The cost of cancer drugs

The following is a script of "The Cost of Cancer Drugs" which aired on Oct. 5, 2014. Lesley Stahl is the correspondent. Richard Bonin, producer.

Cancer is so pervasive that it touches virtually every family in this country. More than one out of three Americans will be diagnosed with some form of it in their lifetime. And as anyone who's been through it knows, the shock and anxiety of the diagnosis is followed by a second jolt: the high price of cancer drugs.

They are so astronomical that a growing number of patients can't afford their co-pay, the percentage of their drug bill they have to pay out-of-pocket. This has led to a revolt against the drug companies led by some of the most prominent cancer doctors in the country.

Dr. Leonard Saltz: We're in a situation where a cancer diagnosis is one of the leading causes of personal bankruptcy.

Dr. Leonard Saltz is chief of gastrointestinal oncology at Memorial Sloan Kettering, one of the nation's premier cancer centers, and he's a leading expert on colon cancer.

Lesley Stahl: So, are you saying in effect, that we have to start treating the cost of these drugs almost like a side effect from cancer?

Dr. Leonard Saltz: I think that's a fair way of looking at it. We're starting to see the term "financial toxicity" being used in the literature. Individual patients are going into bankruptcy trying to deal with these prices.

"I do worry that people's fear and anxiety's are being taken advantage of."

Lesley Stahl: The general price for a new drug is what?

Dr. Leonard Saltz: They're priced at well over $100,000 a year.

Lesley Stahl: Wow.

Dr. Leonard Saltz: And remember that many of these drugs, most of them, don't replace everything else. They get added to it. And if you figure one drug costs $120,000 and the next drug's not going to cost less, you're at a quarter-million dollars in drug costs just to get started.

Lesley Stahl: I mean, you're dealing with people who are desperate.

Dr. Leonard Saltz: I do worry that people's fear and anxiety are being taken advantage of. And yes, it costs money to develop these drugs, but I do think the price is too high.

The drug companies say it costs over a billion dollars to bring a new drug to market, so the prices reflect the cost of innovation.

The companies do provide financial assistance to some patients, but most people aren't eligible. So many in the middle class struggle to meet the cost of their co-payments. Sometimes they take half-doses of the drug to save money. Or delay getting their prescriptions refilled.

Dr. Saltz's battle against the cost of cancer drugs started in 2012 when the FDA approved Zaltrap for treating advanced colon cancer. Saltz compared the clinical trial results of Zaltrap to those of another drug already on the market, Avastin. He says both target the same patient population, work essentially in the same way. And, when given as part of chemotherapy, deliver the identical result: extending median survival by 1.4 months, or 42 days.

Dr. Leonard Saltz: They looked to be about the same. To me, it looked like a Coke and Pepsi sort of thing.

Then Saltz, as head of the hospital's pharmacy committee, discovered how much it would cost: roughly $11,000 per month, more than twice that of Avastin.

Lesley Stahl: So $5,000 versus $11,000. That's quite a jump. Did it have fewer side effects? Was it less toxic? Did it have...

Dr. Leonard Saltz: No...

Lesley Stahl: ...Something that would have explained this double price?

Dr. Leonard Saltz: If anything, it looked like there might be a little more toxicity in the Zaltrap study.

He contacted Dr. Peter Bach, Sloan Kettering's in-house expert on cancer drug prices.

Lesley Stahl: So Zaltrap. One day your phone rings and it's Dr. Saltz. Do you remember what he said?

Dr. Peter Bach: He said, "Peter, I think we're not going to include a new cancer drug because it costs too much."

Lesley Stahl: Had you ever heard a line like that before?

Dr. Peter Bach: No. My response was, "I'll be right down."

Lesley Stahl: You ran down.

Dr. Peter Bach: I think I took the elevator. But yes, exactly.

Bach determined that since patients would have to take Zaltrap for several months, the price tag for 42 days of extra life would run to nearly $60,000. What they then decided to do was unprecedented: reject a drug just because of its price.

