In anticipation of objections to its proposal to include oral end-stage renal disease drugs currently covered under Medicare Part D in bundled payments for ESRD services, CMS offered an extensive justification for the action.

At issue, CMS says in its ¹ proposed ESRD prospective payment system rule, is what constitutes "renal dialysis services" as defined in the Medicare Improvements for Patients and Providers Act of 2008, which requires CMS to implement bundled ESRD payments by the beginning of 2011. CMS made the proposed rule available Sept. 15, and it is scheduled for publication in the Federal Register Sept. 29. Comments on the rule are due to CMS by Nov. 16.

The clause in question states that renal services include "other drugs and biologicals that are furnished to individuals for the treatment of end-stage renal disease and for which payment was (before the application of this paragraph) made separately under this title, and any oral equivalent form of such drug or biological."

In the proposal, CMS offered a rebuttal to public comments that might say the MIPPA clause only applies to oral equivalents of intravenously administered drugs.

"We interpret [this clause] as requiring the inclusion in the ESRD PPS payment bundle all drugs and biologicals that were separately billable prior to the implementation of MIPPA," the proposed rule states. "Therefore, we believe the ESRD PPS payment bundle would include all drugs and biologicals formerly separately payable under Medicare Part B and Part D. We recognize that an alternative reading ... with respect to the phrase 'and any oral equivalent form of such drug or biological' could be interpreted to limit the scope of the drugs and biologicals included in the bundle to only oral versions of injectables (or other non-oral routes of administration.)" However, the agency said it views the intent to mean all drugs.

Amgen already has said it will challenge the inclusion of oral drugs without an intravenous equivalent in the bundle on the grounds that it was not Congress' intent to include them, as well as the potential access issues that could result (² Also see "Amgen To Challenge Inclusion Of Oral ESRD Drugs With No I.V. Equivalent In Medicare Payment Bundle" - Pink Sheet, 16 September, 2009.).

CMS, in its anticipatory rebuttal to such claims, said that "the exclusion of oral drugs and biologicals for which there is no injectable equivalent (or other non-oral form of administration) from the ESRD PPS would defeat one of the very purposes of the new system - the inclusion of all renal dialysis services furnished to ESRD patients in a comprehensive payment bundle to which a reasonable payment amount can be attached empirically. In addition, the exclusion of oral drugs and biologicals for which there are no injectable (or other non-oral) version does not make sense from a payment policy perspective."

The agency adds that such an exclusion would result in the "gradual growth of excluded services from the ESRD PPS payment bundle, and the progressive erosion of the payment system, as new oral-only drugs and biologicals for treatment of ESRD emerge."

CMS identified 11 injectable drugs available under Part D as accounting for 99.7 percent of the claims for all injectable drugs furnished to ESRD patients, including epoetin alfa (Amgen's Epogen and Johnson & Johnson's Procrit ); darbepoetin alfa (Amgen's Aranesp ); calcitriol (Fontus Pharmaceuticals' Rocaltrol ); doxercalciferol (Genzyme's Hectorol ); paracalcitol (Abbott's Zemplar ); iron sucrose; sodium ferric gluconate; levocarnitine; alteplase recombinant; vancomycin; and daptomycin (Cubist's Cubicin ).

Drugs identified in the rule as being oral-only and currently covered by Part D include cinacalcet hydrochloride (Amgen's Sensipar ); lanthanum carbonate (Shire's Fosrenol ); calcium acetate (Fresenius Medical Care's PhosLo ); sevelamer hydrochloride (Genzyme's Renagel ); and sevelamer carbonate (Genzyme's Renvela ).

The questions on interpretation of congressional intent could be rendered moot depending on the outcome of the health care reform debate. Legislation in the House would put into law that oral-only drugs currently covered by Medicare Part D be included in any ESRD bundle (³ Also see "House Committee Will Cause Controversy by Bundling Oral Kidney Meds in Medicare Bill" - Pink Sheet, 23 June, 2009.).

