Cramer: Mylan's EpiPen represents a big glitch in the system

Jim Cramer has faith that the free market will produce a competitive product and drive down the price of Mylan's EpiPen.

"There was a cheaper alternative at one point from Sanofi that would have prevented what I do perceive as Mylan's price gauging. I know because I bought it before the FDA took it off the market," the "Mad Money" host said.

Many investors demonized Mylan for its monster price increase of the EpiPen, but for Cramer, the problem is that it could do so in the first place. This is merely a reflection of a glitch in the system.

In CEO Heather Bresch, some simply see a well-paid executive who preys on desperate customers to clean up for shareholders. For others, Bresch simply did her job by maximizing Mylan's return because no one stopped her.

"I am against monopolies where there shouldn't be one. We don't let the utilities charge whatever they want, they are regulated," Cramer said.

Heather Bresch, CEO Mylan
Michael Nagle | Bloomberg | Getty Images
Heather Bresch, CEO Mylan
"I am against monopolies where there shouldn't be one. We don't let the utilities charge whatever they want, they are regulated." -Jim Cramer

A drug company would increase the price of a drug for various reasons. Sometimes it is for an orphan drug, where the patient population is too small for the drug company to risk spending billions on developing a product that won't pay off. The drug may seem outrageously priced, but Cramer noted that it almost always falls below the cost of care that the health insurer would pay without it.

It can fall in a grey area, where patients who have insurance with high deductibles absorb the cost after prices are readily increased.

While he doesn't know for sure, Cramer speculated that Mylan put through the price increase simply because it hoped to make money until a competitor came along and offered a generic alternative.

So, for the moment, Mylan got away with raising the price and big pharmacy benefit managers that should have negotiated better pricing for insured clients failed to do so. Mylan had all the leverage in this case, Cramer said.

"Therein lies the problem: unless we insist on compassionate use breaks, then we really have to hope that companies have a heart … because there really is not much we can do. Given the health care system we have, we're stuck with cajoling and embarrassing companies that put through unreasonable price increases," Cramer said.

In the end, the real issue is competition. Cramer shared that he takes a particular medicine that also used to have a lot of competition. Now that the competition no longer exists, the price went to $125 from less than $10 per dose.

Cramer is lucky enough that he can afford it. Unfortunately, many may not be.

Ultimately this issue represents a glitch in the system, he said. One that requires more competition and regulation than there currently is. Executive embarrassment and tweets from presidential candidates just won't solve the bigger problem.

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

Want to take a deep dive into Cramer's world? Hit him up!
Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram - Vine

Questions, comments, suggestions for the "Mad Money" website?