Wsj.com - as the medicare chief reins in costs, opposition grows

WSJ.com - As the Medicare Chief Reins In Costs, Opposition Grows Philip Held
From: Frank McCormick [[email protected]]
Subject: As the Medicare Chief Reins In Costs, Opposition Grows
July 16, 2003
As the Medicare Chief Reins
In Costs, Opposition Grows
Drug, Device Makers

Rue Scully's Decisions

WASHINGTON -- Tom Scully likens his job overseeing federal health insurance for the elderly and the disabled to the carnival game whack-a-mole. "When spending shoots up," he says, "you whack it down." More openly than his recent predecessors, Mr. Scully has trained a buyer's skeptical eye on pricey new treatments, from implantable heart defibrillators to novel cancer therapies. At a time when Congress is debating broad changes in Medicare, which covers nearly 40 million people, Mr. Scully has cast himself in a powerful central role: as the program's chief defender against an avaricious medical-industrial complex.
Amgen Inc. felt a whack last November. Mr. Scully issued a new rule under
which the company's anemia drug Aranesp was classified as "functionally
equivalent" to an older drug and thus not eligible for higher Medicare
reimbursement rates for innovative drugs used in hospital outpatient clinics.
The rule -- which Amgen says could ultimately cost it tens of millions of dollars
-- also has reduced Medicare payments for a number of other biotech drugs.
The industry has warned loudly that Mr. Scully is undercutting a crucial
incentive to find life-saving medications.
Unfazed, Mr. Scully, the country's single largest purchaser of health care, says, "We do the best we can to figure out the price we should pay, and that makes some people unhappy." Federal law doesn't give him clear authority to consider cost, but it doesn't clearly prohibit it either. A 1965 statute requires Medicare to cover items that are "reasonable and necessary," terms that have never been defined precisely. That leaves Mr. Scully room to maneuver.
"The fundamental issue I have, as a taxpayer," he says, "is that a lot of new drugs and devices are wonderful, but does that mean that someone should walk in and say, 'The Food and Drug WSJ.com - As the Medicare Chief Reins In Costs, Opposition Grows Administration approved this product, and this is the price I made up and you should pay for it'? I don't think so." In an administration that generally seeks to please business, Mr. Scully, a political appointee, stands out for his open and aggressive posture toward the health-care industry. A former private lobbyist for hospitals and budget official in the first Bush administration, the 45-year-old head of the Centers for Medicare and Medicaid Services has no background in medicine but oversees two programs that account for nearly one-third of the nation's $1.4 trillion health-care bill. Medicaid covers health benefits for the poor.
His battlefield could change significantly in the near future. Congress is considering proposals to add a broad prescription- of the ongoing Medicare debate, plus commentary and analyses. drug benefit to Medicare that would go well beyond existing coverage, which is limited to narrow categories of medicine. At the same time, lawmakers want to push more Medicare beneficiaries out of the traditional government-run program and into private health plans that would provide all of their health care, including drugs.
Over the past year-and-a-half, Mr. Scully decided that only a limited number of Medicare patients would be eligible to get new heart-shocking defibrillators that cost $30,000 each. He refused to cover an expensive drug-laser combination treatment for people with a type of incurable eye disease. And he declared that so-called radiopharmaceuticals, which use radioactive material to diagnose and treat illness, are procedures, rather than drugs. As a result, the treatments aren't eligible for the higher reimbursement rates for new drugs used in outpatient settings.
As a leading Bush administration advocate for Medicare overhaul, he has warned Congress that he will use his administrative authority to cut reimbursements for cancer drugs if lawmakers don't pass such restrictions. As currently worded, both the House and Senate versions of the Medicare-overhaul bill would reduce cancer-drug payments.
Before taking his current job, Mr. Scully worked as a lobbyist and trade-group official, representing some of the same large hospital companies, device makers and medical-specialty groups that have opposed his belt-tightening. Some congressional skeptics have questioned whether his past connections might compromise his government work. Mr. Scully responds that the opposite is true, saying of former clients, "I knew where they were hiding the money." He adds, "When they have a good argument, I'm open to it. When they have a bogus argument, I'm not." In March, he told an audience of physicians at an American Medical Association meeting in
Washington that they ought to be "embarrassed" to prescribe AstraZeneca PLC's pricey
heartburn drug Nexium, asserting that it is no better than the company's cheaper Prilosec. After
irritated company officials disputed Mr. Scully's statements in a subsequent private meeting with
him, he told the AstraZeneca representatives he would "lighten up on them," he says. Since then,
he has toned down his public comments on the issue. Company spokesman Jim Coyne says
AstraZeneca had a "very productive meeting," with Mr. Scully, explaining to him the differences
between Nexium and Prilosec.
A 53-year-old from Little Rock, Ark., Dean Cole, has become something of a symbol for drug companies and patient advocates trying to reverse Mr. Scully's decision last fall to pay less for certain drugs for rare diseases. Afflicted with dystonia, an unusual neurological disorder, Mr. WSJ.com - As the Medicare Chief Reins In Costs, Opposition Grows Cole says he got some relief from almost-constant cramping throughout his body from regular shots of botulinum toxin type A, one of the drugs for which Mr. Scully reduced reimbursement. Mr. Cole says his medical clinic has told him it can no longer afford to buy the dystonia medication. "I'm cramping all the time, and I get out of breath," the patient says.
