News | December 05, 2006

U.S. Should Merge Anemia Drug, Dialysis Costs: Report

Medicare, the U.S. insurance program for elderly and disabled Americans, should lump the price of anemia drugs with overall payments for kidney dialysis services to improve efficiency and contain costs, according to a government report released on Tuesday.

Medicare's method of paying separately for anemia drugs, primarily Amgen Inc.'s Epogen, and for dialysis services is a concern as use grows, the Government Accountability Office (GAO) said. Medicare covers about 43 million Americans and spent $2 billion on Epogen in 2005.

The report by the investigative arm of Congress was released ahead of a U.S. House of Representatives Ways and Means Committee hearing on Wednesday to discuss use of the drugs and growing government spending on dialysis patients.

Medicare has taken steps over the years to address its payment policy for kidney disease treatment, but lawmakers may need to intervene, the GAO said.

"The Congress should consider establishing a bundled payment system for all (end-stage renal disease) services, including drugs, as soon as possible," the GAO said.

Analysts have said they do not expect any major changes in reimbursement after the hearing. Still, attempts to curb Medicare payments could cause investor unease over Amgen, which gets nearly half its revenue from sales of two anemia drugs.

Critics have said the Medicare price structure drives up use of the drugs, and the program does not limit the dose doctors can administer with government reimbursement. Recent studies also linked higher doses of anemia drugs with heart-related complications.

Industry analysts have said bundling anemia drug reimbursement with dialysis payments would remove the profit incentive for doctors to use the drugs.

Currently, the U.S. Medicare program reimburses dialysis providers for Amgen's Epogen at the average sales price (ASP) plus a 6 percent premium. Under that formula, the higher a drug is priced, the more money doctors make.

"The ASP method relies on market forces to moderate manufacturers' prices, however, Epogen is the product of a single manufacturer and has no competitor products," the GAO said.

Medicare bundles drug prices with other costs for most other types of therapies it covers.

Separately, Centers for Medicare and Medicaid Services Acting Administrator Leslie Norwalk said the agency agreed such reforms would help promote efficiency and flexibility for dialysis centers.

Amgen's Aranesp, a longer lasting anemia drug, is not generally marketed to dialysis clinics, according to the GAO. Johnson and Johnson's Procrit drug also treats anemia in kidney patients but is not approved for those not on dialysis.

Shares of Amgen fell as much as 3 percent when news of the GAO report trickled out on Friday. They closed down 9 cents, or less than 1 percent on Tuesday after the report's release.

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