Why Drug Prices are So High & How We Can Change It: Dr. Vincent Rajkumar
Dr. Vincent Rajkumar, a hematologist oncologist at the Mayo Clinic, talks about drug pricing along with Alex Oshmyansky, the Founder and CEO of the Mark Cuban Cost Plus Drug Company. They discuss the impact of high prescription drug costs on patients and families, and why the current system needs to change.
The system is set up in a way that everybody benefits from a high price. The patient doesn’t want the high price, but it looks like everyone else is happy with the high price. The higher the price, the higher the margin. That has to change.Dr. Rajkumar
The interview has been edited only for clarity.
Stephanie Chuang, The Patient Story: This topic is one that will resonate with so many. It’s focused on how we afford our drugs [and] how we afford [to get] our care, and at the heart of this are some laws and some other things going on. Our guest, Dr. Vincent Rajkumar, [joins] us.
Dr. Vincent Rajkumar: I work at the Mayo Clinic. I’m a hematologist oncologist and my disease specialty is multiple myeloma. I do research, education, and practice as far as myeloma is concerned.
I also have an interest in drug pricing, which started because I run a lot of clinical trials and work with new drugs. I do studies on racial disparities so I’m aware of the impact [of] cost of medicines and health care [on] various communities.
I also edit the Blood Cancer Journal along with my colleague Dr. Tefferi.
The more you delve into it, you find it’s not simple and that’s why no one is able to fix it. You just don’t even know where to start if you want to pick something.Dr. Rajkumar
Initial reaction to the cost of prescription drugs
Stephanie, The Patient Story: I know that you’ve been working on this and you’ve been passionate about this for some time now, but do you remember how you felt when you first realized what was going on? What was your reaction?
Dr. Rajkumar: I was appalled. I wrote my first paper on [the] cost of prescription drugs in 2012, and it was focused on cancer — the high price of cancer drugs and what we can do about it. It was mainly because I worked on Thalidomide, which was the drug that was banned in the 1950s because it caused teratogenicity.
I’m probably the only physician in the world who actually used Thalidomide to treat leprosy, which was approved for, and subsequently started using it for myeloma. I was in India using Thalidomide for leprosy and it was given to us basically free of cost in huge buckets that you could use to treat patients.
Then I come to the US. I did research and we worked on all the Thalidomide trials. I led a trial that resulted in Thalidomide being approved for multiple myeloma in the US. And then I find Thalidomide costs $10,000 a month. This drug should cost $10!
Then I see the price of Lenalidomide launched at around $4,500 and then going up every year to $5,000, $6,000, $8,000, $10,000… and you’re going, What’s happening? That’s when I said I really need to understand the root cause of these problems.
The more you delve into it, you find it’s not simple and that’s why no one is able to fix it. It starts with monopolistic pricing then the middlemen and the whole infrastructure that you just don’t even know where to start if you want to pick something.
Impact of drug prices on patients and families
Stephanie, The Patient Story: You’ve worked with patients. You’ve also done a lot in clinical trials. What is that human element of it for you? What feelings do you have in terms of encountering what you have with drug prices and the impact on patients and their families?
Dr. Rajkumar: When it comes to drug prices, there’s an impact on the patients, who are the people actually affected by the disease, as well as the cost of taking care of the disease. [I] hear not only from patients that I myself treat but also from patients across the country. Since I’m an expert in a particular disease, I give talks [and] go to patient-family seminars. I meet patients from around the country and hear about the difficulties of access [and] affordability, and that’s one aspect.
Then there is the other aspect, which is high prescription drug prices and what it does to the public at large in terms of their premiums, co-pays, Medicare sustainability, taxes, and everything.
How did we get here?
Stephanie, The Patient Story: On every level, there’s this big impact. Let’s [lay] a foundation [to understand] how we got here [starting] with where you did back in 2003.
Dr. Rajkumar: Until 2003, Medicare covered only the drugs that were administered in the hospital or by doctors but did not cover prescription drugs. When the Medicare Modernization Act was passed in 2003, [it] created Part D, which provided a great benefit for our citizens: prescription drug coverage.
