AAMC Letter to Thomas Scully
on Medicare Drug Coverage
August 27, 2002
Thomas A. Scully
Administrator
Centers for Medicare and Medicaid Services
Department of Health and Human Services
200 Independence Ave. SW
Washington, DC 20201
Dear Administrator Scully:
Between 1996 and 2000, Medicare coverage was extended to
40 new drugs and spending for covered drugs rose by 125% per
beneficiary. The cost of these drugs is included in the Sustainable
Growth Rate (SGR) target and is a key contributor to the physician
payment cuts that the Centers for Medicare and Medicaid Services
predicts in the next decade. We are writing to request that
drugs be removed from the SGR system and to offer our assistance
in addressing any areas where there is credible data to suggest
that a particular drug is being over-used.
We have previously urged this Administration to remove drugs
from the expenses that are counted toward the SGR target.
Moreover, based on the attached opinion from a former General
Counsel and Deputy Administrator for your agency, we believe
that CMS has a legal obligation to do so. It is our understanding
that the Administration does not disagree that it has the
authority to take drugs out of the pool but is concerned that
doing so would remove incentives for physicians to exercise
restraint in the delivery of Medicare-covered drugs.
We strongly disagree with that position on two grounds. First,
given that drug spending rose by about 22% a year between
1996 and 2000, there is no indication that the inclusion of
drugs in the SGR inhibits growth in drug expenditures. Second,
we do not see any evidence that this growth was triggered
by the delivery of unnecessary drugs. Rather, it seems clear
that most of the drug expenditure increase during the period
in question stems from the development of new drugs, which
have improved the quality of life and increased the life spans
of Medicare beneficiaries.
In fact, much of the increase in drug spending can be traced
to government policies that encourage the rapid development
of new drugs, as well as government efforts to urge Americans
to be tested and seek early treatment for cancer and other
diseases. For example, appropriations for the National Cancer
Institute increased by 35% between 1997 and 2000 and Congress
expanded Medicare coverage to include several new cancer screening
tests that were promoted by both Secretary Thompson and his
predecessor.
Our own analysis suggests that drug expenditures have grown
not because of misuse, but because of innovations in the treatment
of cancer and arthritis, along with improvements in pain management,
enhanced use of screening benefits, rising incidence for some
cancers and modifications in clinical practice. Between 1996
and 2000, some 40 new drugs were introduced. Eight of the
15-most frequently used drugs in 2000 were either brought
to market or received FDA approval for expanded use after
1996. Three others saw expanded use because they countered
the side effects of new combined cancer therapies.
This trend is expected to continue into the foreseeable future
and in fact will be encouraged under a draft HHS strategic
plan that proposes to "accelerate private sector development
of new drugs, biologic therapies and medical technology."
As a result, CMS actuaries' projections assume that Medicare
expenditures for drugs will continue to rise more rapidly
than spending on physician services and will trigger additional
reductions in Medicare's physician payment rates. In effect,
physicians will be punished with lower payments if they provide
the very drugs the strategic plan is encouraging manufacturers
to produce.
While we are convinced that the vast majority of drug expenditures
can be traced to legitimate and laudable uses, we do not condone
the use of drugs where there is no therapeutic value. Physicians
have demonstrated time and again that they will respond when
presented with credible data. The undersigned medical organizations,
which provide 96% of Medicare-covered drugs, are committed
to working with the Administration to design targeted approaches,
such as education programs or guidelines, to address any areas
where there is a demonstrable overuse of particular drugs.
In return, we are requesting that CMS eliminate drugs from
the SGR pool. Any attempts to restrict the use of Medicare-covered
drugs should be accomplished with laser precision, not a blunt
approach. Rather than reducing payments for all services,
the Administration should encourage a more precise and effective
course that would analyze patterns of growth, identify root
causes, work with health professionals to eliminate any inappropriate
growth and engage in public debate regarding any limits on
appropriate services. We all share the goal of providing the
very best care possible to Medicare beneficiaries, and we
look forward to working with you to ensure that physicians
can continue to meet this goal in the future.
Sincerely,
American Academy of Family Physicians
American Academy of Neurology
American Academy of Ophthalmology
American Academy of Physical Medicine and Rehabilitation
American Association of Orthopaedic Surgeons
American College of Allergy, Asthma and Immunology
American College of Cardiology
American College of Obstetricians and Gynecologists
American College of Physicians-American Society of Internal
Medicine
American College of Rheumatology
American College of Surgeons
American Medical Association
American Medical Group Association
American Society for Therapeutic Radiology and Oncology
American Society of Anesthesiologists
American Society of Clinical Oncology
American Society of General Surgeons
American Society of Hematology
American Urological Association
Association of American Medical Colleges
Infectious Diseases Society of America
Joint Council of Allergy, Asthma and Immunology
Medical Group Management Association
Renal Physicians Association
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