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MONOCLONAL ANTIBODY PRODUCTS COULD ADD $475 MIL. TO MEDICARE EXPENDITURES

Executive Summary

MONOCLONAL ANTIBODY PRODUCTS COULD ADD $475 MIL. TO MEDICARE EXPENDITURES in fiscal 1994 assuming that FDA were to approve an antisepsis treatment by late 1993, according to an analysis contained in the March 1 annual Medicare Prospective Payment Assessment Commission report. The analysis reviews the potential financial impact of 18 "quality-enhancing, cost-increasing emerging" technologies on Medicare's inpatient hospital budget. The use of new monoclonal antibody treatments accounts for 55% of the estimated $871.8 mil. in anticipated added expenditures for the technologies. A background analysis on these technologies was prepared by Project HOPE under contract with ProPAC. ProPAC does not mention specific brandname products in its considerations, but the report's discussion of antisepsis monoclonal antibodies alludes to Centocor's Centoxin (HA-1A). While approval of a monoclonal antibody product for sepsis was expected in early 1992, both Centoxin and E5 from Xoma have since run into major hurdles to approval. Nonetheless, noting the absence of alternative treatments, ProPAC makes the "assumption the FDA will approve this therapy in late 1993." ProPAC's deliberations took place shortly before Centocor disclosed Jan. 18 that it had stopped its second Phase III trial of Centoxin due to excess mortality. The trial now has been scrapped (see following T&G). Xoma has said it is moving ahead with a second Phase III trial for E5. The analysis of emerging technologies is intended to help gauge the overall impact on Medicare from changes in science and technology. Noting that the "cost of monoclonal antibodies is a large component" of ProPAC's science and technology factor and the uncertainty of FDA approval, ProPAC decided to set the FY 1994 science and technology "allowance at 1% of total Medicare operating payments. This is higher than the estimate excluding monoclonal antibodies but lower than the estimate including their full cost impact." If the full cost was included, the allowance science and technology costs would be 1.5% of total Medicare expenditures. The $475 mil. in added expenditures from new monoclonal antibody sepsis treatments is Project HOPE's "best" projection, based on a low estimate of $450 mil. and a high estimate of $500 mil. According to Project HOPE's background report provided to ProPAC, an additional 120,000 to 125,000 sepsis patients could receive treatment in 1994 with an incremental cost per treatment of $3,750-$4,000. The utilization figures are based on estimates that Medicare enrollees probably comprise about 50% of patients diagnosed with sepsis each year and that new sepsis therapy will be given to 50% of the sepsis population in FY 1994. The annual report meets ProPAC's statutory requirement for updating Medicare's diagnosis-related group (DRG) payment system for fiscal 1994. Overall, ProPAC is recommending that payment rates be increased by hospital market basket inflation minus 0.6% for urban hospitals and inflation plus 0.9% for rural facilities. While the Health Care Financing Administration is not required to adhere to ProPAC's recommendations, it is required to address them in its annual DRG update regulations. "Emerging" technologies are defined as those that have diffused to at least 5% but no more than 75% of Medicare patients who are candidates for treatment with the technology. Project HOPE's cost estimates are in 1993 dollars and include effects of some technology substitution but not certain other costs, such as changes in length of hospital stay or DRG revisions. Other emerging pharmaceutical products targeted by ProPAC are ondansetron (Glaxo's Zofran) and thrombolytic therapies. Zofran is projected by Project HOPE to add $8.3 mil. in incremental costs to Medicare in 1994. "Ondansetron is already fully diffused as an anti-emetic therapy for chemotherapy," Project Hope comments in its background report. "However, approval of a supplemental indication, treatment of post-operative emesis, is expected to dramatically increase usage of the drug in FY 1994." Regarding thrombolytics, Project HOPE predicts wider use of these products for both acute myocardial infarction and peripheral vascular disease, with incremental added costs of about $22 mil. About 15,000 to 15,300 more AMI patients will receive these products in 1994 versus 1993, and about 55% will receive tissue plasminogen activator (Genentech's Activase) and the remainder streptokinase. About 450 additional patients will receive one of these therapies for peripheral vascular disease.
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