- The Washington Times - Wednesday, April 30, 2003

The biggest obstacle to President Bush's plan to improve Medicare is the guy who runs the program right now. In his State of the Union address, the president said that no bureaucrat, trial attorney or HMO should make medical decision, that only doctors and patients should do so. Yet, Tom Scully, the director of the Center for Medicare and Medicaid Services (CMS) can't wait to extend the rationing and price controls, which now apply to doctors, hospitals, medical devices and some medicines, to every prescription drug.
Mr. Scully said in a recent New York Times article: "We fix prices for every physician procedure and hospital visit. It would be much better to have private health plans make these decisions, but I try to be the best price fixer I can be."
Maybe Mr. Scully should work for the Chirac administration. For, rather than finding important ways to move Medicare into the marketplace, he is adopting the French method of cost containment called reference pricing. Mr. Scully calls it "functional equivalence." The government first haggles over the cost of every new drug and then either pegs the price at the generic or lowest-priced version of a product that treats the same disease, whether they are similar or not in terms of how they work, their effectiveness or impact on total cost or well-being. Patients or hospitals have to pay the difference between the price of the new drug and the government-set reference price. Drugs without an approved price receive no reimbursement at all.
Indeed, Mr. Scully claims that these drugs are mirror images of each other, so why pay more, particularly when you can spend the money on other services. But as Columbia University Business School economist Frank Lichtenberg has shown, the more money you spend on new drugs, $4 for every $1 of new drug spending to be exact the more you save on those physician procedures and hospital visits Mr. Scully loves to price-fix.
Take the case of Nexium, a new drug used to treat ulcers, gastric reflux and oesophagitis. Mr. Scully says it's no different than a drug that went generic called Prilosec. Well, it's true Nexium is not a cure for cancer, but it is the first proton pump inhibitor to be developed as an isomer. And that means for people with super-high acid levels the kind that eat through your throat and lead to throat cancer Nexium produced significantly higher oesophagitis healing rates than its predecessor drug over all grades of oesophagitis. Esomeprazole also provided better control of heartburn and was associated with a greater proportion of patients with sustained resolution of symptoms. It also works more completely in a shorter period of time. Maybe generic Prilosec is cheaper in the short run, but over time, fewer doctor visits, faster healing and reduced surgery will probably outweigh Esomeprazole's costs.
But in the weird science of Mr. Scully's "functional equivalence," lawyers, not doctors, lobbyists, not scientists, politicians, not patients determine what drugs are used and paid for. Consider the street fight over Aranesp and Procrit, two biotech products made by Amgen and Johnson and Johnson respectively, that regenerate red blood cells blown away in the wake of chemotherapy or dialysis. Aranesp is a new biotech compound that allows blood cells to build up and stick around longer than other blood-boosting products: doctors can administer it once every 2-3 weeks instead of once a week. This can be cheaper and less taxing on patients. Mr. Scully ignored these properties and set the reimbursement level at one-third of Aranesp market price, claiming it was the same as Procrit. The companies that make the two drugs went to war, hiring lobbyists and lawyers to win Mr. Scully's favor. Now, the battle is headed to Congress.
And this is not the first time that an anti-anemia drug has been rationed by Medicare. Epogen, Amgen's first blood-boosting drug was also reimbursed in a such a way that dialysis centers were not using enough to raise blood cell counts to health levels. Again, Amgen had to hire lobbyists and lawyers to change the payment structure.
Mr. Scully is simply following the same path taken by Medicare bureaucrats of years past. He would have fit nicely in the Clinton administration, which sought to cut the payment for new cancer drugs by two- thirds. He is refusing to pay for cancer drugs that are being used effectively and regularly in the private sector. I asked Frank Burroughs of the Abigail Alliance a group that advocates for access to the best cancer care possible what he thought about current CMS approach. He agreed to allow me to share his response: "I recently sent a letter and email to Thomas Scully urging them to cover the FDA approved colon cancer drug Eloxatin (Oxaliplatin) that Thomas Scully and CMS are considering whether to cover or not. My reply from Thomas Scully via e-mail was, "Thanksmy docs are skeptical." The CMS is not the FDA, and has no business deciding the efficacy of drugs and treatments. The CMS has no business usurping doctors in treating patients in the best way doctors think they should be treated. "
President Bush agrees with you Frank. Too bad his Medicare director doesn't.

Robert Goldberg is director of the Manhattan Institute's Center for Medical Progress.

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