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Executive Summary

EPO MEDICARE COST ESTIMATE REVISED UPWARD TO $265 MIL. per year, the HHS Inspector General's office told a June 14 hearing on Medicare waste, fraud and abuse held by Rep. Stark's (D-Calif.) Ways & Means/Health Subcommittee. The cost is considerably above previous estimates by the Health Care Financing Administration. In May, HCFA estimated that Medicare payments for erythropoietin were annualizing at $190 mil. ("The Pink Sheet" May 14, T&G-2). The level is substantially above earlier IG cost projections. HHS Deputy Inspector General for Evaluation and Inspections Michael Mangano testified: "due to increased market penetration rates" of Amgen's Epogen, the IG revised its estimated annual cost of EPO from the original projection of $100 mil. to the current$265 mil. "EPO market penetration in the first year is about 50% as opposed to the initial estimate of 20%," Mangano explained. The subcommittee is looking at ways to cut or control Medicare payment for EPO. "Medicare, as virtually the sole purchaser of EPO, has a vested interest in paying a reasonable rate and getting its money's worth," Stark noted. Stark voiced his disappointment in Amgen's decision not to testify at the hearing. He stated that only two reasons could keep a company from appearing -- either the company was reaping an "unconscionable profit" or it was doing poorly -- implying that Amgen's case was not the latter. Stark previously has suggested that one way to cut the cost of EPO at the manufacturer's level would be to conduct an audit of the company records ("The Pink Sheet" June 11, p.8). The idea of an audit was supported by the IG representative Mangano, who pointed out that the IG would have subpoena authority to conduct such an audit, although it may take legislative action to expedite the process. Noting that EPO may be the "first of many pharmaceutical breakthroughs" where the government will act as a sole purchaser, Stark observed that Congress could set a precedent with EPO in requiring audits of the development costs of such products. The subcommittee also addressed reports from both the IG and the congressional Office of Technology Assessment which show that the average dose of EPO being used in dialysis centers is lower than HFCA's original estimate. "Our review shows that several of the key assumptions that were made in developing the interim payment rate are no longer valid," Mangano remarked. The OTA report found that the average dose of EPO being dispensed is 2,700 units, as opposed the 5,000 units estimated by HCFA from clinical trial data ("The Pink Sheet" May 28, T&G-2.) The discrepancy between HCFA's reimbursement rate of $40 per treatment for doses of up to 10,000 units and the actual doses being dispensed, which have averaged $28 per treatment, has led to an average gross profit margin to dialysis facilities in excess of 40%, the IG said. OTA estimates that dialysis center profits average $9 per treatment with EPO. National Renal Administrators Association President Mardee Hagen told the subcommittee that current EPO reimbursement does not assume any of the hidden costs to dialysis centers. The added costs include the requirement of professional staff to administer the drug, supplies like needles and syringes and laboratory services. One way dialysis centers have tried to cut costs is by taking multiple injections from one vial, not currently authorized by Epogen labeling; however, Hagen said Amgen has applied to FDA for multiple dosing of Epogen. Hagen said that a study sponsored by the NRAA on the cost to dialysis centers for EPO administration is underway. To eliminate the discrepancy between the estimated and actual cost of EPO administration, the IG recommended that reimbursement be based on the number of units used rather than the flat HCFA rate. A reimbursement system based on units, at the current dosage level, Mangano said, "could save Medicare $80 mil. annually." However, OTA representative Roger Herdman suggested to the subcommittee that "basing payment on the number of units administered...would almost certainly lead to higher doses per patient, without necessarily benefiting patients and perhaps harming them." OTA recommends, instead, that Medicare lower the fixed rate per treatment to dialysis centers. Nevertheless, Herdman said, "there is much to commend letting the percent of dialysis patients treated and the dosage stabilize before changing the method of payment."

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