Mylan Inc. Unethical Business Practice

Introduction

The year is 2007, you are at the pharmacy and purchasing a pack of two EpiPens. You bring your package up to the counter and pay just under one hundred dollars. Fast forward nine years to 2016, you purchase the same two pack of EpiPens but this time your total is close to six hundred dollars. This drastic, 600%, price hike is more than just annual inflation, it is an act of unethical business practices. People with severe asthma and allergies rely on EpiPens in the event of an emergency. The increasing price of this life saving device raises concern: is it financially accurate to have such a high price increase or is this an act of corporate greed and selfishness?

Mylan Incorporated is one of the world’s leading generics and speciality pharmaceutical companies. Mylan and CEO, Heather Bresch, offer their products in over 165 countries and have been providing access to medicine for over 50 years. In 2017, Mylan became the sole seller and marketer of EpiPens, giving them a monopoly over the market (Ginn & Waldman, 2016).

On August 18th, 2016, United States Senator, Bernie Saunders, shared his opinion on Twitter about the outrageous price of EpiPens supplied by Mylan (See Appendix A). This tweet brought mass attention to the issue and was a launching point for several investigations into Mylan’s controversial EpiPen prices (Czarnecki, 2016).

Background

Mylan’s actions can be described as a monopoly abusing its power. Along with the company’s six hundred percent increase in the retail price of EpiPens, they have also been accused of overcharging the US government for the device (Livni, 2017). They were able to pull off this scheme by classifying the product as ‘generic’ rather than a ‘branded’ product. This classification resulted in taxpayers paying approximately $1. 27 billion more than they should have and Mylan only paying out a 13% rebate. Livni explains further in his article that the classification of an EpiPen, or any other drug, is a key determinate in the rebate amount the manufacturer will need to pay.

In September of 2016, the U. S. federal health agency had informed Mylan of this misclassification, but Mylan did not react nor enforce and changes (Bartz, 2016). After many intensive investigations Mylan had aggreged to pay a $465 million settlement to the U. S. Department of Justice. Bresch made an appearance at a Forbes Health Summit event where she willingly stated her thoughts on the price hike: “We absolutely raised the price and take full responsibility for that” (Weintraub, 2016).

Along with this statement she tried to justify the company’s actions by insisting the price increases were due to improvements being made to the product and its production. When she was asked to explain her reasonings further she would avoid answering the question directly (Weintraub, 2016). This scandal raises many questions regarding corporate social responsibility and business ethics. These queries will be discussed further throughout this analysis.

Why Unethical Behaviour Occurred?

Gareth Jones, author of Organizational Theory, Design and Change, suggests three reasons as to why unethical behaviour occurs: Personal ethics, self interest and outside pressure. The Mylan scandal can relate closely to the reasoning behind self interest and outside pressure. Before we get into an explanation of why these two theories relate, it is beneficial to note an important factor revealed by Chris Isidore from CNN. He educated the public about a 2014 bonus plan Mylan had in place. This plan was to focus the top five executives on aggressively raising profits (Isidore, 2016).

The goal of this was to raise Mylan’s profits to six dollars per share by 2018. If this goal was achieved, the executives involved would be entitled to a bonus that would likely be worth millions. This information will help give a clearer understanding of the self interest and outside pressure theories. Unethical behaviour may occur due to self interest when someone is weighing the effects of their personal interests against the impact it will have on others. Jones suggests that people who have a career choice or money at stake are more likely to act unethically. In Mylan’s situation, there was a large sum of money available to top executives if they were able to meet their profits of six dollars per share by 2018. Mylan’s executives were weighing their own self interests against the impact it had on the consumers.

Organizations that are performing poorly in an economic sense are also more likely to perform unethical acts. This should not have been a factor in Mylan’s situation because they have a monopoly on the EpiPen market and there are thousands on people throughout the United States that rely on this product. Outside pressure, as stated by Jones, is also a reasoning behind unethical behaviour. This can occur when a rewards system is put into place to encourage employees to perform a certain way.

