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Executive Summary

HCFA EPO REIMBURSEMENT POLICY ENCOURAGES LOW DOSE TREATMENT with recombinant erythropoietin (Amgen's Epogen), according to a final report from the HHS Inspector General. In a rebuttal to the Health Care Financing Administration's comments on an earlier draft report, the Inspector General's office maintained that "under the current reimbursement policy there is a strong incentive to treat more patients with a low dosage level of EPO (2,000 units and below) because of the profit incentive." The IG's final report continues to recommend that HCFA "eliminate the flat interim rate and establish a payment rate based on actual units of EPO administered up to a capped amount." This recommendation first appeared in a draft report submitted to HCFA on May 8. The initial recommendation was questioned by HCFA Administrator Gail Wilensky in a July 16 memorandum. "We are concerned that payment based on actual dosage could create incentives to provide more of the drug than is necessary and to provide it to more patients than require it," the memorandum states. IG's new report defends the recommendation as "consistent with HCFA's current reimbursement policies for other separately billable" drugs for end-stage renal disease. The document also contends that HCFA's current, interim reimbursement rate for EPO is based on three faulty assumptions regarding the average dose of EPO required per treatment, the method by which EPO would be dispensed, and the market penetration of EPO in its first year. In a review of the interim Medicare rates for EPO conducted in 19 fiscal intermediaries over the last year, the IG determined that "the average dose of EPO dispensed is approximately 2,700 units as opposed to the 5,000 estimated by HCFA from the clinical trial data"; that "multiple withdrawals of EPO are being dispensed from single use vials which enhances facility profits but is contrary to labeling instructions"; and that "the market penetration for EPO in its first year is around 50 percent as opposed to the initial estimate of 20 percent." The current EPO medicare reimbursement rate is a flat rate of $40 per treatment for all doses under 10,000 units. If these rates remain unadjusted, the IG report estimates that Epogen's unexpected market penetration could increase Medicare's expenses from a projected $125 mil. to as much as $330 mil. in the first year. Twenty percent of this increase will be absorbed by Medicare beneficiaries. The IG review also indicated that the administering of lower EPO doses and the practice of multiple withdrawals is providing dialysis facilities with gross profits in excess of 40% per treatment. First-year profits to these facilities could reach "in excess of 100 mil.," the final report states. To avoid incurring unnecessary costs, the IG report also recommends that HCFA discard plans mentioned in the July 16 memorandum for further analysis of first year EPO payments before adjusting reimbursement rates. The report notes that "any significant delay in adjusting the reimbursement rate will result in unnecessary payments of at least $80 mil. a year to the Medicare program and an additional $20 mil. to beneficiaries."



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