Amgen 2012 Annual Report Download - page 24

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Private Health Insurance
Employer-sponsored insurance. Employer-sponsored insurance currently represents the main pathway by which Americans
receive private health insurance. Many employers provide health insurance as part of 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 directly through a plan administered by a third party for all healthcare costs incurred by employees). 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.
Efforts to reduce health care costs are being made in the private sector, notably by health care payers and providers, which
have instituted various cost reduction and containment measures. Amgen expects insurers and providers to continue attempts to
reduce the cost and/or utilization of healthcare products including our products.
Reimbursement of Our Principal Products
Neulasta®, NEUPOGEN®, Aranesp®, Prolia® and XGEVA®. 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®, Aranesp®, Prolia® and XGEVA® (as well as certain of our other products, including Vectibix® and Nplate®) primarily
under Part B, when administered in the physician clinic setting and the hospital outpatient setting. Healthcare providers are
reimbursed for these products under a buy-and-bill process whereby providers purchase the product in advance of treatment and
then submit a reimbursement claim to Medicare following administration of the product. Medicare reimburses providers by 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 on
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; 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 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.
In general, drugs and biologicals provided in the physician clinic setting and in the hospital outpatient setting are reimbursed
under Medicare Part B at a certain percentage of their ASP (sometimes referred to as “ASP +X%”). The 2013 reimbursement rates
in both settings will be ASP +6%. The rate for the physician clinic setting is set by statute, but CMS has authority to adjust the
rate for the hospital outpatient setting annually. Commercial payers may use the government's ASP data in setting their payment
methodologies for drugs and biologicals provided in the physician clinic and hospital outpatient settings. The extent to which
commercial payers rely on the government's ASP data and the specific ASP +X% used is often based on the contractual relationship
between the provider and the insurer.
For fiscal years 2013-21, Medicare payment rates are scheduled to be affected by across-the-board budget cuts (referred to
commonly as “sequestration”) mandated under the Budget Control Act (the BCA) and revised by the ATRA, as explained more
fully below in Impact of Budget Control Act on U.S. Reimbursement. Under sequestration, CMS can reduce Medicare payments
to providers, including ASP-based reimbursement, by up to 2% per fiscal year.
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%, by 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 by establishing
a single payment for all dialysis services, including drugs, supplies and non-routine laboratory tests that had previously been
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 drugs without intravenous equivalents, such