Amgen 2007 Annual Report Download - page 46

includes an inflation adjustment if AMP increases faster than inflation. The PHS pricing program requires that
we extend discounts comparable to the Medicaid rebate to a variety of community health clinics and other enti-
ties that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of
Medicare and Medicaid beneficiaries. The rebate amount is determined for each quarter based on our reports of
the quarter’s AMP and best price for each of our products to the CMS. The terms of our participation in the pro-
gram 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 direc-
tion 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. Under the Medicare program
our products are reimbursed under a Medicare Part B payment methodology that reimburses each product at
106% of its ASP (sometimes referred to as “ASP+6%”). ASP is calculated by the manufacturer based on a statu-
torily defined formula and submitted to CMS and similar civil monetary penalties apply for knowingly
submitting false information. (See “Item 1A. Risk Factors — Our sales depend on payment and reimbursement
from third-party payers, and, to the extent that reimbursement for our products is reduced, this could negatively
impact the utilization of our products.”)
We also make our products available to authorized users of the Federal Supply Schedule (“FSS”) of the Gen-
eral 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 these four federal agencies and certain federal grantees. FSS pricing to these 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 pro-
curement 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 Fed-
eral 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 reduc-
tions to the government, under the terms of the FSS contract Price Reductions Clause. Among the remedies
available to the government for any failure properly to disclose commercial pricing and/or to extend FSS contract
price reductions is recoupment of any FSS overcharges that may result from such omissions.
We are also subject to regulation under the Occupational Safety and Health Act, the Toxic Substances Con-
trol Act, the Resource Conservation and Recovery Act and other current and potential future federal, state or
local laws, rules and/or regulations. Our R&D activities involve the controlled use of hazardous materials, chem-
icals, biological materials and various radioactive compounds. We believe that our procedures comply with the
standards prescribed by federal, state or local laws, rules and/or regulations; however, the risk of injury or acci-
dental contamination cannot be completely eliminated. Our research and manufacturing activities also are
conducted in voluntary compliance with the National Institutes of Health Guidelines for Recombinant DNA
Research.
Additionally, the U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits U.S. corporations and their repre-
sentatives from offering, promising, authorizing or making payments to any foreign government official,
government staff member, political party or political candidate in an attempt to obtain or retain business abroad.
The scope of the FCPA would include interactions with certain healthcare professionals in many countries. Our
present and future business has been and will continue to be subject to various other U.S. and foreign laws, rules
and/or regulations.
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