Medicare will reimburse Amgen's Aranesp at about 78% of AWP under a revised Hospital Outpatient Prospective Payment System rule.

Aranesp (darbepoetin alfa) will be paid at $3.88 per microgram in 2004, the Centers for Medicare and Medicaid Services said in the Dec. 31 ¹ OPPS interim final rule, a 64% increase over the 2003 payment rate of $2.37 (² 'The Pink Sheet' Jan. 5, 2004, In Brief).

The new rate is also a 20% increase over the 2004 payment rate of $3.24 CMS originally set under the OPPS rule published Nov. 7.

Under a "functional equivalence" standard asserted for the two products, CMS used a dose ratio of 330 units of Aranesp to one unit of Johnson & Johnson's Procrit to determine Aranesp payments (³ Also see "Procrit, Aranesp Reimbursement Adjusted; CMS Splits The Difference" - Pink Sheet, 10 November, 2003., p. 14).

CMS promulgated the new OPPS rule to implement changes to the overall OPPS payment methodology mandated by the recently enacted Medicare prescription drug legislation.

The law raises reimbursement for Procrit in the outpatient department setting to $11.76 per unit, a 29% boost over the 2003 OPPS rate.

CMS retained the 330:1 dose relationship to set Aranesp's new OPPS rate of $3.88.

The 2004 payment rate for Aranesp marks an ironic outcome to the controversy surrounding the "functional equivalence" issue.

Although the path was tortuous, CMS will end up reimbursing Aranesp at approximately the same rate it would have if it had never used the functional equivalence approach and simply granted Aranesp "pass-through" payment status.

Under the pass-through program, new biologics were to be reimbursed at 95% of AWP for at least two years before being folded into the OPPS system.

However, because the pool of money available to CMS was limited, the agency would likely have reduced the transitional payments to somewhere in the 75%-80% of AWP range (⁴ Also see "Aranesp, Procrit Are “Functionally Equivalent,” CMS Says In Final OPPS Rule" - Pink Sheet, 4 November, 2002., p. 27).

Although the OPPS setting represents a relatively small slice of the overall pharmaceutical market, the complexity and consequences of the reimbursement issues can be viewed as a harbinger of things to come as Medicare takes on a larger role in the pharmaceutical market.

There may also be a message in Amgen's ability to reverse most of the OPPS payment reduction for Aranesp. While Amgen is a relatively young pharmaceutical firm, it has one of the longest histories of navigating CMS reimbursement policies.

Under the new Medicare law, both Procrit and Aranesp are categorized as "sole source innovator" products.

The law divides all products that were first eligible for pass-through payments on or before Dec. 31, 2002 into three categories: sole source, multiple-source brands and generics.

The agency will pay 68% of AWP for multiple source innovator products and 46% for generics. With the exception of Aranesp, sole source innovator drugs will be paid at 88%-95% of AWP, with the exact amount depending on their prior reimbursement rate.

Because Procrit was previously reimbursed at less than 88% of AWP, it will now be reimbursed at 88%.

CMS said that although Aranesp would also be eligible for reimbursement at 88% of AWP under the new Medicare law, the agency was using its "equitable payment" authority (which was not affected by the law) to maintain the equivalence ratio between the two drugs.

Newer drugs (eligible for pass-throughs on or after Jan. 1, 2003) are not subject to the three-tier classification and will all be reimbursed at 85% of AWP.

CMS noted that several products appear to fall under two different payment categories: those that first qualified for pass-throughs on or before Dec. 31, 2002, but which are still eligible in 2004.

For those sole source drugs, CMS decided to use the 88% rate rather than 85%.

That decision will apply to Biogen Idec's Angiomax , Bristol-Myers Squibb's Definity , Wyeth's Protonix , Merck's Invanz , and Amgen's Neulasta .

CMS also made an exception to the new reimbursement methodology for GSK/Corixa's Bexxar . The agency said it could not find an AWP rate for tositumomab because it was not approved until June 2003 - after April 1, 2003 when the CMS collected the AWPs.

Therefore, CMS said it will make payments in 2004 for Bexxar as was originally set out in the Nov. 7 final OPPS rule: $2,260 for the diagnostic use and $19,565 for the therapeutic use, equivalent to the rates for Biogen Idec's Zevalin (⁵ Also see "Genzyme Cerezyme Medicare Outpatient Payment Set At 94% Of AWP" - Pink Sheet, 10 November, 2003., p. 16).

In addition to the hospital outpatient rule, CMS issued an interim final ⁶ rule on physician office payments Dec. 31 to reflect reforms to the AWP payment methodology under the Medicare bill. Procrit will be reimbursed at 87% of AWP under that rule; at least two percentage points higher than Aranesp (⁷ Also see "J&J Procrit Medicare Reimbursement Will Be 87% Of AWP Under Final Rule" - Pink Sheet, 5 January, 2004., p. 10).

An analysis by the Charles Schwab Washington Research Group indicates that the net impact of the changes will be to significantly increase reimbursement for hospitals while slightly reducing payments in the physician's office setting.

In most cases, that means hospital-based outpatient settings will go from receiving a significantly lower payment than physician-based payments to receiving a slightly higher payment.

AstraZeneca's Zoladex , for instance, will be paid at $413.59 in the outpatient setting (a 43% increase) and $375.99 in a doctor's office (down 16%) in 2004, according to the WRG report. In 2003, the rates were $290.06 and $446.49, respectively.

Similarly, CMS will pay for Amgen's Neupogen at $172.20 outpatient (up 57%) compared to $158.50 in a physician's office (down 15%).

“Functional Equivalence” For 2004: Aranesp OPPS Payment Is 78% Of AWP

More from Archive

More from Pink Sheet