Genzyme's Sales Could Suffer

The two companies that stand to be most affected by the inclusion of oral ESRD drugs are Amgen and Genzyme.

In a Sept. 16 research note, Robert W. Baird & Co. analyst Christopher Raymond said that the "inclusion of orals could spell big trouble for [Genzyme's] sevelamer franchise." Citing a survey of nephrologists by BioTrends, he said Renagel/Renvela "will lose the most market share" if phosphate binders ultimately are included in the bundle.

A Sept. 16 J.P. Morgan research note said that if oral drugs do survive to the final rule, "we would expect significant downside to Genzyme estimates. Indeed, the renal franchise is expected to contribute 22 percent of Genzyme's total revenues in 2009."

The impact on Amgen is not viewed as being as severe. Epogen and Aranesp have been the subject of continued reimbursement scrutiny in general and the bundling of these products has been anticipated. The company, however, could feel an impact on Sensipar.

Baird said the inclusion of orals "could pressure this moderately important franchise" to Amgen, while J.P. Morgan said Sensipar could see substitution from vitamin D therapy in a bundled environment.

Effect on ESAs Expected To Be Limited

On the erythropoiesis-stimulating agents front, Amgen may not see too much of a negative impact from this proposed rule, should it not change in its final form.

One of the key features of the bundling rule, which will reimburse dialysis facilities a base payment plus modifiers base on case-mix adjustments, is a "Quality Incentive Program" built around hemoglobin management.

In this case, ESAs will be used for anemia management and will focus on keeping levels at between 10 g/dL and 12 g/dL, the target hemoglobin levels found in FDA's labeling of ESAs. The QIP program will lower payments to facilities when the percentage of patients below 10 g/dL or above 12 g/dL exceeds national averages.

"As proposed, the QIP looks reasonably favorable to Amgen since it encourages the status quo," Deutsche Bank analyst Mark Schoenebaum said in a Sept. 16 research note. He notes that current physician practice targets those levels and the average is about 11.6 g/dL.

"This is far better than a 'hard cap' at 12 g/dL, which could have resulted in massive volume erosion, in our opinion," Schoenebaum continued. "However, we do expect some dose declines as clinics seek to minimize the number of patients over 12 g/dL (the average of 11.6 will likely decline) and some convert to subcutaneous dosing from I.V. (20-25 percent volume decline)."

J.P Morgan described the QIP setup as "better than expected" and putting "limited direct pressure on ESAs."

"The rules do not directly limit ESA utilization along the lines of a [national coverage determination]," J.P. Morgan continues. "With EPO utilization already having moderated in the past 18 months, we believe there is little direct pressure on ESA utilization."

ESA usage came under fire in the non-renal setting, resulting in a national coverage determination from CMS that limited their reimbursement (⁴ Also see "Medicare ESA Coverage Will Not Experiment With Clinical Trial Approach" - Pink Sheet, 6 August, 2007.).

Overall Objectives

CMS outlined the overall objectives of the bundled payment system in the proposed rule: eliminating incentives to overuse profitable separately billable drugs, particularly EPO; targeting of greater payments to ESRD facilities with more costly patients to promote both equitable payment and access to services; and the promotion of operational efficiency.

The agency added that the flexibility of a prospective payment system "could also increase desirable clinical outcomes, resulting in an enhanced quality of care."

As prescribed in MIPPA, the PPS would be phased in throughout a four-year period beginning in 2011. CMS will continue per-treatment reimbursement. The agency said it considered a monthly reimbursement scheme, but expressed concern that a monthly PPS "would provide no incentives for discouraging skipped treatments" and would require stringent monitoring systems. CMS said it might reconsider moving to a monthly payment per facility once the transition is complete.

- Gregory Twachtman ( ⁵ g.twachtman@elsevier.com )

CMS Defends Oral ESRD Drug Inclusion In Proposed Bundling Rule

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