back

Support Global Action on Aging!

Thanks!

U.S. Limiting Costs of Drugs for Medicare

By Robert Pear

The New York Times, April 20, 2003

WASHINGTON, April 20 — In a fundamental change, the Bush administration has begun to weigh cost as a factor in deciding whether Medicare should pay for new drugs and medical procedures.

Most notably, in recent weeks, federal officials have adopted policies to limit what Medicare pays for prescription drugs. These actions, they said, set a significant precedent, illustrating how Medicare will try to control spending if President Bush and Congress agree on a plan to provide more extensive drug benefits to the elderly and the disabled.

The officials said they were not imposing explicit price controls, but stretching federal dollars to ensure that the government would be a prudent purchaser, a goal endorsed by health policy experts.

But drug industry executives have strenuously protested the administration's actions. The government, they say, lacks the legal authority, the expertise and the clinical data to make such decisions.

"Medicare officials are increasingly injecting questions about cost and cost-effectiveness into decisions about coverage," said Gordon B. Schatz, a Washington lawyer who specializes in health care issues.

The new approach is illustrated by these actions:

¶The federal official in charge of Medicare and Medicaid told doctors last month that they should not prescribe Nexium, a new heartburn drug, saying it was identical to an older drug, Prilosec, which became available in a cheaper generic form in December. The admonition infuriated executives of AstraZeneca, the maker of Nexium and Prilosec, who contend the new drug is superior.

¶Medicare refused to pay the full price for a new drug to treat anemia in cancer patients, saying it was "functionally equivalent" to an older drug with a lower price. Amgen, the maker of the new drug, Aranesp, contends that it is more effective than the older drug, Procrit, sold by Johnson & Johnson.

¶In deciding whether Medicare should cover a new test for colon cancer, the government said last month that it would analyze the cost-effectiveness of the procedure in detecting cancer among people with no symptoms. The government has rarely been so explicit about considering cost.

The Bush administration's aversion to regulating prices sometimes collides with its desire to save money for Medicare.

"We fix prices for every physician procedure and hospital visit," said Thomas A. Scully, administrator of the federal Centers for Medicare and Medicaid Services, who sets overall payment policy for the programs. "It would be much better to have private health plans make those decisions, but I try to be the best price-fixer I can be."

How to add drug benefits to Medicare is a huge issue for President Bush and Congress. Medicare now covers about 400 outpatient drugs, including certain cancer drugs and medications given to patients by injection or infusion in a doctor's office. Federal efforts to hold down spending on these drugs have provoked fierce disputes with the pharmaceutical industry, and such disputes are likely to become more common if Medicare provides comprehensive drug coverage.

A federal advisory committee said last month that Medicare should systematically weigh costs against benefits in deciding whether to pay for new drugs, medical devices and other technology. Medicare coverage decisions have an impact far beyond the federal program because private health insurers often follow the government's lead.

From April to December of last year, Medicare paid hospitals $3.89 for each microgram of Aranesp given to a Medicare patient for treatment of anemia in a hospital outpatient department. But this year the Bush administration cut the payment by 39 percent, to $2.37, after concluding that Aranesp was "almost identical" to Procrit and should be paid at the same rate.

"Both products use the same biological mechanism to produce the same clinical result, stimulation of the bone marrow to produce red blood cells," the government said. Medicare spends more than $1 billion a year on the two drugs in hospital outpatient departments and in doctors' offices. Doctors decide which drugs to prescribe, based on information from many sources.

Under the Medicare law, federal officials say, they have broad discretion to set drug payments for outpatients at whatever levels they consider equitable. Moreover, they say, drug companies have no standing to challenge such decisions in court because they are not among the intended beneficiaries of the Medicare law.

Amgen disagrees with those conclusions. It says that Aranesp is less expensive and more potent than Procrit, so patients do not have to visit the hospital as often for treatments. That is a significant advantage for patients who are elderly, disabled or terminally ill, Amgen says.

Moreover, drug companies say, the concept of "functional equivalence" cannot be found anywhere in the Medicare statute. They say coverage decisions should be made by the market — doctors, patients and private health plans — even when the government is paying the bills.

Alan F. Holmer, president of the Pharmaceutical Research and Manufacturers of America, said he was deeply troubled by the new standard of "functional equivalence" because it meant that Medicare might not pay for incremental improvements needed to achieve major advances in drug therapy.

"Such a policy will chill innovation," Mr. Holmer said.

Carl B. Feldbaum, president of the Biotechnology Industry Organization, said the administration had adopted the new standard without public notice or discussion. The chairman of the Senate Finance Committee, Charles E. Grassley, Republican of Iowa, and the senior Democrat, Max Baucus of Montana, said they shared that concern.

The government is also analyzing cost in deciding whether to cover the new test for colon cancer, developed by Enterix of Falmouth, Me.

The most commonly used screening test for colon cancer checks for traces of blood in stool samples. Enterix contends that its test is more likely to prevent cancer deaths because it is more accurate and easier to use.

But the new test, which uses more sophisticated laboratory procedures, is also more expensive. The company wants to charge Medicare $34 for each test, compared with Medicare's payment of $4.54 for the current test. On the other hand, Enterix says, its test is much cheaper than a colonoscopy, which can cost $500 or more.

The Bush administration surprised doctors last month when it bluntly stated its preference for Prilosec over Nexium as a treatment for heartburn.

At a convention of the American Medical Association, Mr. Scully told doctors, "You should be embarrassed if you prescribe Nexium," because it increases costs with no medical benefits.

"The fact is, Nexium is Prilosec," Mr. Scully said. "It is the same drug. It is a mirror compound."

Mr. Scully said he had no problem paying thousands of dollars a year for an innovative drug that saves lives, like Gleevec, for certain types of leukemia and gastrointestinal tumors. But he said, "Nexium is a game that is being played on the people who pay for drugs."

Medicaid, the federal-state program for poor people, covers most prescription drugs. But Mr. Scully told state Medicaid directors that "there's no reason in the world" to pay for Nexium, at a time when "drug prices are going through the roof" and many states are cutting Medicaid benefits and eligibility.

David R. Brennan, president of AstraZeneca in the United States, met with Mr. Scully on March 21 in an effort to answer his criticism of Nexium. Several doctors also took issue with the criticism.

"Mr. Scully is wrong in saying that Nexium and Prilosec are identical," said Dr. Joel E. Richter of the Cleveland Clinic, a former president of the American College of Gastroenterology. "Nexium is superior for some patients, particularly those with more severe forms of disease."