But when Medicare was authorized to provide prescription drug coverage to seniors, simultaneously, the law prohibited Medicare from negotiating the price of the drug. [This] meant that drug companies knew that Medicare would have to buy and provide drugs, but it did not have the ability to negotiate the price.
Over time, year after year, the price of the same drug went up as well as any new drug that comes in — the launch price kept going up. To the point where, after 2017, every new cancer drug was introduced at a launch price of over $100,000 a year and we know that that price will keep going up as well. That then puts a big strain on Medicare in terms of how much it costs as well as [on] individual patients because they still have to pay 5% over catastrophic, which for cancer treatment is very hard to reach.
The drug that I prescribe commonly — Revlimid or Lenalidomide — costs almost $18,000 a month so it’s very easy to get the $7,000 catastrophic threshold and then patients are stuck paying 5% of the cost. Five percent of $18,000 is a lot and you have to keep paying that month after month.
When Medicare was authorized to provide prescription drug coverage to seniors, simultaneously, the law prohibited Medicare from negotiating the price of the drug.Dr. Rajkumar
Negotiating drug prices
Stephanie, The Patient Story: That’s incredible. We’re on this trajectory that’s not looking good because it feels like it’s just going to keep getting worse. But what was really interesting was you pointed out it can work. We have the VA that does negotiate prices, right?
Dr. Rajkumar: Yes. Every other developed country also buys and provides prescription drugs for [its] citizens. But in every other developed country, when a drug is approved, that’s just one or two steps. The first step is [that] the drug shows safety and efficacy. The second step is they negotiate the price and the price is determined based on the value that the drug provides.
The drug that provides a lot of value, like [prolonging] overall survival by several years, can be priced much higher than one that prolongs life only by a few weeks. They already have a value-based pricing negotiation set up and it works. It also works at the VA. The only place where it was not allowed was Part D for Medicare and, thankfully, that has been rectified now. Partially, not fully, but partially.
Stephanie, The Patient Story: Can you talk about that and how much more we’d have to go?
Dr. Rajkumar: What happened with the new law — that was signed this month — is that, number one, Medicare can start negotiating for drugs but only drugs that have been on the market for at least 7 to 11 years and only a few drugs. Starting [in] 2026, it would be 10 drugs that Medicare spends the most money on that they will be able to negotiate. Then each year, they can add another 15 to 20 drugs.
Over time, Medicare will be able to negotiate most of the drugs that cost a lot of money for [them], but it won’t be able to negotiate at launch. The price when the drug is introduced on the market can still be very high and can be high for many, many years. It’s only after 7 [to] 11 years that they can actually start coming down.
The second thing is that the law also capped price increases to no more than inflation. That helps because, otherwise, prices could keep going up every year and that would also put pressure [on] both patients’ out-of-pocket expenses as well as the system overall.
The most important benefit that was added is that copays will be capped at $2,000. Starting in 2025, Medicare patients will not pay more than $2,000 for the whole year as part of their copays so then they know what to expect. There’s no more 5% that keeps adding on and you have no idea of the budget. Now, they’ll be able to plan their lives knowing, Okay, even if I get a serious problem and I have to spend a lot of money, it’s going to be capped at $2,000 and that $2,000 can be spread over a year.
It’d be nice if we can negotiate at launch. It’ll be nice if there were no caps. There would be no out-of-pocket. But that’s some years to go. This is a good start.
The rationale behind drug pricing
Stephanie, The Patient Story: Progress. We have to celebrate each win. What have you heard in terms of the rationale behind why it had to be that way or has to continue to be this way?
Dr. Rajkumar: Generally, the fears that I hear are, number one, it costs a lot to develop a new drug and that if they don’t set the price high, they will not be able to innovate.
The second is that the drugs are really worth the price and that’s how much they are worth.
