Business Ethics 101: Ethical Dilemmas and Case Studies - Pharmaceutical Pricing Martin Shkreli Epipen

Pharmaceutical Pricing: Study Guide

What This Is

Pharmaceutical pricing involves setting the cost of life-saving or essential drugs, balancing profit motives with patient access and public health. It matters because excessive pricing can exploit vulnerable populations, erode trust in healthcare, and trigger regulatory backlash—while fair pricing ensures innovation and affordability. Real-world examples: Martin Shkreli’s 5,000% price hike of Daraprim (2015) and Mylan’s 400% increase in EpiPen prices (2007–2016) sparked public outrage, congressional hearings, and calls for reform.

Key Theories & Frameworks

• Utilitarianism (Bentham/Mill): Maximize overall well-being. Relevance: Justifies price hikes if profits fund R&D for future cures (e.g., Pfizer’s COVID vaccine) but condemns gouging if it harms more people than it helps (e.g., Shkreli’s Daraprim).
• Deontology (Kant): Duties matter more than outcomes. Relevance: Pricing must respect human dignity—e.g., charging $750 for a 60-year-old drug (Daraprim) violates the duty to treat patients as ends, not means.
• Virtue Ethics (Aristotle): Focus on moral character. Relevance: A "virtuous" pharma CEO would prioritize temperance (moderation) and justice (fairness) over greed (e.g., Merck’s decision to donate Mectizan to treat river blindness).
• Justice as Fairness (Rawls): Decisions should benefit the least advantaged. Relevance: Pricing must consider affordability for low-income patients (e.g., Gilead’s tiered pricing for HIV drugs in developing countries).
• Care Ethics (Gilligan): Relationships and empathy guide ethics. Relevance: Pharma should consider the impact of pricing on patients’ lives (e.g., insulin pricing crises forcing diabetics to ration doses).
• Stakeholder Theory (Freeman): Balance interests of patients, shareholders, employees, and society. Relevance: Mylan’s EpiPen hike prioritized shareholders over patients, violating stakeholder balance.
• Shareholder Primacy (Friedman): Maximize shareholder value. Relevance: Justifies aggressive pricing (e.g., Turing’s Daraprim hike) but clashes with public health ethics.
• Corporate Social Responsibility (CSR): Businesses have obligations beyond profit. Relevance: Pharma CSR includes patient assistance programs (e.g., Johnson & Johnson’s discounts for low-income patients).

Step-by-Step Decision Process

Use the PLUS Ethical Decision-Making Model (adapted for pharma pricing):
1. Policies: Check company policies, industry codes (e.g., PhRMA’s Principles on Conduct of Clinical Trials), and laws (e.g., Medicaid rebates).
2. Legal: Ensure compliance with pricing laws (e.g., 340B Drug Pricing Program, Inflation Reduction Act price controls).
3. Universal: Apply ethical frameworks: - Deontology: Would this price respect patients’ rights? - Utilitarianism: Does the benefit (e.g., R&D) outweigh the harm (e.g., deaths from unaffordability)? - Justice: Is this fair to the least advantaged?
4. Self: Reflect on personal biases (e.g., "We deserve high profits" vs. "Patients can’t afford this").
5. Stakeholders: Map impacts on patients, insurers, governments, and shareholders. Use a stakeholder matrix to weigh trade-offs.
6. Action: Choose the option that aligns with ethical frameworks and mitigates harm (e.g., tiered pricing, patient assistance programs).

Common Ethical Traps

• Trap: "It’s legal, so it’s ethical."
• Prevention: Laws set minimum standards; ethics require higher scrutiny (e.g., Turing’s Daraprim hike was legal but unethical).
• Trap: Moral Disengagement ("Patients can find alternatives").
• Prevention: Acknowledge real-world constraints (e.g., insulin has no generic alternatives; EpiPens are life-saving).
• Trap: Slippery Slope ("If we don’t raise prices, we’ll go bankrupt").
• Prevention: Use data to test assumptions (e.g., Mylan’s profits soared despite EpiPen backlash; bankruptcy claims were exaggerated).
• Trap: Shareholder Tunnel Vision.
• Prevention: Apply stakeholder theory—ask, "How would this affect a single mother paying for her child’s EpiPen?"
• Trap: Ethical Relativism ("Other countries do it worse").
• Prevention: Universal principles (e.g., access to essential medicines) apply globally (e.g., WHO’s Fair Pricing Forum).

Legal & Compliance Notes

• 340B Drug Pricing Program: Requires pharma to sell drugs at discounted rates to safety-net providers.
• Inflation Reduction Act (2022): Allows Medicare to negotiate drug prices for the first time (targeting high-cost drugs like insulin).
• False Claims Act: Pharma can be sued for overcharging government programs (e.g., Mylan paid $465M to settle EpiPen Medicaid fraud allegations).
• PhRMA Code on Interactions with Healthcare Professionals: Limits kickbacks/gifts to doctors (indirectly affects pricing via marketing practices).
• WHO Essential Medicines List: Guides fair pricing for life-saving drugs (e.g., HIV, cancer treatments).

Quick Case Scenarios

Scenario 1: The "Orphan Drug" Dilemma

Your company acquires the rights to a 40-year-old drug used to treat a rare disease (1,000 patients in the U.S.). The drug costs $10/pill to manufacture. Competitors charge $1,000/pill. Do you raise the price to $1,500/pill to "maximize shareholder value"? - Answer: No, under deontology and justice. - Justification: Kantian duty to treat patients as ends, not means; Rawlsian justice requires affordability for the vulnerable.

Scenario 2: The "Patent Cliff"

Your blockbuster drug (e.g., Humira) is about to lose patent protection, and generic competitors will enter the market. Do you introduce a "new" version with minor tweaks (e.g., a different delivery method) to extend exclusivity and maintain high prices? - Answer: No, under virtue ethics and stakeholder theory. - Justification: Lacks integrity (virtue ethics) and harms patients/shareholders long-term (stakeholder theory).

Last-Minute Cram Sheet

1. Martin Shkreli (Daraprim): 5,000% price hike; utilitarianism fails (harm > benefit).
2. Mylan (EpiPen): 400% increase; stakeholder theory violation (patients vs. shareholders).
3. Utilitarianism: "Greatest good for the greatest number" (e.g., Pfizer’s COVID vaccine).
4. Deontology: "Duty over outcomes" (e.g., charging $750 for Daraprim violates patient rights).
5. Justice (Rawls): "Fairness for the least advantaged" (e.g., tiered pricing for HIV drugs).
6. Shareholder Primacy Trap: "Profit first" ignores patient harm (e.g., Turing’s Daraprim).
7. Moral Disengagement: "Patients can find alternatives" ignores real-world barriers.
8. 340B Program: Pharma must discount drugs for safety-net providers.
9. Inflation Reduction Act: Medicare can negotiate drug prices (2026).
10. PhRMA Code: Limits kickbacks to doctors (indirect pricing impact).