Profit vs. People: The Challenging Decisions Faced by Executives in
the Pharmaceutical Industry
Laura Walk
To profit or to provide? This is just one of many questions pharmaceutical executives
face when making corporate decisions such as pricing drugs. In the corporate healthcare
industry, the prioritization of the business mindset and social interest becomes blurred. Corporate
executives are often split balancing divergent business and consumer interests. Executives
assume the role of determining which direction the company should take to both maximize
profits for shareholders while keeping consumers’ health - and wallets - in mind. This conflict
often leads to unethical executive practices that favor profits over consumer health. Heather
Bresch, CEO of pharmaceutical company Mylan, recently created widespread public controversy
over her role in increasing the price of emergency allergy treatment EpiPen. Bresch increased the
price of the lifesaving, allergy-fighting device from $100 when Mylan acquired the rights to the
drug in 2007, to over $600 today (Koons). Experts debate whether Bresch’s decision was
justified and ethical – defending both her responsibility as a businesswoman and her duty to
provide affordable treatment to consumers.
Experts debate whether Bresch and other corporate executives are justified in hiking up
the prices of consumer prescriptions. From a pro-business standpoint, experts argue that the job
description of “Chief Executive Officer” entails generating profit and maximizing business
potential – not looking out for consumers. In a recent article entitled “In defense of Heather
Bresch”, former communications company CEO Chris Allen states:
Condemning Ms. Bresch makes about as much sense as citing NASCAR driver Dale
Earnhardt Jr. for speeding on the racetrack Sunday afternoons. Both are doing what
they’re paid to do. Mr. Earnhardt is paid to go fast. Ms. Bresch is paid to make money.
(Allison)
Similarly, Nicholas Capaldi, Professor of Business Ethics at Loyola University, argues that it is
not the pharmaceutical industry, but consumers, who are at fault. He argues that consumers fail
to “understand the economics of contemporary healthcare”, and instead shift the blame of rising
prices to producers (Capaldi). He attributes rising costs to rapid improvements in research and
development. In contrast, other experts advocate consumer interests, arguing that pharmaceutical
executives have violated their role unethically. Daniel Kozarich, a senior pricing consultant for
Vendavo, argues that in the case of life-saving drugs, executives act unethically in raising prices
due to consumers’ dependency on the product (Kozarich). After interviewing Gregory Snyder,
Executive in Residence at the Dartmouth Ethics Institute, I found that his views mirrored those
of Kozarich. He emphasized consumers’ dependence on the lifesaving drug EpiPen, stating “This
isn’t any old product – it’s not like selling Cheerios. Consumers have no option but to purchase
an EpiPen.” I agree with Kozarich and Snyder – pharmaceutical executives’ have evidently
violated their power at the expense of consumer health.
I agree with experts who believe corporate executives in the pharmaceutical industry
have violated their responsibility to the social well-being of consumers in favor of financial
profits. Executives have an equal, if not greater, responsibility to the health of the consumers
their products impact as they do to corporate shareholders and business goals. Many decisions
made by pharmaceutical executives, including those of Bresch, take advantage of their
consumers’ healthcare needs by raising the price of lifesaving drugs consumers are dependent
on. As shown in the figure below entitled “Pharmaceutical Executives: The Pricing Game”,
corporate executives often play the game of trade-offs between company and consumer interests
– and are rewarded greatly with tangible financial benefits for choosing profits over people.
Consumers, who have no option but to purchase these medications, are subjected to unnecessary
financial harm and sacrifices due to executive decisions – and in the worst case, may no longer
have access to the drugs they depend on. The self-interest of corporate healthcare executives
results in consequences that span far beyond the boardroom.
Pharmaceutical CEOS are currently exploiting consumer interests in favor of profit and
business goals. Hence, I believe the US government needs to restrict the amount of power
corporate executives have in determining drug prices in the pharmaceutical industry. However,
allowing the government to set the drug prices raises a host of new issues – the government
would be responsible for determining the “fair price” of medications, removing free market
competition in the industry and creating controversy. Instead, more competition should be
allowed into the pharmaceutical market. During the approval process, the FDA should recognize
when a drug is void of competition, and reorient to speed up the approval process of competitor
drugs. The US Food and Drug Administration should also increase collaboration with the EU
European Medicines Agency, and allow drug approval to transfer between nations. Both of these
measures would allow more competitors to enter the pharmaceutical market, and lessen the
ability of corporate executives to conduct exorbitant price hikes. In addition, the government
should regulate the amount the price of a drug can be increased after adjusting for inflation and
production costs in order to control severe price hikes. In this essay, I will justify the necessity of
these measures by discussing the ways in which CEOS have violated their title and responsibility
to their company, consumers, and the government, using Mylan CEO Heather Bresch as a case
study.
By significantly increasing the price of necessary drugs, CEOs have violated their
responsibility as business leaders. While initially, increasing the price of drugs improves profit
margins and revenue, after a certain point demand for the product begins to tank at the
company’s expense. Bresch’s decision to increase EpiPen prices initially yielded increased
profits and shareholder value. However, within a week of EpiPen’s latest price increase, which
sent the price over $600, the increase cost the company $3 billion in market cap and tanked the
stock price by over 12% (Kozarich). While price increases cost the company financially, the
larger consequence was the extreme public scrutiny and bad publicity the company faced after
Bresch’s price hikes. After the September 2016 price hike, Bresch’s and Mylan's name graced
nearly every national news outlet – and not in a good way. News outlets denounced the
company, covering the story with headlines that called the price hikes “sickening”, “disgusting”,
and “unethical”. While Mylan may be able to recover from financial damage, they may never be
able to redeem their public opinion and customer loyalty. Bresch’s business decision to continue
to increase the price of EpiPen ultimately cost Mylan’s corporate public reputation by raising
concern over their loyalty to consumers.
