Amgen 2011 Annual Report Download - page 38

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 incorrect. Finally, we are required to disclose in our FSS contract proposal
all commercial pricing that is equal to or less than our proposed FSS pricing, and subsequent to award of an FSS
contract, we are required to monitor certain commercial price reductions and extend commensurate price
reductions to the government, under the terms of the FSS contract Price Reductions Clause. Among the remedies
available to the government for any failure to properly disclose commercial pricing and/or to extend FSS contract
price reductions is recoupment of any FSS overcharges that may result from such omissions.
U.S. Healthcare Reform. In March 2010, the Patient Protection and Affordable Care Act (the PPACA) and
the companion Health Care and Education Reconciliation Act, which made certain changes and adjustments to
the PPACA, primarily with respect to the PPACA’s financial and budgetary impacts, were signed into law. We
refer to those two laws collectively as the “U.S. healthcare reform law.” The U.S. healthcare reform law imposes
additional costs on and reduces the revenue of companies in the biotechnology and pharmaceutical industries.
The following paragraphs describe certain provisions of the new healthcare reform law that are affecting and will
affect the reimbursement of our products.
The U.S. healthcare reform law increased the rebates we pay to the states for our products that are covered
and reimbursed by state Medicaid programs. The healthcare reform law increased the minimum base Medicaid
rebate rate payable on our products reimbursed by Medicaid from 15.1% to 23.1% of the AMP of the product, or
if it is greater, the difference between the AMP and the best price available from us to any non-government
customer. The change in the minimum rebate percentage was effective on January 1, 2010. The healthcare reform
law also extended the Medicaid drug rebate program to patients in Medicaid managed care insurance plans for
whom rebates were not previously required. The extension of rebates to patients in Medicaid managed care plans
was effective on March 23, 2010.
As mentioned above, the U.S. healthcare reform law also expanded the list of provider institutions to which
we must extend discounts under the PHS 340B drug pricing program. The U.S. healthcare reform law added
certain cancer centers, children’s hospitals, critical access hospitals and rural referral centers to the list of entities
to which these discounts must be extended. This change to the list of eligible entities was effective on January 1,
2010. The U.S. healthcare reform law also imposed a new fee (the U.S. healthcare reform federal excise fee) on
manufacturers and importers of “branded prescription drugs,” which includes drugs approved under section
505(b) of the Federal Food, Drug, and Cosmetic Act or biologicals licensed under section 351(a) of the Public
Health Service Act. Beginning in 2011, the U.S. healthcare reform law sets an aggregate annual fee, to be paid by
these manufacturers and importers, totaling $28 billion over 10 years, of which $2.5 billion was payable in 2011.
This annual fee is apportioned among the participating companies, including us, based on each company’s sales
of qualifying products to, and utilization by, certain U.S. government programs during the preceding calendar
year. The additional fee became effective January 1, 2011, and is not deductible for U.S. federal income tax
purposes. Manufacturers and importers of generic or biosimilar drugs are not subject to the fee.
Since the Medicare Part D drug benefit took effect in 2006, beneficiaries enrolled in Part D plans have been
required to pay 100% of their prescription drug costs after their total drug spending exceeds an initial coverage
limit until they qualify for catastrophic coverage. This coverage gap is sometimes referred to as the Part D
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