That health-care costs are out of control is hardly a surprise. All we have to do is look at our co-pays, out-of-pockets, and insurance premiums.
But the recent uproar about the huge spike in the price of the lifesaving device EpiPen shined a light on one of the major reasons medical expenses are surging: the often incredible jumps in drug prices. And that is not going to change anytime soon.
First, some background: Mylan makes the epinephrine injector EpiPen, which eases allergic reactions. Mylan has mounted a major government relations and marketing campaign to raise demand. Many of us have seen the ads. EpiPen's price has increased from $94 in 2007 to $609 in 2016 - a 550 percent increase.
Roughly half the rise was pushed through in the last three years. Given that the cost of production is estimated to be about $2, that's a great margin, if you can get it. And the only way you can is if you have a monopoly.
What has given Mylan the ability to raise EpiPen's price so high is its patented injector, whose forerunner was actually developed for the military. (Thanks to David Martin, founder of M-CAM, for his CNBC commentary pointing that out.)
Think of it: The monopoly created by the patent provided Mylan with the market power to raise the price of a product that delivers a non-patented drug, epinephrine, through an injector created for the government. Amazing.
Why haven't other companies developed new injectable products? They have tried. Sanofi's Auvi-Q was recalled in October after questions were raised about its dosage accuracy, and Sanofi abandoned the product in February. A product by the generic giant Teva Pharmaceuticals was rejected by the Food and Drug Administration because of "certain major deficiencies."
Let's make one thing clear: The FDA is not the villain here. Auvi-Q was approved for the market. Teva's product didn't come up to standards. Should the FDA have approved a substandard product? No, it did its job. Its handling of the prefilled syringe made by Adamis could be questioned, though it was not expected to be a major competitor.
Mylan did not invent the strategy of sharply raising pharmaceutical prices. Increases of 10 percent to 30 percent a year for major drugs are not unusual. A recent Inquirer article by Sam Wood showed that prices have doubled, tripled, even increased by 818 percent since 2013 for drugs used in emergencies. In the latest Producer Price Index report, pharmaceutical prices rose the fastest of the 55 major goods categories.
The decisions by pharmaceutical companies with market power to raise prices almost at will are corporate strategies. CEOs are "running a business," as Mylan head Heather Bresch said, and they view their products as goods being sold to make a profit, not a drug.
Profit maximization is the key. Take that in any way you wish, but it means that raising the price of a critical, lifesaving product is viewed as a business decision, not a social concern.
But the real reason EpiPen became a public issue is that more of the price is being borne by consumers. Hikes in co-pays and high deductibles are transferring significant parts of many drug price increases onto the backs of consumers.
With insurance, most of us often don't know the true cost of a drug, a procedure, or almost anything in the health-care system.
But when the price is no longer invisible and people actually have to pay it out of pocket, all hell breaks loose.
That is what happened with EpiPen, in contrast to other drugs that are flying under the radar despite their huge price increases.
And as long as prices remain invisible, pharmaceutical companies and other health-care providers can and will raise prices much faster than companies in other sectors.
Compounding the invisibility problem is the attitude of businesses and consumers that if the patient doesn't pay the drug's high price out of pocket, the high price is perfectly fine.
However, those prices are paid, by the government, through its health-insurance programs such as Medicare or Medicaid; by companies, through higher health-insurance costs; and/or by individuals, through higher co-pays, deductibles, insurance premiums, and/or poorer coverage and less health care.
There is no such thing as a free drug price increase.
So the next time you hear about the high cost of health care, don't automatically blame the government. Look at where the rising costs are coming from - and surging drug costs are a major factor.
And if drugs are viewed as no different from any other product, monopoly power and pharmaceutical companies' pricing strategies will continue to drive costs up.