Aloxi Payment Cut By One-Third Under Medicare ASP Rule

MGI's anti-emetic Aloxi is among the products that will see the steepest payment cuts when the Centers for Medicare & Medicaid Services implements average sales price-based reimbursement for drugs covered by Medicare Part B in 2005.

Under the new ASP plus 6% formula for Medicare Part B drugs, CMS estimates that Aloxi (palonosetron) will be reimbursed at $202.51, down 34% from the 2004 rate of $307.80.

CMS unveiled its proposed regulation for the transition from average wholesale price-based regulation for Part B drugs to the average sales price formula July 27.

The proposed rule marks the first time that CMS has published actual pricing data derived from manufacturer reports of ASP.

With the regulation, the agency released projected 2005 payment rates for the 32 most used drugs under Medicare Part B, accounting for 90% of its $10.5 bil. expected drug spend for 2004 (see chart, p. 31).

However, the payment rates are preliminary since they are based on data provided by the manufacturers for the first two quarters of 2004. Final payment rates for 2005 will be updated based on third quarter ASP data (and any comments on the proposed rule).

The steep cut in Aloxi payments in part reflects the unusually high reimbursement rate for the drug in 2004.

Because Aloxi entered the market in 2003, the anti-emetic is being reimbursed at 95% of AWP for 2004, while most Part B drugs are reimbursed at 85% of AWP this year.

The reimbursement cut also reflects the unusually large "spread" between AWP and actual market prices for the brand. The current payment for Aloxi is based on an AWP of $324 per dose; the average sales price used for calculating the 2005 payment is $191.05, more than 40% lower than AWP.

Aloxi has performed well in its first year on the market. In July, MGI raised its sales projection to $140 mil.-$150 mil. for the full year following strong results from the first half.

The performance of the drug has not gone unnoticed by CMS. The agency included it in its list of Part B drugs even though it does not yet have a payment code or volume from 2003 "because it is the highest growth injectable antiemetic drug currently on the market."

Aloxi's one-third cut in reimbursement is far from the largest among Part B drugs. The inhalation therapies albuterol and ipratropium will see payment reductions of almost 90%; CMS is considering offering some form of "transition" payments to keep the nebulizer market functioning until the Part D benefit begins in 2006.

Two drugs used in the oncology setting, Bristol-Myers Squibb's Taxol (paclitaxel) and Novartis' Aredia (pamidronate), will see payments cut by 81% and 72%, respectively, reflecting the impact of generics on the overall pricing for the ingredient.

Among branded products, prostate cancer therapies, including AstraZeneca's Zoladex and TAP's Lupron , will see the steepest reductions. Those products have been the most commonly cited examples in discussions of the AWP "spread" in the Medicare market.

Amgen's Aranesp Medicare Part B reimbursement would be cut by 15% under the proposed regulation.

Aranesp (darbepoetin) is reimbursed at a rate of $21.20 per vial under the current average wholesale price based formula. For 2005, CMS projects that the anemia therapy would be reimbursed at $18.10 under the new formula of ASP plus 6%.

Amgen reassured analysts during its second quarter conference call that, while it remains concerned about the impact of ASP-based reimbursement in the marketplace, the issue should not significantly harm Aranesp due to its patient profile.

J&J's Procrit will also be reimbursed at a lower rate under the ASP formula, but CMS estimates that the amount would be reduced 11% ($10.37 per injection, versus $11.62 currently).

In the case of Aranesp and Procrit, the head-to-head battle between Amgen and J&J in the anemia market suggests that the ASP could fluctuate before the end of the year (¹ (Also see "J&J Is Proactive On Procrit Positioning Ahead Of Medicare Part B Changes" - Pink Sheet, 19 Jul, 2004.), p. 29).

Amgen's other Part B-covered products are not facing as significant a cut from current payment rates.

Neupogen (filgrastim) reimbursement will be essentially unchanged at $267.04 per 480 mcg injection, compared to the current rate of $267.79. The successor agent Neulasta (pegfilgrastim) will have reimbursement reduced by 10%, from $2,507.50 per 6 mg inj. to $2,260.77.

J&J has one other significant Part B product, the rheumatoid arthritis agent Remicade (infliximab). Payment will be reduced by 9% per vial from $58.79 to $53.32.

Bristol-Myers Squibb's Paraplatin (carboplatin), Lilly's Gemzar (gemcitabine) and Pfizer's Camptosar (irinotecan) will see payment cuts of 4%, 3% and 5%, respectively.

CMS raised the 2004 reimbursement rates for all three drugs in April after the manufacturers appealed the agency's initial decision to set rates below the standard 85% of AWP (² (Also see "Paraplatin, Gemzar Medicare Payments Will Increase April 1" - Pink Sheet, 22 Mar, 2004.), p. 9).

Not all Part B covered drugs will experience payment cuts in 2005: Genentech's Rituxan and GlaxoSmithKline's Hycamtin will be reimbursed at a higher payment rate under the ASP formula.

In 2005, CMS projects that Rituxan (rituximab) will be reimbursed $438.38, up 3% from the current AWP-based reimbursement rate of $427.28. Genentech predicted that Rituxan would benefit from the change to the ASP reimbursement model after its reimbursement rate for 2004 was cut to 81% of AWP.

Reimbursement for Hycamtin (topotecan) will increase 4% from its current rate of $706.17 to its ASP plus 6% rate of $731.46.

Other drugs that will experience reimbursement rate increases as a result of the new model include Novartis' Aredia-successor Zometa (4%), King's Adenoscan (5%) and Allergan's Botox (6%).

Several reimbursement rates remain essentially the same under the proposed ASP regulation. Fujisawa's Prograf will experience a 2% increase, up from $3.13 to $3.19. The rate for Roche's Cellcept is unchanged under the proposed rule.