New Medicare Benefit Is Likely to Be a Boon For Costliest Drugs

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New Medicare Benefit Is Likely to Be a Boon For Costliest Drugs

By Scott Hensley, The Wall Street Journal

February 24, 2004

Drug makers with the most expensive medicines stand to get the biggest boost when a Medicare drug benefit takes effect in 2006.

It's a matter of straightforward math and economics. Once Medicare extends drug coverage to millions of seniors, the move is expected to increase use of medicines across the board. And demand for the pricier drugs, currently beyond the reach of most uninsured senior citizens, is likely to rise the most.

"People with insurance for drugs not only use more prescriptions, but they also have more expensive prescriptions," says Frank Lichtenberg, a Columbia University health economist.

For uninsured seniors, it can be tough, yet possible, to scrape together $100 a month for Pfizer Inc.'s cholesterol-reducer Lipitor. But except for the most affluent seniors, coming up with $1,100 a month for Enbrel, Amgen Inc.'s rheumatoid arthritis treatment, is out of the question.
That is, until the new Medicare drug benefit goes into effect. As it happens, some of the newest and most effective medicines for diseases of the elderly, including drugs for osteoporosis, rheumatoid arthritis and cancer, are also the dearest, ranging in price from $7,000 to more than $20,000 a year. Under the new Medicare law, 95% of drug expenses above $5,100 would be covered. The expensive reality of the new benefit was underscored by President Bush's startling budget proposal, which this month raised the already hefty cost estimate for Medicare drug coverage by $134 billion to $534 billion over the next decade. Because HMOs and pharmacy-benefit companies are expected to develop competing drug plans, some of them could be even more generous than the law requires.

Still, the Medicare drug benefit could crimp demand from some patients, if their former employers end up dropping or reducing their drug coverage for retirees. Also, individual Medicare drug plans are expected to use tools, such as preferred lists, to contain costs and possibly limit choices of medicines. But on the whole, the new benefit is still likely to increase, not damp, sales of some expensive medicines.

There are some high-priced drugs already covered because of quirks in how Medicare currently is administered. These include some medicines that must be given by a doctor in an office, including many cancer drugs. Under the new Medicare provision, drugs that can be taken orally or injected by patients at home also would be covered.

Take the case of a category of medicines called injectable rheumatoid arthritis drugs. These medicines, with an annual market value of $3 billion, have transformed the lives of tens of thousands of patients with the degenerative joint disease.

Today, patients can inject themselves with Enbrel -- once or twice weekly -- or Humira, from Abbott Laboratories, North Chicago, Ill., every other week, to hold the disease in check. But these drugs, which cost at least $13,000 a year, aren't covered by Medicare. Johnson & Johnson's Remicade, infused during two-hour sessions in a doctor's office every eight weeks, is paid for by Medicare.

"Most Medicare patients who need an injectable drug for rheumatoid arthritis are currently given Remicade because it's covered," says Mark Schoenebaum, a biotech analyst with Piper Jaffray in New York. Although the drugs are similar, patient response and side effects can differ. But the prescription decision is often more economic than medical. "All things being equal I would more likely tend to use Enbrel than Remicade," says Leonard Serebro, a rheumatologist at Ochsner Clinic Foundation in New Orleans. But "right now, Remicade is basically the only game in town unless the patient has drug coverage" outside Medicare, he says. He expects the Medicare benefit will increase the use of rheumatoid arthritis drugs generally and that Enbrel will be the primary beneficiary of the change.

Another potential winner is Eli Lilly & Co.'s Forteo, an uncovered drug, which is the first to fight osteoporosis by triggering the growth of new bone. Merck & Co.'s Fosamax and Lilly's own Evista -- both pills also not covered by Medicare -- slow bone deterioration. But Forteo, approved by the Food and Drug Administration in Nov. 2002, reverses the process.

But the daily self-injections of Forteo can cost $7,000 a year and it hasn't caught on. About half of current Forteo patients are Medicare-eligible, an Eli Lilly spokesman says. The Indianapolis company hasn't yet estimated the number of Medicare-age women who might be candidates for Forteo after a Medicare benefit takes effect, he says. Sales of Forteo were just $65 million in 2003, less than a tenth those of Evista, which costs about $70 a month.

Lack of Medicare coverage is a major reason for Forteo's slow start, doctors say. "I've yet to prescribe Forteo," says Gary Manko, an internist in Reisterstown, Md., despite talking about it to several women who were prime candidates for the drug because they had particularly severe osteoporosis or had already failed treatment with other medicines.

Some expensive cancer drugs given as pills also could do well. Thalomid, a form of the infamous thalidomide, sold by Celgene Corp., Warren, N.J., often is used to treat symptoms of multiple myeloma. The white Thalomid capsules cost $10,000 per course of treatment, typically about six months.
Medicare will get an early peek at how the new drug benefit could affect patient's drug choices thanks to a $500 million test program set to start in a few months. In the trial run involving as many as 50,000 patients, Medicare would pay for currently unreimbursed medicines treating a range of conditions including cancer, multiple sclerosis and rheumatoid arthritis. This demonstration project aims to assess how leveling the playing field affects access to medicines, medical outcomes and cost-effectiveness.

Meanwhile, Johnson & Johnson, New Brunswick, N.J., says it doesn't expect its own arthritis drug, which is covered, will be hurt by the new Medicare provision: "Remicade is the market leader based solely on the clinical merits of the product. We believe Remicade will continue its market leadership."