Amgen 2010 Annual Report Download - page 38

Prolia»Reimbursement
We estimate that the majority of potential U.S. Prolia»patients are covered under Medicare and the remaining
under commercial plans. Beginning in 2010, Prolia»has been reimbursed under Medicare Part B through the buy
and bill process. (See Reimbursement of Our Principal Products — Aranesp», Neulasta»and NEUPOGEN».) The
buy and bill reimbursement process for Prolia»has required, and is expected to continue to require, time to become
established, particularly among primary care physicians who may have limited experience using this reimburse-
ment process. We expect that U.S. Medicare Part D plans will begin to cover Prolia»in 2011 and that commercial
coverage will continue to expand as more commercial plans make their decisions about Prolia»coverage and
reimbursement.
Medicaid Reimbursement
Since 1991, we have participated in the Medicaid drug rebate program established in Section 1927 of the
Social Security Act by the Omnibus Budget Reconciliation Act of 1990 and subsequent amendments of that law.
Under the Medicaid drug rebate program, we pay a rebate to the states for each unit of our product reimbursed by
state Medicaid programs. As more fully described below, the new healthcare reform law enacted in the United
States in March 2010 made certain changes in how those rebates are calculated and to whom they must be extended.
(See U.S. Healthcare Reform.) The amount of the rebate for each of our products is currently set by law as a
minimum of 23.1% of the Average Manufacturer Price (“AMP”) of that product, or if it is greater, the difference
between AMP and the best price available from us to any non-government customer. The rebate amount is
determined for each quarter based on our reports to CMS of the quarter’s AMP and best price for each of our
products. The rebate amount also includes an inflation adjustment if AMP increases faster than inflation. As
described below, the statutory definition of AMP changed in 2010 as a result of the new U.S. healthcare reform law,
and we expect CMS to shortly issue a proposed rule further defining the new AMP definition. Until that rule is
issued, we will be required to make reasonable assumptions when calculating AMP. Once CMS proposed rule is
issued, and clarification is provided on the calculation of AMP, we will have to determine whether our reasonable
assumptions need to be amended to comply with the regulation’s definition of AMP, and whether we need to restate
our prior AMPs. The terms of our participation in the Medicaid drug rebate program impose an obligation to correct
the prices reported in previous quarters, as may be necessary. Any such corrections could result in an overage or
underage in our rebate liability for past quarters, depending on the direction of the correction. In addition to
retroactive rebates, if we were found to have knowingly submitted false information to the government, in addition
to other penalties available to the government, the statute provides for civil monetary penalties in the amount of
$100,000 per item of false information.
Related to our participation in the Medicaid drug rebate program is a requirement that we extend comparable
discounts under the Public Health Service (“PHS”) drug pricing program to a variety of community health clinics
and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate
share of Medicare and Medicaid beneficiaries. As more fully described below, the list of entities to which we are
required to extend these discounts also expanded as a result of the new healthcare reform law.
We also make our products available to authorized users of the Federal Supply Schedule (“FSS”) of the
General Services Administration. Since 1993, as a result of the Veterans Health Care Act of 1992 (the “VHC Act”),
federal law has required that we offer deeply discounted FSS contract pricing for purchases by the Department of
Veterans Affairs, the Department of Defense, the Coast Guard and the PHS (including the Indian Health Service) in
order for federal funding to be available for reimbursement of our products under the Medicaid program or purchase
of our products by those four federal agencies and certain federal grantees. FSS pricing to those four federal
agencies must be equal to or less than the Federal Ceiling Price (“FCP”), which is 24% below the Non-Federal
Average Manufacturer Price (“Non-FAMP”) for the prior fiscal year. The accuracy of our reported Non-FAMPs,
FCPs and our FSS contract prices may be audited by the government under applicable federal procurement laws and
the terms of our FSS contract. Among the remedies available to the government for inaccuracies in calculation of
Non-FAMPs and FCPs is recoupment of any overcharges to the four specified Federal agencies based on those
inaccuracies. Also, if we were found to have knowingly reported a false Non-FAMP, in addition to other penalties
available to the government, the VHC Act provides for civil monetary penalties of $100,000 per item that is
22