Amgen 2011 Annual Report Download - page 36

employees’ benefit packages. Insurance plans are administered by private companies, both for-profit and
not-for-profit, and some companies are “self-insured” (i.e., they pay for all healthcare costs incurred by
employees directly through a plan administered by a third party). Generally, employer-sponsored insurance
premiums are paid primarily by employers and secondarily by employees.
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 employers. The plans are
administered by private insurance companies. Individuals pay out-of-pocket insurance premiums for coverage,
and the benefits vary widely according to plan specifications.
Reimbursement of Our Principal Products
Neulasta®, NEUPOGEN®and Aranesp®. Medicare and Medicaid payment policies for drugs and
biologicals are subject to various laws and regulations. The Medicare program covers our principal products
Neulasta®, NEUPOGEN®and Aranesp®(as well as certain of our other products including Vectibix®, Nplate®,
Prolia®and XGEVA®) under Part B, when administered in the physician clinic setting and the hospital outpatient
settings. Healthcare providers are reimbursed for these products under a “buy and bill” process where providers
purchase the product in advance of treatment and then submit a reimbursement claim to Medicare following
administration of the product. Medicare 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 formula 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 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 so
healthcare providers will know the applicable reimbursement rates. In the calculation 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, hospital outpatient setting and, to a lesser extent, the
dialysis facility setting. (See EPOGEN®and Dialysis Reimbursement.) 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 2005, products provided in the physician office setting under Medicare Part B have been reimbursed
at 106% of their ASP (sometimes referred to as “ASP+6%”), and in 2012 will continue to be reimbursed at this
rate pursuant to the 2012 Medicare Physician Fee Schedule Final Rule. In the hospital outpatient setting, from
2006 to 2010 Medicare reimbursement rates fell incrementally from ASP+6% to ASP+4%, then rose in 2011 to
ASP+5%. Pursuant to the 2012 Hospital Outpatient Prospective Payment Final Rule, the rate will fall again to
ASP+4% in 2012. CMS has the regulatory authority to further adjust formulas in future years. The extent to
which commercial payers adopt the use of ASP as a payment methodology is often based on the contractual
relationship between the provider and the insurer.
Dialysis Reimbursement. Currently, dialysis providers in the United States are reimbursed for EPOGEN®
primarily by Medicare through the ESRD Program, which is established by federal law and implemented by
CMS. Historically, the ESRD Program reimbursed Medicare providers for 80% of allowed dialysis costs; the
remainder was paid by other sources, including patients, state Medicaid programs, private insurance, and to a
lesser extent, state kidney patient programs. Until January 1, 2011, Medicare reimbursed for separately billable
dialysis drugs (including Aranesp®and EPOGEN®) administered in both freestanding and hospital-based dialysis
centers, at ASP+6%, using the same payment amount methodology used in the physician clinic setting under Part
B. On January 1, 2011, CMS’s bundled payment system went into effect for dialysis providers which provides a
single payment for all dialysis services including drugs, supplies and non-routine laboratory tests that were
previously reimbursed separately. ESRD providers receive a designated payment for each dialysis treatment and
can be paid for up to three treatments per week, unless medical necessity justifies more frequent treatments. Oral
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