases in revenue for Mylan as a result of the price increases were paid by someone even if the consumer did not pay more when purchasing the device. Those increases come back to consumers, businesses and government in the form of higher premiums eventually. A review of Mylan’s history reveals that it rewarded executive leadership as a result of these price increases and for other corporate maneuvers that did nothing to generate a better product available to more people. Again, the reward structure channeled behavior that generated more revenue and profit without concern for the underlying treatment of patients.

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