The third would be that if you give this kind of power to Medicare, what if they ask for an unreasonable price? What if they are willing to walk away and set a price that is just completely not going to work for pharma? Those things have to be worked out. I think the fact that they’re not going to start negotiating for 7 [to] 11 years means that companies can make their money in that period anyway so those fears are overblown.
I also feel that if companies recognize that there is more money to be made with a blockbuster drug, they will innovate compared to [knowing they] can sell any drug for $100,000 because there is no ceiling so there is no value-based development of drugs. We have to incentivize that. If the drug is truly great, we are willing to pay more and, on the other hand, if the drug works only for a week, don’t ask me for $100,000.
There are many people marking the price up so that what is $400 when it leaves pharma could be marked up to $4,000 by the time it reaches the patient.Dr. Rajkumar
Drug price disparity
Stephanie, The Patient Story: Not all things equal. You also pointed to the fact that depending on which pharmacy you go to, there’s a huge difference so there’s a little bit of control for patients in a sense. Can you talk more about that?
Dr. Rajkumar: I’ll be the first to say that we have a whole supply chain — the pharmaceutical company selling to the wholesaler, the wholesaler selling to the retail pharmacy, and then the patients paying their premiums to insurance companies who contract with pharmacy benefit managers to decide which drug to cover and which drug not to cover. Pharmaceutical companies can pay rebates to insurers. It’s a complicated system.
The system is set up in a way that everybody benefits from a high price. The patient doesn’t want the high price, but it looks like everyone else is happy with the high price. The higher the price, the higher the margin. That has to change.
What we find now is that there’s virtually no product other than prescription drugs where — it’s not like I can go and find a new MacBook Pro for $10 at some company and $5,000 at Apple. It just is not there. But you can find, [as] I posted on my tweet thread, [with] Gleevec or Imatinib, the brand name is $10,000 a month and you can find the same Imatinib at $39 at Cost Plus Drugs. You don’t see that kind of spread anywhere else with any other product. It’s happening because there are many people marking the price up so that what is $400 when it leaves pharma could be marked up to $4,000 by the time it reaches the patient.
Unless the patients are aware, you could be vulnerable to high prices, whether it’s insulin, Gleevec, a new cancer medicine, [or] an old medicine. What we find is where the prescription goes, how the prescription is written, [and] what you’re aware of as far as the coupons and rebates you get can really affect how much you pay for that medicine. And it’s not a small dollar amount.
Stephanie, The Patient Story: No, the disparity is quite large, actually. When you talk about how prescriptions are written, what do you mean by that?
Dr. Rajkumar: Unfortunately, there’s no rhyme or reason for these prices, and patients can really go and play around on some websites, like GoodRx.com. [If] you enter the name of a drug and order a 30-day supply, you would find a coupon for [a] 90% discount. If you order [a] 60-day supply or a 90-day supply, you may get a [bigger] discount.
For example, Lenalidomide, which is Revlimid. Medicare spends more money on Lenalidomide than just about every other drug. The drug costs the same whether it’s a 5 mg tablet, 10 mg tablet, 15 mg, or 25. [If] you take two 5 mg tablets, [you’ll] be paying double the amount — $36,000 instead of $18,000. I’m giving an extreme example but [for] many drugs, you have to really look. Taking the drug twice a day just because you want to break it down is not going to be the same price. You pay double.
Stephanie, The Patient Story: That’s incredible. This is a naive question, perhaps, but I think one that [many] of us are going to have. With the regulation, you’d think that there is some oversight in this process. I know it’s very convoluted. We don’t have to get into every little nook and cranny, but where is the oversight? How can there be such a disparity going from point A, which is the same, but in 100 different locations? It’s just all over the map.
Dr. Rajkumar: Yeah, and it’s hard to regulate. There is no transparency. If you try to say let’s not have rebates, then the people in the middle could just convert rebates into fees. This is how much I charge for me to buy the drug from someone and give it to you. They can add five different types of fees in between so that the price of the drug gets marked up.
