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Executive Summary

EPO PURCHASING COSTS AVERAGE $28 PER TREATMENT AT DIALYSIS CENTERS, which is well below the $40 Medicare reimbursement rate for erythropoietin set last year, according to an Office of Technology Assessment report released May 25. The product acquisition cost per treatment is based on a survey of selected kidney dialysis centers between November 1989 and March 1990. When Medicare last year established coverage of erythroproietin for anemia in dialysis patients, reimbursement was set at $40 per treatment for doses of up to 10,000 units, with another $30 provided if more than 10,000 units are required. The payment is an add-on to the composite rate for dialysis treatment. No extra payment is provided for administrative services related to EPO treatment; such services are considered to be included in the composite rate. The payment level was based on the price for Amgen's recombinant erythropoietin Epogen and the preliminary estimate that the average patient would use 5,000 units of the blood product three times a week. However, Medicare claims data processed through February 1990 indicates that the dose per treatment at dialysis centers is averaging 2,700 units of erythropoietin. OTA reports that the treatment dose for EPO has ranged from fewer than 1,500 units to more than 10,000 units. Including those patient receiving more than 10,000 units, which generates the $30 additional reimbursement, the average Medicare payment is $41 per claim. In its report, "Recombinant Erythropoeitin: Payment Options for Medicare," OTA says that its survey found that "the selling price from wholesalers averaged $41 for the 4,000-unit vial. In March 1990, Amgen reported that its list price to wholesalers was $10 for 1,000 units." One dialysis facility studied by OTA had labor and supply costs averaging about $4 per treatment. If this is representative of other facilities' nonproduct costs, facility profits would average about $9 per treatment. However, the one facility reviewed had participated in clinical trials on EPO, and thus had "considerable experience" in administering the product, and did not include any portion of fixed overhead expenses in the $4, OTA notes. The congressional research agency also cautions that data "averaged from claims do not reflect the evolving nature of patient treatment and the dynamics of the patient population. Data from clinical studies suggest that the average dose for most patients may rise over time, at least during the initial phases of therapy." It adds, "Although clinicians appear to be initiating therapy at low doses, the amounts may rise as substantial numbers of patients fail to respond. Doses required to maintain hematocrits at the target level could be much lower, however." Folding EPO reimbursement in the composite dialysis rate would have "the greatest potential to constrain Medicare expenditures and beneficiaries [copayment] expenses," OTA says. "This option however, also contains the strongest incentive for providers to skimp on use, which could damage the quality of care that beneficiaries receive." Among other payment policy options, setting up a fee schedule based on units of EPO used "may contain moderate incentives encouraging use, with implications for expenditures and the quality of care. These drawbacks can be addressed, however, by judiciously setting payment levels and by monitoring use." While competitive bidding has been suggested. OTA notes that this is not viable approach unless competitor products -- such as Ortho's Eprex and Chugai-Upjohn's Marogen -- become licensed for use with renal failure patients. Several members of Congress have supported proposals to permit self-administration of EPO, which presently is prohibited by Medicare statutes. OTA comments that this changes likely would result in a "slight to moderate increase in use and higher costs to Medicare." The report does not indicate how many of the up to 18,000 home dialysis patients are now traveling to a dialysis facility or physician's office to receive EPO.

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