WASHINGTON _ While most biotechnologymanufacturers focus on meeting clinical end points andother regulatory challenges meted out by the FDA, onebiotech consultant is urging them to expand theirhorizons and integrate a reimbursement strategy into theresearch and development phase of their products.

"It's never too early to begin asking questions about howhealth insurers will eventually pay for the product," saidGordon Schatz, a partner with the Washington law firmReed Smith Shaw and McClay. Schatz addressed a recentmeeting of the Food and Drug Law Institute (FDLI).

"While Epogen was still in the R & D stage, Amgen Inc.[Thousand Oaks, Calif.] gathered helpful clinical and costdata early on," Schatz told BioWorld Today.

"The corporation realized that they faced severe financialpressure because one targeted patient population forEpogen, kidney dialysis patients, is insured by Medicare,which pays for many services and treatments related todialysis under a composite rate. Knowing that thecomposite payment methodology would inadequatelyrecognize the added costs of Epogen, Amgen successfullyobtained Congressional passage of legislation in 1993that changed the way the Medicare payment rate iscalculated to incorporate the cost of the new drug,"Schatz said.

"Amgen's actions showed they were thinking down theline about how to accommodate the clear value of theirnew product," he added.

"Insurers are traditionally slow in identifying newemerging therapies and what to pay for them. Biotechfirms need to be efficient in the use of their clinical andregulatory resources" so that they can "coordinate FDAregulatory approvals with reimbursement" decisions fromhealth insurers, he said.

A Charge For Drugs During Trials?

Manufacturers should begin by asking the FDA forpermission to charge for a drug during the clinical testingphase, advised Schatz. "Insurers do make exceptions totheir general exclusion of investigational therapies. But ifa biotech firm has evidence that a drug works and it hasobtained approval from FDA to charge for the drug,"obtaining reimbursement may be more possible.

Reimbursement for off-label uses is a separate issue.Schatz recommended that a manufacturer "build its case"in order to convince an insurer to approve payment.

Schatz used Medicare's payment rules to show theintricacies of obtaining coverage for off-label uses.Medicare's payment rules, specified in it enabling statute,limit payment for only those services and items that arereasonable and necessary for the diagnosis and treatmentof illness.

Over the years Medicare has interpreted this policy tomean that the drug must be approved by FDA, althoughsome off-label uses can be covered. The drug's safety andeffectiveness must be documented and the provider mustshow the therapy is appropriate in "terms of where andhow the product is administered," according to Schatz.

Payment Policy Differs Among Insurers

A viable reimbursement strategy requires that amanufacturer understand the differences among insurersin terms of "their rules on what they will cover and thepopulations they insure." Medicare's coverage rules forbiologics are quite different from a managed care planand as well as Medicaid, Blue Cross and Blue Shieldtraditional insurance plans and commercial insurers,Schatz said.

Medicare payment depends upon a number of variablesincluding whether the drug itself is covered and the sitewhere the biologic is administered.

Medicare covers biologics under several categories. If thedrug is administered as part of an inpatient surgical ormedical procedure, then reimbursement will be includedunder a prospective, fixed payment called the DiagnosisRelated Group (DRG) rate.

If the therapy is delivered in a hospital outpatient service,the price would be calculated on the basis of a hospital'sreasonable costs. If administered in a physician's office,then the payment from Medicare would be the "lower ofthe estimated acquisition costs or the national averagewholesale price," he said.

These examples from Medicare's payment schemeillustrate how important it is for a biotech firm to researchnational and local coverage polices of the insurers if theyexpect to deal with them effectively, Schatz said.

He recommended that biotech companies expand thescope of their clinical trials to include an assessment thatthe patient's health status improved as the result of thetreatment. Clinical trials should also include data on therelative efficacy of the product and its cost effectiveness.

When negotiating with the FDA on labeling, amanufacturer should also think about how the labelingwill affect reimbursement decisions by insurers. Byspecifying the routes of administration and patientindications, the labeling can either hinder or enhanceattempts to obtain coverage.

Support for reimbursement can be built by circulatingarticles from scientific journals. "Provide customers withliterature to send to insurers and encourage articles whichaddress outcomes and cost effectiveness," Schatz said.

He urged manufacturers to consider installing toll-freehot lines that customers call to help them accuratelysubmit complete health claims to insurers. This could besupplemented with assistance to help customers respondto denials of claims with patient-specific medicalnecessity letters.

In addition, manufacturers should work with medicalspecialty societies, insurers and government agencies toinclude biotech therapies in treatment protocols forspecific conditions.

As a final caution, Schatz urged manufacturers to draw uptheir promotional campaign carefully so that they do notrun afoul of health insurance fraud and abuse laws, anti-kickback statutes, and state laws dealing with the practiceof pharmacy and consumer fraud. n

-- Michele L. Robinson Washington Editor

(c) 1997 American Health Consultants. All rights reserved.