"Give me a break," Mr. Scully says when told of the Cole case. The medication in question, while
approved to treat dystonia, is more commonly known as Botox and is marketed aggressively by
Allergan Inc. as a cosmetic treatment to smooth facial wrinkles. Botox isn't the sort of drug
Medicare should make a priority, Mr. Scully says. He adds that he is willing to reconsider
decisions on drugs for rare diseases but that he isn't familiar with Mr. Cole's situation.
Some doctors, hospitals and patient representatives accuse Mr. Scully of focusing excessively on cost. The decision on implantable defibrillators relied on criteria that "are not scientifically sound" and "will prevent thousands of heart patients from receiving" them, says Dr. Michael Cain, president of a heart-specialists organization.
Mr. Scully says that when making decisions on what to cover, he follows agency doctors' advice. He also says he embraces breakthrough technology that improves patients' lives, as Medicare did last year when it approved higher payments for a new drug-coated stent designed to keep arteries clear -- even before the device received FDA approval. "If there's a product that helps patients and saves lives, we're going to cover it, period," he says.
Supporters applaud his attention to pocketbook issues in an era of $70,000 heart pumps and $20,000-a-treatment cancer drugs. Bruce Vladeck, who had Mr. Scully's job early in the Clinton administration, says approvingly of Mr. Scully's decision on Amgen's anemia drug: "Why should you pay more for something that doesn't produce additional benefits?" Insurers and other big buyers of health care see Mr. Scully as an ally, welcoming his efforts to increase the role of private health plans in Medicare. He is a leading administration spokesman for the idea that to increase efficiency and reduce government bloat, Medicare ought to pay private companies to provide coverage for the elderly and disabled.
He's not a diplomat. In April, he told a roomful of seniors in Lancaster, Pa., that Medicare is "an unbelievable disaster" and a "dumb system." Democrats promptly used the remarks, first reported by the Los Angeles Times, to accuse the Bush administration of trying to strangle the popular program.
Mr. Scully now says in an interview that Medicare is "a wonderful program." He says earlier he was referring to the fact that Medicare covers only half of seniors' medical bills -- failing to pay for such things as most prescription drugs -- and is "a big, dumb price fixer" in a marketplace that would be better served if older people received insurance via competing private companies.
Incidents like this have fueled rumors that Mr. Scully won't last long in his job. His boss, Health and Human Services Secretary Tommy Thompson, even teases him occasionally in public: "Haven't I fired you yet?" So far, Mr. Scully's job seems safe. His ties to the Bush family trace back to a late-1970s college friendship at the University of Virginia with Marvin Bush, a brother of the president. After handling television press relations for the Bush-Quayle presidential campaign in 1988, Mr. Scully joined the White House budget office as its lobbyist and then as overseer of federal health WSJ.com - As the Medicare Chief Reins In Costs, Opposition Grows After the Democrats won the White House in 1992, he worked as a private lobbyist in Washington, and then from 1995 to 2001 as president of a trade group representing for-profit hospitals. To take his current $134,000-a-year job, Mr. Scully had to sell stock and other assets worth as much as $1.6 million to comply with federal ethics rules. He also resigned seats on the boards of Oxford Health Plans Inc. and DaVita Inc.
From the start, he landed in political hot water. In 2001, he helped write an administration proposal for a drug-discount card for seniors, outraging retail pharmacists, who feared their profits would be cut. When a representative of a pharmacists trade association asked him at a government briefing in July 2001 about the source of his authority to issue the cards, Mr. Scully replied: "God." Pharmacies succeeded in blocking the card after a federal judge in Washington ruled in January that the administration lacked authority to issue them. Mr. Scully defends the proposal -- which has resurfaced as part of the Medicare legislation pending in Congress -- but admits the administration may have rushed things.
In response to his critics in the biotech industry, Mr. Scully says he was worried that a few new, high-priced medications would break his 2003 budget for hospital-outpatient drugs, forcing him to cut rates for emergency care, mastectomies, colonoscopies and other services. This thinking explains his decision on the Amgen anemia drug. Johnson & Johnson, an Amgen rival that markets an older version of the drug, lobbied Mr. Scully heavily, saying that Amgen's product was just an update that shouldn't get higher payments. Robert Rubin, a kidney specialist at Georgetown University Medical Center who acted as a consultant to Mr. Scully, agreed that the two drugs produced the same effect in the body, Mr. Scully says.
The biotech industry has complained that the sort of reasoning used in this case would kill investment in biotech drug-development, because important, if incremental, improvements might not be reimbursed. Mr. Scully dismisses the reaction as industry "panic" and says he is open to reconsidering Amgen's argument that its Aranesp deserves a higher reimbursement rate because it is a better drug and it is given half as often as the rival drug.
But biotech companies, joined by big pharmaceutical makers, are pressing Congress to ban the kind of analysis Mr. Scully relied on in the Amgen episode and reverse many of the biotech-rate cuts.
Write to Laurie McGinley at [email protected] and Sarah Lueck at
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