Washington Editor

WASHINGTON - Officials at the Biotechnology Industry Organization are scheduled to sit down with member companies this week to pick through Senate and House Medicare reform bills to make sure their interests are protected before a combined piece of legislation makes its way to the president's desk.

While industry watchers appear pleased that both bodies have come up with a plan for prescription drugs, there still are a few sticky elements that BIO intends to shine light on.

For the industry, one of the key issues in both bills deals with the hospital outpatient prospective payment systems (OPPS). This payment system, administered by the Centers for Medicare and Medicaid Services (CMS), determines at what level drugs are going to be reimbursed in the hospital outpatient arena.

The matter gained headlines last fall when Thousand Oaks, Calif.-based Amgen Inc. said the government determined that its anemia drug Aranesp was "functionally equivalent" to Procrit, a similar product made by New Brunswick, N.J.-based Johnson & Johnson. (See BioWorld Today, Nov. 4, 2002.)

Outside of Amgen and J&J, others got their backs up when they got a look at that functionally equivalent element, not to mention proposed drops in reimbursement rates.

BIO has long stated that the government improperly included the functionally equivalent element without providing the mandated comment period for interested parties to respond to the proposal. Even though the rule became effective Jan. 1, BIO vowed to try its hand at educating lawmakers on the devastating impact it could have on companies. (See BioWorld Today, Jan. 2, 2003.)

And now, the two bills headed to a conference committee (where they will be merged into one) both contain some sort of language designed to remedy the situation, Sharon Cohen, BIO's vice president for government relations, told BioWorld Today.

Under the Senate bill, the government would not be able to use the functionally equivalent method to determine prices. The House bill is similar, except that it allows the government to use the method within certain parameters.

The whole concept of functional equivalence bothers Richard Pops, CEO of Cambridge, Mass.-based Alkermes Inc. and newly elected chairman of BIO's board of directors. Pops told BioWorld Today the matter is "chilling."

"The notion of functional equivalence should be quite alarming to anybody who is in the business of developing innovative new products because it essentially enables a bureaucrat to make a determination that drug A is functionally equivalent to drug B, but it doesn't specify the criteria under which the determination is going to be made," he said.

"I think the major point is that physicians should be making the determination of which drugs patients should be using, and not a bureaucrat viewing it solely through the prism of cost."

Even though both bills take up the issue and make an attempt to straighten it out, neither is retrospective, which takes us back to Amgen and J&J.

Neither company is terribly interested in discussing the issue on the record. In fact, Barbara Bronson Gray, a spokeswoman for Amgen, told BioWorld Today the company will reserve comment until the bills are reconciled.

Officials at J&J also were tight-lipped, referring BioWorld Today to the National Cancer Institute, of the Bethesda, Md.-based National Institutes of Health. The connection here is that the NCI agreed to conduct a head-to-head study of Procrit and Aranesp to determine whether they actually are functionally equivalent.

A spokeswoman at NCI told BioWorld Today the study hasn't started yet.

For the sake of an example, back in January when Pops and Thomas Scully, CMS's administrator, testified before a Senate subcommittee regarding reimbursement rates, Scully explained that CMS had a $19 billion cap on OPPS this year and if too much was spent in one area, other areas would suffer. In the Aranesp-Procrit situation, he said the government pays $1,422 per patient every two weeks for Aranesp, and $1,200 per patient every two weeks for Procrit. (See BioWorld Today, Jan. 31, 2003.)

However, CMS decided it would pay $720 per patient every two weeks for Procrit. Therefore, the government couldn't turn around and pay $1,422 for Aranesp, despite the fact that it had just been approved for a new indication that would have allowed it to be reimbursed at a higher rate for two years under the old rules.

Another issue raised in that January hearing dealt with the average wholesale price (AWP). Scully said government payments based on AWP are problematic because companies set the price - and the government pays it.

The Medicare bills might take care of that, too.

Cohen said the Senate version would reduce the benchmark for the AWP from 95 percent to 85 percent, whereas the House version would put in place a new mechanism in which there still is some reliance on the old structure, but moving toward a competitive bidding model.

"We're going to be working with the companies [this week] to sort of map out what we want in this arena," Cohen said. "So at this juncture we understand there's going to be change with respect to AWP, and we do have some principles today, but they are in the context of previous concepts. But most importantly, whatever is done, it should not impinge on beneficiary access and that the reimbursement be sufficient for acquisition of the product."

Also, each bill would establish a payment floor through which the price of the product could not drop.

In other areas of interest, the House version picks up on the generic issue that's touted as one of the fastest ways to get cheaper drugs to senior citizens. Like a recent FDA rule announced by the Bush administration, the House version closes loopholes in the Hatch-Waxman Act of 1984, legislation that created the generic drug industry.

Many large companies have been accused of stacking automatic 30-month extensions on patents as a method of delaying generic drugs from entering the market.

Bush's rule, scheduled to take effect Aug. 18, will limit those innovator companies to one 30-month patent extension per drug. The House version would allow one 30-month stay upon approval of a generic competitor. Also, the House bill would force generics to forgo their 180-day generic exclusivity if they do not bring a product to market within a specified time period.

In the area of bringing in FDA-approved drugs from Canada, the House bill would give Tommy Thompson, secretary of Health and Human Services, authority to allow reimportation, and gives the FDA power to regulate the flow from designated ports of entry.

Biologics, controlled substances and certain other drugs are exempted.