ROCHESTER — The Minnesota House of Representatives hosted a "mini session" across Greater Minnesota this week, bringing District 22A Rep. Joe Schomacker, R-Luverne, and District 22B Rep. Rod Hamilton, R-Mountain Lake, to Rochester with the Health and Human Services Finance Committee.

At the Rochester campus of the University of Minnesota, the committee heard a presentation from Dr. Vincent Rajkumar of Mayo Clinic, who studies and treats multiple myeloma, a rare blood cancer. Rajkumar provided an overview of the problem with prescription drug prices.

"I am not an enemy of Pharma," Rajkumar said. "The problem is not just Pharma; it's the whole system."

He told the committee that every single new FDA-approved drug in 2017 cost a minimum of $100,000 per year. Myeloma drugs, as an example, cost a minimum of $250,000 per year, with a total of $22 billion spent just on prescription drugs for myeloma treatment in 2017.

Although he is admittedly among the top 1% of wage earners in the U.S., Rajkumar said he still worries that he may not be able to afford treatment if he were to get cancer.

Rajkumar explained the four reasons pharmaceutical companies give for why prescription drugs are so expensive:

  • High cost of development. It costs between $1 billion and 2 billion to create a new drug.
  • Cost-benefit analysis. The cost is worth it because the drugs save lives.
  • Market forces will decide, and the free market shouldn't be interfered with.
  • Price regulation will stifle innovation.

"The problem is, all of these four arguments are not quite true," Rajkumar said. "Independent analysis shows that it does not cost a billion dollars to develop a drug. Many, many of the cancer drugs that are approved don't work for a year or two, but they hardly work for a month or two — but yet they are priced at $100,000.

"And there are no 'free market forces,' he added. "It's not like the automobile industry or the telephone industry. There's only a monopoly, and there's a barrier to importation and a barrier to competition, so it's not really a free market.

"If you can make money if a drug works for a week, you can sell it for $100,000. Why innovate, when you can just make a 'me too' drug — a slight modification of your previous drug — and then sell it as a new drug that improves life? If we don't reward ... more benefit (with) more money, there is a problem."

Rajkumar also explained what he sees as an indisputable argument: "You can justify the high price at launch, but you cannot justify the price increase year after year of the same drug. That cannot be done. It's not like an improvement of the drug. It is like Apple selling the same old iPhone for 10 times the price now."

He then listed what he believes to be the real reasons why pharmaceutical drugs are so expensive. At the top of his list was circumstances — vulnerable people are willing to pay anything for life-saving drugs.

"They have to have it, and Pharma knows it," he said. He added that no law prevents pharmaceutical companies from charging whatever they want for prescription drugs.

Other reasons listed by Rajkumar included:

  • Monopoly. In many cases, Rajkumar noted, there is only one option for a given drug.
  • Patent evergreening. This happens when a drug company makes a tiny improvement to a drug and renews the patent, making some patents last more than a century.
  • Planned obsolescence. Periodically, a pharmaceutical company will convince doctors and patients that their drug is outdated and they need the new version — much the same way that consumers are convinced to buy the latest and greatest technology when their current devices work just fine.
  • Barriers to generic entry. Rajkumar cited barriers created by the FDA, by lawsuits from brand names and by payment offered by drug companies for generics to delay market entry.
  • Lock-step pricing. In most markets, competitors drive prices down as they vie for customers. In the pharmaceutical industry, it works the opposite way. If two companies make a similar drug, each drug will go up in price in the same amount on the same day.
  • Middlemen. There is a supply chain between the drug company and the patient.

"Everybody gets a percentage of the cost of the drug," Rajkumar said, "so it's in their best interest for the cost to be high. Except for the patient, everybody benefits from a high price."

He also provided three reasons for high prices that are unique to the U.S.:

  • Medicare cannot negotiate prices.
  • There's a ban on personal importation of drugs.
  • The reimbursement system rewards doctors financially for prescribing more expensive drugs.

Following the presentation, Hamilton told the committee, "What I wanted to hear were the possible solutions." He asked Rajkumar to discuss some of those.

Rajkumar proposed nonprofit pharmaceutical companies, Medicare negotiation, value-based pricing and legislation that requires price increases to be based on inflation.