Medicare Begins Weighing Costs in Drug Decisions

April 21, 2003
The Bush Administration has begun to quietly weigh cost as a factor in deciding whether Medicare will pay for certain drugs and medical procedures. Most significantly, officials have adopted policies to limit what Medicare will pay for prescription drugs.

Drug company officials are said to be furious at what they see as illegal government price controls.

The actions are widely regarded as setting a precedent for how Medicare will attempt to control spending if Congress and the White House agree on a plan to provide prescription drug coverage to the elderly.

Medicare now pays for prescription drugs administered in hospitals and doctors' offices, including many cancer drugs. The new procedures mark the first time Medicare administrators have begun directing doctors to administer one drug over another for specific conditions.

For example, the New York Times reported that doctors were told last month that they should not prescribe a new heartburn drug, Nexium, because it is virtually identical to an older drug, Prilosec, which became available in a cheaper generic form recently.

In another instance, Medicare administrators said they would analyze the cost-effectiveness of a new test for colon cancer before deciding whether Medicare would pay for the procedure.

The new actions are in line with the recommendations of a federal advisory committee which said that Medicare should weight costs against benefits in deciding whether to pay for new drugs, procedures and devices.

The pharmaceutical industry strenuously opposes such oversight, saying the government does not have the legal standing to make decisions based on cost. But federal officials say the law gives them broad discretion to set payments at which levels they consider equitable -- and they say the drug companies have no legal standing to challenge such decisions because they are not among the intended beneficiaries of the Medicare law.

For years, the drug companies have quietly opposed federal funding of prescription drugs for Medicare beneficiaries, fearing that price controls would be a part of any such measure. The latest developments may represent a nightmare come true.