Washington Editor
WASHINGTON - Amgen Inc.'s attempt to convince the U.S. government and court system that its anemia drug Aranesp is not "functionally equivalent" to Johnson & Johnson's Procrit reaches far beyond the revenues it could cost the company in lost Medicare reimbursements under the Outpatient Prospective Payment System.
That became apparent Thursday when Thomas Scully, administrator for the Centers for Medicare & Medicaid Services (CMS), went up against Richard Pops, CEO of Cambridge, Mass.-based Alkermes Inc., in a Senate hearing before the subcommittee on Labor, Health and Human Services, and Education.
In his testimony, Pops, who addressed the subcommittee on behalf of the Washington-based Biotechnology Industry Organization (BIO), said the new Outpatient Prospective Payment System (OPPS) reimbursement rule that went into effect Jan. 1 is "flawed" and "arbitrary."
Representatives of BIO have made no secret that they oppose sections of the rule because parts of the rule slash Medicare reimbursement (in the hospital outpatient setting) below the cost of new and innovative biotechnology drugs. They hope to influence lawmakers and have them change parts of the rule. (See BioWorld Today, Jan. 2, 2003; Dec. 27, 2002; and Nov. 11, 2002.)
But that's not all they oppose. BIO says CMS implemented the functionally equivalent standard without abiding by proper government procedure that gives interested parties the opportunity to comment on the issue as a proposal.
It's that functionally equivalent element that placed Aranesp and Procrit in the same reimbursement category. Prior to the new rule, Aranesp (approved in September 2001) would have been reimbursed as a new drug for two years at 95 percent of the average wholesale price (AWP) under the pass-through payment system. But CMS's classification of Aranesp as Procrit's equal forces Aranesp into a different category, thereby reducing the amount the government will pay for it.
In his prepared statement submitted into the record, Pops said of the functionally equivalent standard, "CMS has sent the message that even if a company develops an improved drug and even if the improvement saves money elsewhere in the health care system, the drug nonetheless may be reimbursed based on the agency's calculation of a comparable dose of another drug."
Amgen filed a complaint against CMS over this matter, but on Dec. 24 a District of Columbia judge dismissed the case, citing the company's lack of standing. (See BioWorld Today, Dec. 27, 2002.)
Scully said the functionally equivalent element is not new, nor is it arbitrary. "This is not a new rule; we've always had the authority. But this is the first time we've explained it," he said.
He continued, telling ranking member Sen. Arlen Specter (R-Pa.) that CMS has a cap of $19 billion to spend on OPPS this year, and obviously, if too much is spent in one area, other areas will 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.
However, CMS decided it would pay $720 per patient every two weeks for Procrit. "This has been a very unpleasant situation, but we determined that these drugs [Aranesp and Procrit] are functionally equivalent. We couldn't pay $720 for Procrit and then pay $1,422 for Aranesp - that would be double. If we paid that, then we would have to cut mammograms or colonoscopies."
When asked by Specter if he believes Aranesp and Procrit are functionally equivalent, or will produce the same result in a patient, Pops deferred such questions to clinical trial data or the doctors who prescribe the drugs.
He did, however, explain the value in prescribing an innovative drug such Alkermes' anti-psychotic candidate, Risperdal Consta. "The patient is injected every two weeks instead of taking a drug every day," he said. "Part of the problem in schizophrenia drugs is getting the patient to take the drug every day." (Risperdal Consta is being reviewed by the FDA.)
Scully said Tommy Thompson, secretary of Health and Human Services, reviewed the Aranesp-Procrit situation and agreed that the products are functionally equivalent.
But there's a bigger problem at hand, Scully said. "The tradition is, whatever the company says the drug costs, we pay."
Payments are based on the AWP, a practice Scully said is problematic. "Clearly, the wholesale price is exorbitant because the companies make them up - they tell us what the drug costs."
Scully said the CMS has proposed basing payments on the average manufacturing price, a nonpublished drug payment system used by Medicaid.