Dr. Peter Bach: We did it for one reason. Because we need to take into account the financial consequences of the decisions that we make for our patients. Patients in Medicare would pay more than $2,000 a month themselves, out-of-pocket, for Zaltrap. And that that was the same as the typical income every month for a patient in Medicare.

Lesley Stahl: The co-pay.

Dr. Peter Bach: Right. 20 percent. Taking money from their children's inheritance, from the money they've saved. We couldn't in good conscience say, "We're going to prescribe this more expensive drug."

"It was a shocking event. Because it was irrefutable evidence that the price was a fiction."

And then they trumpeted their decision in the New York Times. Blasting what they called "runaway cancer drug prices," it was a shot across the bow of the pharmaceutical industry and Congress for passing laws that Bach says allow the drug companies to charge whatever they want for cancer medications.

Dr. Peter Bach: Medicare has to pay exactly what the drug company charges. Whatever that number is.

Lesley Stahl: Wait a minute, this is a law?

Dr. Peter Bach: Yes.

Lesley Stahl: And there's no negotiating whatsoever with Medicare?

Dr. Peter Bach: No.

Another reason drug prices are so expensive is that according to an independent study, the single biggest source of income for private practice oncologists is the commission they make from cancer drugs. They're the ones who buy them wholesale from the pharmaceutical companies, and sell them retail to their patients. The mark-up for Medicare patients is guaranteed by law: the average in the case of Zaltrap was six percent.

Dr. Leonard Saltz: What that does is create a very substantial incentive to use a more expensive drug, because if you're getting six percent of $10, that's nothing. If you're getting six percent of $10,000 that starts to add up. So now you have a real conflict of interest.

But it all starts with the drug companies setting the price.

Dr. Peter Bach: We have a pricing system for drugs which is completely dictated by the people who are making the drugs.

Lesley Stahl: How do you think they're deciding the price?

Dr. Peter Bach: It's corporate chutzpah.

Lesley Stahl: We'll just raise the price, period.

Dr. Peter Bach: Just a question of how brave they are and how little they want to end up in the New York Times or on 60 Minutes.

That's because media exposure, he says, works. Right after their editorial was published, the drug's manufacturer, Sanofi, cut the price of Zaltrap by more than half.

Dr. Peter Bach: It was a shocking event. Because it was irrefutable evidence that the price was a fiction. All of those arguments that we've heard for decades, "We have to charge the price we charge. We have to recoup our money. We're good for society. Trust us. We'll set the right price." One op-ed in the New York Times from one hospital and they said, "Oh, okay, we'll charge a different price." It was like we were in a Turkish bazaar.

Lesley Stahl: What do you mean?

Dr. Peter Bach: They said, "This carpet is $500" and you say, "I'll give you $100." And the guy says, "Okay." They set it up to make it highly profitable for doctors to go for Zaltrap instead of Avastin. It was crazy!

But he says it got even crazier when Sanofi explained the way they were changing the price.

Dr. Peter Bach: They lowered it in a way that doctors could get the drug for less. But patients were still paying as if it was high-priced.

Lesley Stahl: Oh, come on.

Dr. Peter Bach: They said to the doctor, "Buy Zaltrap from us for $11,000 and we'll send you a check for $6,000." Then you give it to your patient and you get to bill the patient's insurance company as if it cost $11,000. So it made it extremely profitable for the doctors. They could basically double their money if they use Zaltrap.

"High cancer drug prices are harming patients because either you come up with the money, or you die."

All this is accepted industry practice. After about six months, once Medicare and private insurers became aware of the doctor's discount, the price was cut in half for everyone.

John Castellani: The drug companies have to put a price on a medicine that reflects the cost of developing them, which is very expensive and takes a long period of time, and the value that it can provide.

John Castellani is president and CEO of PhRMA, the drug industry's trade and lobbying group in Washington.

Lesley Stahl: If you are taking a drug that's no better than another drug already on the market and charging twice as much, and everybody thought the original drug was too much...

John Castellani: We don't set the prices on what the patient pays. What a patient pays is determined by his or her insurance.

Lesley Stahl: Are you saying that the pharmaceutical company's not to blame for how much the patient is paying? You're saying it's the insurance company?

