Amgen 2009 Annual Report Download - page 31

Individual market. The individual market covers part of the population that is self-employed or retired. In
addition, it covers some people who are unable to obtain insurance through their employer. In contrast to the
employer-sponsored insurance, the individual market allows health insurance companies to deny people coverage
based on pre-existing conditions although a newly enacted law prohibits denial of coverage based on genetic dis-
crimination. The plans are administered by private insurance companies. Individuals pay an out-of-pocket
insurance premium for coverage and benefits vary widely according to plan specifications.
Reimbursement of Our Principal Products
Aranesp®, Neulasta®and NEUPOGEN®.Medicare and Medicaid payment policies for drugs and bio-
logicals are subject to various laws and regulations. The Medicare program covers Aranesp®, Neulasta®and
NEUPOGEN®, under Part B, when administered in the physician clinic setting and the hospital outpatient and
dialysis settings and reimburses providers using a payment methodology based on a fixed percentage of each
product’s average sales price (“ASP”). ASP is calculated by the manufacturer based on a statutorily defined for-
mula and submitted to CMS. A product’s ASP is calculated and reported to CMS 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. CMS publishes the ASPs for products in advance of the quarter in which they go into effect. In the calcu-
lation of ASP, CMS currently allows manufacturers to make reasonable assumptions consistent with the general
requirements and the intent of the Medicare statute and regulations and their customary business practices and in
the future CMS may provide more specific guidance. Any changes to the ASP calculations directly affect the
Medicare reimbursement for our products administered in the physician clinic setting, dialysis facility or hospital
outpatient setting. Our ASP calculations are reviewed quarterly for completeness and based on such review, we
have on occasion restated our reported ASPs to reflect calculation changes both prospectively and retroactively.
(See “Items 1A. Risk Factors — Our sales depend on coverage and reimbursement from third-party payers.”)
Since January 1, 2005, in the physician office setting under Part B, our products have been reimbursed at
106% of its ASP (sometimes referred to as “ASP+6%”). As of January 1, 2009, Medicare payment in the hospital
outpatient setting reimbursed each product ASP+4% which is lower than the payment rate was in 2008
(ASP+5%) or from 2006-2007 (ASP+6%). In 2010, the payment methodologies in both the hospital outpatient
and physician office settings are at the same levels from 2009 (ASP+6% in the physician office setting and
ASP+4% in the hospital outpatient setting), pursuant to the 2010 Medicare Physician Fee Schedule Final Rule
and the 2010 Hospital Outpatient Prospective Payment Final Rule. CMS has the regulatory authority to further
adjust the outpatient hospital payment formula in future years. The extent to which commercial payers adopt the
use of ASP as a payment methodology is still evolving and is often based on the relationship between the pro-
vider and the insurer.
Dialysis Reimbursement. Currently, dialysis providers in the United States are primarily reimbursed for
EPOGEN®by Medicare through the ESRD Program. The ESRD Program reimburses Medicare providers for
80% of allowed dialysis costs; the remainder is paid by other sources, including patients, state Medicaid pro-
grams, private insurance, and to a lesser extent, state kidney patient programs. The ESRD Program
reimbursement methodology is established by federal law and is implemented by CMS. Medicare reimburses for
separately billable dialysis drugs administered in both freestanding and hospital-based dialysis centers, including
EPOGEN®and Aranesp®, at ASP+6%, using the same payment amount methodology used in the physician clin-
ic setting under Part B. On July 15, 2008, the Medicare Improvements for Patients and Providers Act of 2008
(the “MIPPA”) became law and contained a number of Medicare and Medicaid reforms, including a broader
payment bundle for dialysis services and drugs which will require CMS, beginning in 2011, to establish a bun-
dled Medicare payment rate that includes dialysis services and drug/labs that are currently separately billed. On
September 15, 2009, CMS released its proposed rule to implement the bundled prospective payment system for
ESRD. Under the proposed rule, the bundled payment system will include dialysis services covered under the
current composite rate, as well as drugs and biologicals furnished for treatment of ESRD that are currently billed
separately, including ESAs, intravenous iron and intravenous vitamin D, as well as “oral equivalent” forms of
these intravenous drugs. In addition, the proposed rule also includes in the bundled payment oral drugs that are
not equivalent to separately billable Part B drugs, specifically Sensipar®and phosphate binders. The public
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