Pharmaceutical executives have also violated their social and ethical responsibility to
drug consumers. The business education book The Strategy and Tactics of Pricing: A Guide to
Growing More Profitably outlines a five-step test to determine whether a company’s price is
ethical to consumers. The test examines conditions including whether the price is paid
voluntarily, whether sellers exploit consumer’s basic needs, and whether the price is justified by
the cost (Nagle). According to pricing expert Daniel Kozarich, Mylan’s EpiPen pricing failed all
of these tests (Kozarich). Due to patient necessity for the EpiPen, consumers are willing and
forced to accept higher prices imposed by pharmaceutical companies - or risk their lives. Bresch
unethically took advantage of consumer needs by raising EpiPen prices. An investigation by
Bloomberg analysts found that EpiPen prices rose significantly more than inflation from 2007 to
2016, implying that price hikes were not justified by increased costs (Koons). According to the
American College of Healthcare Executives, the primary role of executives is to be “dedicated to
improving health” (ACHE). The professional society emphasizes that executives should be
committed to their social responsibility and ethical actions. Bresch violated these responsibilities
by increasing the price of EpiPen and valuing corporate profits over consumer access – and
leaving her consumer constituents scrambling to pay for their potentially life-saving medication.
While Bresch’s decision had clear-cut impacts on American citizens, it also resulted in impacts
to the US government.
Current pharmaceutical executives’ actions have also violated their responsibility to the
government by exploiting government agencies for profit. Gregory Snyder, former senior
executive of HSBC and current Dartmouth Ethics Scholar, emphasized the ways in which
Mylan’s price hikes took advantage of government systems. In particular, he points to Mylan’s
successful lobbying efforts and the impact of EpiPen price hikes on government programs such
as Medicare and Medicaid. Snyder points out the fact that many FDA officials are former
employees of large pharmaceutical companies, and remain partisan to the interests of
corporations. In addition, Mylan has undertaken significant lobbying efforts, taking advantage of
government policies in order to profit. In 2013, Mylan strongly pushed a federal law which
encouraged schools in the US to have EpiPens. Similarly, in at least 10 states, Mylan
successfully pushed legislation which required EpiPens to be stocked in public locations such as
hotels and restaurants (Lipton). CEO Bresch was well aware of the implications the legislation
would have on Mylan’s sales, even going so far as to label the process “our unconventional
approach to growing this franchise” (Lipton). Mylan’s price hikes also puts stress on government
assistance programs such as Medicare and Medicaid. Medicare program spending on EpiPens
jumped 1,100 percent between 2007 and 2014 (Appleby). EpiPen price hikes thus direct
government money towards unnecessarily high drug prices rather than improvements in
coverage or treatment. Bresch exploited her corporate responsibility to the government in order
to achieve profit and sales growth. Yet, opponents would argue these violations are not enough
to justify government intervention.
Opponents argue that the government should not interfere with the free market, including
in the case of pharmaceutical companies. The goal of any corporation is financial success to
generate profits and raise stock prices for shareholders. The free market system allows
companies to engage in competition; those with the best business practices ultimately are
rewarded financially. Opponents argue that in the United States, the government should take a
laissez-faire, or “hands-off” approach and not intervene to create policies restricting corporate
decisions as a free market economy. However, looking at recent drug prices hikes, the way
pharmaceutical companies have acted recently places American consumers’ health in danger.
Companies such as Mylan have taken advantage of a lack of competition – extremely rare in a
free market economy – to price their drugs at levels which US consumers are not willing nor can
afford to pay. Yet American consumers are also dependent upon these drugs and the companies
that provide them. In the case of pharmaceutical companies, the government should have a
responsibility to restrict near-monopoly power by introducing competition, or limiting corporate
pricing power.
The United States government needs to intervene and restrict the ability of corporate
healthcare executives to charge extreme prices for lifesaving drugs such as the Mylan EpiPen.
Past events have proven that the government’s role is essential in moderating between healthcare
and pharmaceutical organizations and the American public. Since the early 2000’s, concerns of a
link between vaccines and autism have emerged. Widespread sensationalism and hysteria over
the potential link has led to dangerous anti-vaccination movements. Non-vaccinated populations
have brought back outbreaks infections like measles, which had previously been eliminated
(Kollipara). The Centers for Disease Control and Prevention, a government body, issued a report
on their website dispelling the claims. Yet besides the report, the government did little else to
resolve the hysteria, in a way contributing to the anti-vaccination movement and endangering US
citizens. In order to prevent future public health crises, such as a lack of access to lifesaving
medications like EpiPen, the government needs to take robust action. In order to prevent the
continuation of recent trends in drug price hikes, the Food and Drug Administration should allow
more competition into the market by expediting the approval process for competitor medications
and collaborating with the European Medicines Agency to allow generic drugs on the market.
Without proper government restrictions, pricing power is left in the hands of corporate
executives like Bresch, who value profits over people.