I think government and regulators have to take a close look at this. The Federal Trade Commission [has] to really look into who’s making profits, how, what is competitive, what is anti-competitive — all of that has to be looked into.
Meanwhile, patients, as well as physicians, can be aware of the system. Be aware that it’s not just simply getting a prescription and getting it filled at the closest pharmacy. Be aware that your copay for insurance might be higher than if you just paid cash for the same drug without going through your insurance company. And that could be substantial.
After I posted a tweet, people were posting, It cost me $250 with insurance and $10 cash. Then why have insurance? Unfortunately, even physicians are not aware of all of the disparities. I think it’s just education, letting patients know all of the resources available, whether it be GoodRx [or] Cost Plus Drugs. I don’t have any affiliation with any of these people. All I’m trying to do is just educate people that there is a wide disparity in prices. You must be aware of it. Just check. Make sure your physicians check.
I tell my colleagues [to] make sure you ask patients about affordability. Can you afford this medicine? What is your insurance like? How much copay do you have? Just talking to patients and inquiring [about] their situation so that if somebody says, “No, doc, don’t worry. My prescription drugs are fully covered. I have a $10 fixed copay.” Fine, no problem. But if someone says, “I pay 5% of my prescription cost as a coinsurance,” then you better be careful how much that drug is billed, that you’re sending it to the right pharmacy.
Knowing your options
Stephanie, The Patient Story: That’s incredible. When you said sometimes cash is going to be cheaper than using insurance, would it have to be another party like GoodRx or Cost Plus Drugs or at the pharmacy itself?
Dr. Rajkumar: At the pharmacy. You could print out or show the GoodRx coupon or you could just do [it] online with Cost Plus. Many, many people are finding out that just going to Cost Plus Drugs and getting the generic might be much cheaper than paying the coinsurance and that shouldn’t be that way. It just doesn’t make sense.
Our healthcare system is very complicated and it is unnecessarily so.Dr. Rajkumar
Advice for patients and families
Stephanie, The Patient Story: This was a huge eye-opening conversation. Is there anything else you’d like patients and families to know?
Dr. Rajkumar: I just want patients and families to know, number one, people are taking notice and people are aware. I’m really, really happy that the law was changed. That caps their out-of-pocket expenses for Medicare. It caps the price of insulin for Medicare recipients to no more than $35 a month. We have capped any price increases due other than proportional to inflation. Unreasonable price increases cannot continue for Medicare drugs.
Negotiation will happen. There [are] people who are becoming aware that this is a problem and have decided we have to change. People like me, Patients for Affordable Drugs, [and] many others are now taking notice that the others in the system are not playing well — pharmacy benefit managers, wholesalers, pharmacies — and we have to advocate for reform in that area.
I am also very happy that people like Mark Cuban have taken it on themselves. When the CEO was talking at Mayo, he said they started with 12 drugs and within a year, they’ve got almost 1,000 drugs at prices that are lower than any pharmacy in the US. Then now, hopefully, they can negotiate with pharmaceutical companies and get insulin and brand-name drugs. We’ll have to wait and see.
I don’t have any inside information, but patients should be aware that, thankfully, things are changing and they’re changing for the better. As long as they are aware that prices can be varied and physicians are aware, then even within the current system, they can find a lot of drugs, including cancer drugs, that are affordable prices.
Stephanie, The Patient Story: The easiest way of comparing the prices [is] going to Cost Plus Drugs or GoodRx to see what the prices are at different pharmacies.
Dr. Rajkumar: Exactly. Then they can check what are they paying out of pocket with insurance. It’s complicated because they may have a deductible that they have to meet with the insurance company and they may say, “I’ll just pay the $250 because then after that, I don’t have to pay anything.” There [are] a lot of things. Our healthcare system is very complicated and it is unnecessarily so.
Stephanie, The Patient Story: Tackling it one day at a time, one thing at a time. Also with people, not just Mark Cuban, but like you. You’re a leader in the space and you have the ability to impact and pull ears. I appreciate you and I’m hoping that we can do more of the same here with The Patient Story.