Amgen 2010 Annual Report Download - page 58

Medicare for their medical coverage. Most of our products furnished to Medicare beneficiaries in both a physician
office setting and hospital outpatient setting are reimbursed under the ASP payment methodology. ASP-based
reimbursements of products under Medicare may be below or could fall below the cost that some medical providers
pay for such products, which would adversely affect sales of our products. We also face certain risks relating to the
calculation of ASP. ASP is calculated by the manufacturer based on a statutorily defined formula and submitted to
CMS. However, the statute, regulations and CMS guidance do not define specific methodologies for all aspects of
the calculation of ASP. For example, in the Medicare Physician Fee Schedule Final Rule for 2011, CMS did not
address a proposed methodology for treatment of bundled price concessions. Consequently, the current CMS
guidance is that manufacturers may make “reasonable assumptions” in their calculation of ASP consistent with the
general requirements and the intent of the Medicare statute, federal regulations and their customary business
practices. As a result, we are required to apply our judgment in certain aspects of calculating ASP which are
disclosed to CMS and also are subject to further CMS review. If our calculation of ASP is incorrect, we could be
subject to substantial fines and penalties which could have a material adverse impact on our results of operations.
Additionally, we are required to pay rebates to the federal government on products reimbursed by Medicaid at a rate
of 23.1% of the average manufacturers price (“AMP”) of a product, or if it is greater, the difference between the
AMP and the best price available to any non-government customer. The definition of AMP recently changed 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 apply our judgment in certain aspects of the AMP calculation. Once the CMS rule is issued, we
will have to determine whether our interpretation of AMP follows the rule or would need to be restated and this
could have a material adverse impact on our business and results of operations.
Other initiatives reviewing the coverage or reimbursement of our products could result in less extensive
coverage or lower reimbursement rates. For example, in July 2007, CMS issued an NCD where it determined that
ESA treatment was not reasonable and necessary for certain clinical conditions and established Medicare coverage
parameters for FDA-approved ESA use in oncology. Generally, an NCD is a national policy statement granting,
limiting or excluding Medicare coverage or reimbursement for a specific medical item or service. We believe the
restrictions in the 2007 NCD changed the way ESAs are used in clinical practice, for example, by decreasing the
number of treated patients, the average ESA dose and the duration of ESA therapy in the oncology setting. As a
result, we believe these restrictions have had a material adverse effect on the use, reimbursement and sales of
Aranesp», which has had a significant impact to our business.
The reimbursement of ESAs in the nephrology setting is also receiving attention. On March 24, 2010, CMS
held a MEDCAC meeting to examine the currently available evidence on the use of ESAs to manage anemia in
patients who have CKD and on June 16, 2010, CMS opened an NCA to examine the use of ESAs to manage anemia
in patients with CKD and dialysis-related anemia. This NCA initiates the process of reviewing and evaluating
potential changes in Medicare coverage policies for the use of ESAs in those patients and may result in the issuance
of a new NCD by CMS. The 30-day public comment period on the NCA ended on July 17, 2010 and CMS has stated
that the NCA process for ESAs will conclude on or before June 16, 2011, but CMS could propose a new NCD at any
time prior to that deadline. Additionally, on January 19, 2011, CMS held another MEDCAC meeting, this time to
review the available evidence on the impact of ESA use on renal transplant graft survival. This development
continues CMS’s process of reviewing and evaluating potential changes in Medicare coverage policies for the use of
ESAs in patients with CKD. We cannot predict if and when a new NCD will be issued or the details of any
potentially changed coverage decisions for the use of ESAs in patients with CKD, including whether or how a new
NCD could change CMS’s bundled payment system and/or the ESRD QIP. However, similar to the impact of the
2007 NCD on the use of ESAs in oncology, a new NCD around the use of ESAs to manage anemia in patients with
CKD and dialysis-related anemia may negatively affect use, coverage and reimbursement, and/or product sales of
our ESA products in the nephrology setting, which could have a material adverse effect on our business and results
of operations.
Further, the list of potential future NCDs issued by CMS in late 2008 included the category of thrombopoiesis
stimulating agents (platelet growth factors), the category of drugs that includes Nplate», and a discussion on
bisphosphonates used to treat osteoporosis. CMS has not announced whether it will proceed with an NCA related to
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