John Castellani: I'm saying the insurance model makes the medicine seem artificially expensive for the patient.

He's talking about the high co-pay for cancer drugs. If you're on Medicare, you pay 20 percent.

Lesley Stahl: Twenty percent of $11,000 a month is a heck of a lot more than 20 percent of $5,000 a month.

John Castellani: But why should it be 20 percent instead of five percent?

Lesley Stahl: Why should it be $11,000 a month?

John Castellani: Because the cost of developing these therapies is so expensive.

Lesley Stahl: Then why did Sanofi cut it in half when they got some bad publicity?

John Castellani: I can't respond to a specific company.

Sanofi declined our request for an interview, but said in this email that they lowered the price of Zaltrap after listening "to early feedback from the oncology community and ... To ensure affordable choices for patients..."

Dr. Hagop Kantarjian: High cancer drug prices are harming patients because either you come up with the money, or you die.

Hagop Kantarjian chairs the department of leukemia at MD Anderson in Houston. Inspired by the doctors at Sloan Kettering, he enlisted 119 of the world's leading leukemia specialists to co-sign this article about the high price of drugs that don't just add a few weeks of life, but actually add years, like Gleevec.

It treats CML, one of the most common types of blood cancer that used to be a death sentence, but with Gleevec most patients survive for 10 years or more.

Dr. Hagop Kantarjian: This is probably the best drug we ever developed in cancer.

Lesley Stahl: In all cancers?

Dr. Hagop Kantarjian: So far. And that shows the dilemma, because here you have a drug that makes people live their normal life. But in order to live normally, they are enslaved by the cost of the drug. They have to pay every year.

Lesley Stahl: You have to stay on it. You have to keep taking it.

Dr. Hagop Kantarjian: You have to stay on it indefinitely.

Gleevec is the top selling drug for industry giant Novartis, bringing in more than $4 billion a year in sales. $35 billion since the drug came to market. There are now several other drugs like it. So, you'd think with the competition, the price of Gleevec would have come down.

Dr. Hagop Kantarjian: And yet, the price of the drug tripled from $28,000 a year in 2001 to $92,000 a year in 2012.

"They are making prices unreasonable, unsustainable and, in my opinion, immoral."

Lesley Stahl: Are you saying that the drug companies are raising the prices on their older drugs.

Dr. Hagop Kantarjian: That's correct.

Lesley Stahl: Not just the new ones. So you have a new drug that might come out at a $100,000, but they are also saying the old drugs have to come up to that price, too?

Dr. Hagop Kantarjian: Exactly. They are making prices unreasonable, unsustainable and, in my opinion, immoral.

When we asked Novartis why they tripled the price of Gleevec, they told us, "Gleevec has been a life-changing medicine ... When setting the prices of our medicines we consider ... the benefits they bring to patients ... The price of existing treatments and the investments needed to continue to innovate..."

[Dr. Hagop Kantarjian: This is quite an expensive medication.]

Dr. Kantarjian says one thing that has to change is the law that prevents Medicare from negotiating for lower prices.

Dr. Hagop Kantarjian: This is unique to the United States. If you look anywhere in the world, there are negotiations. Either by the government or by different regulatory bodies to regulate the price of the drug. And this is why the prices are 50 percent to 80 percent lower anywhere in the world compared to the United States.

Lesley Stahl: Fifty percent to 80 percent?

Dr. Hagop Kantarjian: Fifty percent to 80 percent.

Lesley Stahl: The same drug?

Dr. Hagop Kantarjian: Same drug. American patients end up paying two to three times more for the same drug compared to Canadians or Europeans or Australians and others.

Lesley Stahl: Now, Novartis, which makes Gleevec, says that the price is fair because this is a miracle drug. It really works.

Dr. Hagop Kantarjian: The only drug that works is a drug that a patient can afford.

The challenge, Dr. Saltz at Sloan Kettering says, is knowing where to draw the line between how long a drug extends life and how much it costs.

Lesley Stahl: Where is that line?

Dr. Leonard Saltz: I don't know where that line is, but we as a society have been unwilling to discuss this topic and, as a result, the only people that are setting the line are the people that are selling the drugs.