BioWorld Today Columnist

Anyone at Amgen Inc. can tell you what it's like to have your fate ruled by a government agency. While it's a bit of an overstatement to say that the company lives and dies by Medicare reimbursement policy regarding its erythropoietin drugs, it sure doesn't feel that way lately in Thousand Oaks.

Aranesp sales dropped 19 percent in the second quarter after the Centers for Medicare & Medicaid Services (CMS) reduced reimbursement rates. And now the FDA has backed CMS on its restricted payments, making a reversal of the decision that much more unlikely. Just more evidence that success in biotech is equal parts science and politics.

Against that backdrop, some biotech executives might feel that insult has been added to injury when they look at a recent report coming from the House Committee on Oversight and Government Reform.

The report, created by staffers at the request of committee Chairman Rep. Henry Waxman (D-Calif.) and 12 other Democrats, makes the case that the private-public partnership of Medicare Part D, the prescription drug benefit enacted during President Bush's first term, has resulted in as much as $15 billion in wasteful spending.

Using jealously guarded data that the committee only got by threatening to subpoena insurers, the report described a system in which manufacturers grant few real discounts, while private insurers waste reams of money on unwieldy, duplicative infrastructure and red tape. Part D drug prices, according to the report, are set using a fixed discount to average wholesale price (AWP) - usually 13.5 percent to 16.5 percent.

Because AWP is a list price set by the manufacturer, those pricing formulas leave both beneficiaries and taxpayers vulnerable to manufacturer price increases," the authors stated. "According to the Congressional Budget Office, AWP functions like a vehicle 'sticker price' and typically exceeds actual wholesale costs by over 25 percent."

Prices negotiated through insurers are no cheaper than those available to any consumer at discount outlets like Costco, Drugstore.com or Wal-Mart, they said. Their argument is essentially that the prescription drug plan would achieve lower costs under a wholly government-based, Medicare Part B-style system.

Of course, most biotech drugs are administered by a physician and are reimbursed under Medicare Part B (i.e., old-school, '65-vintage Medicare). But prescription drugs, including self-administered biologics, fall under Part D.

And, oh, it's so much better to be negotiating pharmaceutical sales with private insurers than going hat-in-hand to CMS! While big pharma apparently enjoys a program that brings in new patients at customary profit margins, poor old Amgen must tangle with the government bean counters running Medicare. It hardly seems fair, does it?

But wait - it gets worse. The Biotechnology Industry Organization released a statement Feb. 26 refuting claims similar to those in the Waxman report, stating that their own price survey, "compiled using publicly available information . . . found that Medicare Part D plans offer significant discounts on single-source therapies . . ."

While the Waxman report relied on surveys of 12 insurers covering more than 18 million Americans, BIO's survey relied on a sample of "25 single-source drugs and biologics, none of which are among the drugs most commonly prescribed to seniors, [which] represent the industry's latest innovative treatments for rare cancers, rheumatoid arthritis, HIV/AIDS and multiple sclerosis."

Holy cow! Should we take that to mean that biotech is giving up big discounts to Part D and big pharma isn't? If both reports are accurate and unbiased (and with one coming from an industry lobbying group and the others from Congressional staffers exclusively from one side of the aisle, how could they be anything else?), then it's hard to escape that conclusion.

Maybe all the industry's experience in navigating CMS hasn't translated well to the private sector. Or maybe the drugs BIO surveyed just have cushier margins. Either way, biotech may need to learn more about the art of price negotiation from its big pharma colleagues.

Expect the issue to become a big political football as the health care reform debate continues to heat up around the 2008 presidential election. Pharmaceutical companies may find themselves once again facing strong political pressure for stricter price controls. Back in 2004, there was considerable momentum to authorize reimportation of drugs exported to Canada - a fuzzy-headed plan that was dead before it even began. Major drug companies made it clear it was going to be Canada, not them, that would feel the pinch if reimportation became more than a minor nuisance. Anyone championing that proposal as a Band-Aid for high drug prices should have realized that off the bat; companies would simply stop or limit their Canadian exports.

And while they may not say it out loud, proponents of Part D's current structure might answer Waxman's report with a resounding, "Duh." Avoiding real price controls was what got the legislation off the ground in the first place. But can the industry continue to be as effective in fighting back price controls as it was during the Canadian reimportation debate?

It's hard to say. On the one hand, Big Pharma's biotech counterparts have proven that there are healthy profits to be made even when the government accounts for the vast majority of sales.

On the other, drugmakers start from a position of strength in that the serious presidential candidates all invoke private-public solutions when discussing large-scale health care reform. They won't want to argue too strongly for a government-only panacea, even for a small part of the plan.

Don't get me wrong - the status quo in which U.S. consumers continue to underwrite cheap drugs for the rest of the world is hardly appealing.

But one big flaw in the Waxman report is that it comes up with a savings of $15 billion by assuming in part that the government could negotiate discounts equivalent to those commanded by Medicaid.

Even under a theoretical all-public program, that's unlikely to happen - certainly not if the lobbyists on K Street have anything to say about it.

Still, maybe the folks at Amgen do have something to smile about. Medicare Part B is at least the enemy they know.