FDA and Medicare at Odds?

Legislative decisions to increase Medicare's formulary may lead to a fight over drug approvals.
Aug 02, 2008

Michelle Hoffman
Close observers of the pharmaceutical industry know that after technical and safety issues, the odds of a drug making it to market depend heavily on who will pay for the drug's use. This is why "go" or "no go" decisions at pharmaceutical firms take into consideration formularies and payment schedules of third-party payers. And many physicians are reluctant to prescribe some very effective medications if they know a patient's insurer won't pay for them.

With this in mind, we at PharmTech are keeping a close eye on federal budgetary resolutions that affect the Medicare program. One such resolution was made by Congress last month.

In mid-July, the president vetoed a bill that sought to cancel Medicare pay cuts to physicians. Instead, the bill cut payments under a program called Medicare Advantage, in which, explains Paul Krugman in his New York Times column (July 11, 2008), "Medicare funds are funneled through private insurance companies, rather than directly paying for care."

Following a dramatic appearance on the Senate floor of an ailing, postoperative Senator Edward Kennedy (D-MA), the Senate overrode the president's veto by 70 to 26. The House followed suit by a vote of 383 to 41. The consequences of the veto override are that physicians will not experience a pay cut, but private insurers participating in Medicare Advantage will.

President George W. Bush, in a July 15 letter to Congress explains that, while he supports the "primary objective of this legislation, to forestall reduction in physician payments," he believes that "...taking choices away from seniors to pay physicians is wrong." The curtailed choices he enumerates include "private health plan options." Medicare's accounting office, among others, believes this not to be the case. (A thorough explanation of the consequences of reducing payments to private insurers by the Center on Budget and Policy Priorities, a private nonprofit group, can be found online at: http://www.cbpp.org/5-10-07health.htm.)

A second concern of the president's is that the bill would "undermine the Medicare prescription drug program." And this confuses me. The bill in fact expands the classes of drugs covered by the Medicare program to include anti-anxiety drugs and sleep aids for patients suffering from conditions stemming from chronic mental health problems, cancer, or epilepsy.

And while I'm very happy to see any movement that treats mental illnesses more like other illnesses (The bill also reduces out-of-pocket costs for mental-health services to keep them in line with out-of-pocket payments for other illnesses), I also wonder about some of the more subtle reverberations of increasing the Medicare formulary. Increases in the Medicare formulary might ratchet up—just a bit—a contest that may be looming between Medicare and the US Food and Drug Administration.

This is an interesting potential tug of war that I've heard discussed only briefly at the moment, but could have a tremendous impact in the future on which drugs actually make it to market. As I noted above, reimbursement issues figure mightily in go—no go decisions. As the US population ages, Medicare is increasingly becoming the 800-pound gorilla among third-party payers and will have an indirect influence on which drugs get produced in the future. For example, if the Center for Medicare and Medicaid Services (CMS), the government department that administers the Medicare system, decides that it wants new drugs to be significantly more effective than existing drugs for the same condition, then efficacy will be an important determinant of whether the new drug makes it to market, and whether or not FDA approves it.

Close observers of the pharmaceutical industry are watching this particular contest very carefully. The drugs we all use and the ones you develop and manufacture may well depend on this tug of war.

Michelle Hoffman is editor-in-chief of Pharmaceutical Technology,