Amgen 2012 Annual Report Download - page 25

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as Sensipar® and phosphate binders, will continue to be reimbursed separately under the Medicare Part D benefit until they are
included in the bundled-payment system in 2016. Inclusion in the bundled-payment system may reduce utilization of these oral
drugs and have an adverse impact on our sales.
To encourage dialysis providers to continue to provide quality dialysis treatment under the new bundled-payment system,
CMS also implemented the ESRD QIP. Under the QIP, beginning in 2012, ESRD facilities are subject to a payment penalty of up
to 2% of amounts reimbursed for failure to meet or exceed CMS’s quality performance standards, including performance standards
related to anemia management and dialysis adequacy. In November 2011, following our June 2011 announcement of changes to
the labels for the use of ESAs in patients with CKD, CMS finalized a rule to update various provisions of its bundled-payment
system for dialysis services and the related ESRD QIP. The final rule eliminated for payment year 2013 and beyond one of the
QIP's measures that tracks the percent of a provider's Medicare patients with a Hb level below 10 g/dL. CMS indicated that removal
of this quality measure from the QIP was being done in response to the June 2011 ESA label changes. We believe that the
implementation of these various changes in the dialysis setting has resulted and could result in a material adverse impact on the
reimbursement, use and sales of EPOGEN® and on our business and results of operations. Data available through October 2012
indicates a stabilization of Hb levels.
ENBREL Reimbursement. The majority of prescription claims for ENBREL are paid through private insurance companies.
Under Medicare, ENBREL is reimbursed through the Part D program, although less than 10% of all ENBREL U.S. prescriptions
are reimbursed by Medicare.
Mandatory Government Rebates and Discounts
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. 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. The statutory definition
of AMP changed in 2010 as a result of the U.S. healthcare reform law, and in January 2012, CMS issued a proposed rule further
defining the new AMP definition. Until that rule is finalized, we are required to make reasonable assumptions when calculating
AMP. Once CMS’s proposed rule is finalized, we will have to determine whether our calculations should be amended and whether
we will 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 eligible 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.
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 (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.