Medicare drug bill holds a little-noted revolution

The new Medicare drug benefit coming Jan. 1 has been in the news for its complexity and higher-than-expected cost. Senior citizens will have to study and then choose among a potentially confusing array of competing plans and options before signing up. Depending on their circumstances, some people could save substantial amounts on prescription drugs; others may save little or even pay more.

For some seniors, the decision will be a major one. But a much less publicized aspect of the Medicare Modernization Act could have a far-ranging, even revolutionary, effect on how drugs are judged for effectiveness and how they are priced.

Under Section 1013 of the act, the Agency for Healthcare Research and Quality (AHRQ) is empowered to research and evaluate drugs. The agency is also charged with widely disseminating that information in layman's language. The bottom line: Drugs that don't work well or that are much more expensive than alternatives are going to begin to stand out.

"The government is going to start asking about value," says Alexander Vachon, president of Hamilton PPB, a Washington consulting firm that tracks the implications of health-care legislation. With the federal government about to buy hundreds of millions of dollars of prescription drugs through the new Medicare program, the questions "Do the drugs work?" and "Are they cost-effective?" have gained new prominence in Washington.

"Where this becomes interesting is that Medicare is becoming such a big purchaser," Mr. Vachon says. After Jan. 1, Medicare purchases will account directly for 28 percent of all prescription drug sales in the United States. When co-payments by individuals or employer plans are included, Medicare will "leverage" 50 percent of the American drug market, he says.

Among its first actions, the AHRQ has contracted with 13 prestigious research centers around the US to find out what's known and not known about 10 conditions associated with the elderly, including cancer, diabetes, and osteoarthritis. "There is more we must learn about what really works most effectively and safely for our patients, especially for some of the most widespread and costly health conditions," said Mike Leavitt, the secretary of Health and Human Services, last month. HHS oversees Medicare and AHRQ.

"The major focus of [the AHRQ program] is on effectiveness, what works," says Carolyn Clancy, the director of the AHRQ. As more data on drugs and other therapies are available in digital form, "we're going to have data available that we haven't had before," she says, opening up an opportunity to learn from healthcare providers about what works and what doesn't. "This is an effort to organize information as well as recognize gaps where we need better information," she says.

The AHRQ project is "an incredibly promising sign," says Leif Wellington Haase, a healthcare fellow at The Century Foundation, a nonpartisan think tank in New York. "It's only very recently that questions of [drug] effectiveness, let alone cost effectiveness, have been studied by the government," Mr. Haase says. Some government entity needs to bring pressure to bear to make sure that "all the money that's going to be spent" on drugs through Medicare is well spent, he says.

In Europe, a government's health minister would require a drug company seeking to have a new drug included in a government program to show how much better it is than drugs that were already available, Haase says. Oddly, he says, even though government is involved, it's essentially a type of free-market discussion, where the intent is for the government "to get more bang for the buck."

In the current US healthcare system, "Those issues [of cost] tend to be sidelined," he says. The result is that "We're going to be paying hundreds of billions of dollars [in the Medicare drug benefit plan] for drugs that in many cases aren't going to work any more effectively than simpler drugs - less expensive drugs."

But the AHRQ project, called the Effective Heath Care Program, may be a harbinger of change, despite the fact that its modest $15 million budget won't allow it to conduct its own clinical trials on drugs. Still, by collecting and sharing information on what is known, it will help level the playing field. "You have [individual Americans] who don't know much [about their drugs], insurers who know a bit more, and drug companies who know a great deal," he says. "There's a lot of unequal power there."

The US Food and Drug Administration requires only that a new drug perform slightly better than a placebo, not better than existing drugs. Nor does it weigh the relative risks of a new drug properly against its benefits, said Dr. Jerry Avorn in an article in the New England Journal of Medicine last month. He's hopeful that Medicare's new role as the nation's largest drug buyer may change that.

"The ballooning cost of [Medicare] may bring together clinical scientists, advocates of prudent federal spending, and even free-market aficionados, all demanding more useful standards," he wrote. "The idea that government approval should be based on what a new drug really does for patients may soon come into its own."

With pressures to cut spending, Congress has begun looking hard at the Medicare drug provision. The Senate recently sent legislation to President Bush that would end Medicare payments for erectile dysfunction drugs such as Viagra, which by one estimate would save the government $690 million over five years.

Closer scrutiny of drug costs and benefits may have big implications for drug companies, creating new winners and losers. "That's what I keep telling folks," Washington consultant Vachon says.

"Down the line, if this really got off the ground, you'd have huge winners and losers" among drug companies, agrees Haase. "One hopes this is the wave of the future. Otherwise there's going to be a lot of [government drug] spending that isn't justified on clinical grounds."

Adds Vachon: "If we spend more for something to treat the same disease, are we in fact getting a better outcome or are we just spending money for a procedure? That's really at the heart of those 10 projects announced by AHRQ."