Mylan’s one-time bonus opportunity to top executives poses a reward that made the company act unethically in hopes of reaching their goal. It is also possible for industry competitors to collaboratively raise prices to earn extra profits. Where Mylan has a monopoly over the EpiPen industry this was a very simple action for them to pursue. These two theories analyze potential reasons as to why the behaviour occurred but it is also crucial to determine weather the actions were truly unethical.

Models of Ethics

Jones summarizes three models that provide guidelines to determine weather a decision is ethical or unethical: The utilitarian, moral rights and justice model. The utilitarian model is described as a, “decision that produces the greatest good for the greatest number of people”, (Jones, 2013). Mylan’s decisions did not create the greatest amount of good for the greatest people as they became greedy with the bonus incentive and did not consider the impact the major cost increase would have on consumers. The moral rights model is, “a decision that best maintains and protects the fundamental rights and privileges of the people affected by it”, (Jones, 2013).

Mylan’s decision to continue raising the price of EpiPens could have a significant health impact on customers with asthma or allergies who rely on this product but can not afford it. The justice model is a, “decision that distributes benefits and harms among stakeholders in a fair way”, (Jones, 2013).

Technically, Mylan was distributing their EpiPen’s in a fair and equitable way to consumers such that everyone was paying the same amount. The unethical aspect of this was the price they were charging. Ethical issues are often very debatable and stakeholder interests can conflict. The book The Strategy and Tactics of Pricing: A Guide to Growing More Profitably, by Thomas Nagle, John Hogan and Joseph Zale offers a five-step test to determine weather or not the pricing of a product is ethical. These tests can give a second opinion to support the decisions behind Jones’ models. Mylan passes the first three tests with ease but raises concerns for two of the tests.

The first failed test states that sellers cannot exploit a buyers’ essential needs and the second test informs that there should be no excessive, unjustified profits on essentials. Mylan does not pass either of these tests because they do not have a strong enough argument as to why the 500% price increase needed to occur for a device that is an essential need for thousands of people. There are many ways to argue Mylan’s actions, but in the end, everything points back to top executive’s and their greed and thirst for monetary rewards.

Conclusion

Because of everything that happened, Mylan was hit with a class action racketeering law suit in April 2017. Because of this, two generic versions of the EpiPen have been released and can be purchased for a significantly lower price of one hundred and ten dollars (Mangan, 2017).

In response to the investigations, Mylan increased rebates to its customer but the gesture was quickly shot down as being insufficient. To try and gain back reputation and acknowledge their unethical actions, Mylan developed a cost saving card that will cut customer costs by fifty percent (Mangan, 2016). This again raised questions, Mylan should take the steps to fix the real problem rather than just covering it up with patient assistance programs. From the analysis, it seems that Mylan needs to take additional steps if they want to be considered an ethical organization.

Their 500% price increase from 2007 to 2016, misclassification of the EpiPen, and executive member bonus plan are all examples of how the organization acted unethically. Managers and executives lead by example, if they are not wiling to take the appropriate steps to becoming an ethical organization then Mylan will never get passed the current situation they are in.

If Mylan wishes to create an ethical organization they need to reduce incentives that could potentially cause employees to act unethically. A great first step would be to eliminate bonus programs such as the one executives would have received if they reached their target profit. They also need to find a way to support the interests of stakeholder groups, particularly their customers who rely on the EpiPen. If Bresch is correct in saying that the price reflects the costs of manufacturing the product, then Mylan should investigate opportunities that would cut down manufacturing, distribution and/or marketing costs.

This is not the end for Mylan Incorporated. EpiPens are a vital necessity to thousands of peoples and they will always be in demand for the foreseeable future. Heather Bresch needs to take it upon herself to lead by example and show the U. S. economy that Mylan is capable of executing ethical business practices.