A First Step on Drug Costs

When Thomas A. Scully, the federal director of Medicare and Medicaid, told a group of physicians in January that his agency, which already fixes prices for doctor and hospital bills in the programs, was going to start imposing a few cost controls on drugs, pharmaceutical companies acted as if their sky was falling. Scully was wildly “out of bounds,” said the industry’s preeminent lobbyist, the Biotechnology Industry Organization.

When Scully also said Medicare would no longer pay full price for a new drug, Amgen’s Aranesp, to treat anemia in cancer patients, because it was “functionally equivalent” to an older, cheaper drug, Sen. Charles E. Grassley (R-Iowa), who counts Amgen as a top campaign contributor, told Scully that the decision could deprive seniors of the “best possible health care.”

Similar outcry followed when Scully told doctors they should not bill Medicare for Nexium, a new heartburn drug, because it was identical to an older drug, Prilosec, available in generic form.

Now, the pharmaceutical lobby is backing a newspaper ad campaign called “Keep the Care in Medicare,” which depicts an elderly woman and portrays Scully’s drug standards as a threat to her health. The ad campaign debuts today in Louisiana’s Times-Picayune and continues next week in Capitol Hill-based newspapers.


Right now, Medicare pays only for inpatient prescriptions. What has drug companies worried is that if legislators ever add an outpatient prescription drug benefit to Medicare, the “functionally equivalent” standard would cost the drug companies billions. The alternative, however, would be to have the government paying those billions, bankrupting Medicare.

Right now, of course, it’s seniors themselves footing the outpatient bills. Americans now spend more than $140 billion on prescription drugs every year, and costs of drugs are rising at twice the rate of inflation.

Ideally, the Food and Drug Administration would tighten its standards for allowing new drugs on the market, requiring drug makers to prove a new drug’s superiority to existing medications rather than just to placebos. It would also encourage states and other large buyers to bargain for better prices. But barring systemic change, Scully’s “functional equivalence” is a practical start.