Amgen 2007 Annual Report Download - page 26

Reimbursement
Sales of all of our principal products are dependent, in part, on the availability and extent of reimbursement
from third-party payers, including governments and private insurance plans. Generally, in Europe and other
countries outside the United States, the government sponsored healthcare system is the primary payer of health-
care costs of patients. Governments may regulate access to, prices or reimbursement levels of our products to
control costs or to affect levels of use of our products. Worldwide use of our products may be affected by these
cost containment pressures and cost shifting from governments and private insurers to healthcare providers or pa-
tients in response to ongoing initiatives to reduce or reallocate healthcare expenditures. Further, adverse events or
results from clinical trials or studies performed by us or by others or from the marketed use of our drugs may ex-
pand safety labeling for our approved products and may negatively impact worldwide reimbursement for our
products. On July 30, 2007, the CMS issued its Decision Memorandum and on January 14, 2008, issued changes
to its Medicare National Coverage Determinations Manual, effective for claims with dates of service on or after
July 30, 2007, with an implementation date of April 7, 2008. A complete discussion of the Decision Memo-
randum follows below. (See also “Item 1A. Risk Factors — Our current products and products in development
cannot be sold if we do not gain or maintain regulatory approval of our products and we may be required to per-
form additional clinical trials or change the labeling of our products or take other potentially limiting or costly
actions if we or others identify side effects after our products are on the market.” and “— Guidelines and
recommendations published by various organizations can reduce the use of our products.”)
Most patients receiving Aranesp®, Neulasta®and NEUPOGEN®for approved indications are covered by
government and/or private payer healthcare programs. Medicare and Medicaid government healthcare programs’
payment policies for drugs and biologicals are subject to various laws and regulations. Beginning in January 1,
2005 under the Medicare Prescription Drug Improvement and Modernization Act (the “MMA”), in the physician
clinic setting and January 1, 2006, in the hospital outpatient and dialysis settings, Aranesp®, Neulasta®and
NEUPOGEN®have been reimbursed under a Medicare Part B payment methodology that reimburses each prod-
uct at 106% of its average sales price (“ASP”) (sometimes referred to as “ASP+6%”). Effective January 1, 2008,
Medicare payment in the hospital outpatient setting reimburses each product at 105% of its ASP. ASP is calcu-
lated by the manufacturer based on a statutorily defined formula and submitted to CMS. A product’s ASP is
calculated on a quarterly basis and therefore may change each quarter. The ASP in effect for a given quarter (the
“Current Period”) is based upon certain historical sales and sales incentive data covering a statutorily defined
period of time preceding the Current Period. For example, the ASP based payment rate for Aranesp®that will be
in effect for the second quarter of 2008 will be based in part on certain historical sales and sales incentive data
for Aranesp®from January 1, 2007 through December 31, 2007. CMS publishes the ASPs for products in ad-
vance of the quarter in which they go into effect. In the United States, dialysis providers are primarily reimbursed
for EPOGEN®by the federal government through the End Stage Renal Disease (“ESRD”) Program of Medicare.
The ESRD Program reimburses approved providers for 80% of allowed dialysis costs; the remainder is paid by
other sources, including patients, state Medicaid programs, private insurance, and to a lesser extent, state kidney
patient programs. The ESRD Program reimbursement rate is established by federal law and is monitored and im-
plemented by CMS. Effective January 1, 2006, the payment mechanism for separately reimbursed dialysis drugs
in both free-standing and hospital-based dialysis centers, including EPOGEN®and Aranesp®, is reimbursed by
Medicare at ASP+6% using the same payment amounts used in the physician clinic setting. Beginning in the
third quarter of 2007, based on its ongoing assessment for payment of Part B drugs, CMS instituted a single
payment limit for Epoetin alfa (EPOGEN®and PROCRIT®). Although we cannot predict the payment levels of
EPOGEN®in future quarters or whether Medicare payments for dialysis drugs may be modified by future federal
legislation, a decrease in the reimbursement rate for EPOGEN®may have a material adverse effect on our busi-
ness and results of operations.
In addition, any changes to the ASP calculations directly affect the Medicare reimbursement for our prod-
ucts administered in the physician office, dialysis facility or hospital outpatient setting. These calculations are
regularly reviewed for completeness and based on such review, we have revised our reported ASPs to reflect cal-
culation changes both prospectively and retroactively. Partially as a result of our methodology changes, our ASP
reimbursement rate for EPOGEN®was reduced for the third quarter of 2007. Further, CMS has proposed re-
vising the methodology for calculating ASP to require the reallocation of price concessions sold under a
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