Amgen 2007 Annual Report Download - page 56

ASP. ASP is calculated by the manufacturer based on a statutorily defined formula and submitted to CMS. A pro-
duct’s ASP is calculated 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
statutorily defined period of time preceding the Current Period. For example, the ASP based payment rate for
Aranesp®that will be in effect for the second quarter of 2008 will be based in part on certain historical sales and
sales incentive data for Aranesp®from January 1, 2007 through December 31, 2007. CMS publishes the ASPs
for products in advance of the quarter in which they go into effect. Any changes to the ASP calculations directly
affect the Medicare reimbursement for our products administered in the physician office, dialysis facility and
hospital outpatient setting. These calculations are regularly reviewed for completeness and based on such review,
we have revised our reported ASPs to reflect calculation changes both prospectively and retroactively. Partially
as a result of our methodology changes, our ASP reimbursement rate for EPOGEN®was reduced for the third
quarter of 2007. In the United States, dialysis providers are primarily reimbursed for EPOGEN®by the federal
government through the ESRD Program of Medicare. The ESRD Program reimburses approved providers for
80% of allowed dialysis costs; the remainder is paid by other sources, including patients, state Medicaid pro-
grams, private insurance, and to a lesser extent, state kidney patient programs. The ESRD Program
reimbursement rate is established by federal law and is monitored and implemented by CMS. Effective Jan-
uary 1, 2006, the payment mechanism for separately reimbursed dialysis drugs in both free-standing and
hospital-based dialysis centers, including EPOGEN®and Aranesp®, is reimbursed by Medicare at ASP+6% us-
ing the same payment amounts used in the physician clinic setting. Beginning in the third quarter of 2007, based
on its ongoing assessment for payment of Part B drugs, CMS instituted a single payment limit for Epoetin alfa
(EPOGEN®and PROCRIT®). Although we cannot predict the payment levels of EPOGEN®in future quarters or
whether Medicare payments for dialysis drugs may be modified by future federal legislation, a decrease in the re-
imbursement rate for EPOGEN®may have a material adverse effect on our business and results of operations.
Any changes to the ASP calculations directly affect the Medicare reimbursement for our products ad-
ministered in the physician office, dialysis facility and hospital outpatient setting. These calculations are
regularly reviewed for completeness and based on such review, we have revised our reported ASPs to reflect cal-
culation changes both prospectively and retroactively. Partially as a result of our methodology changes, our ASP
reimbursement rate for EPOGEN®was reduced for the third quarter of 2007.
Since April 1, 2006, the Medicare reimbursement for ESAs administered to dialysis patients has been sub-
ject to a revised HMA-PM, a Medicare payment review mechanism used by CMS to audit EPOGEN®and
Aranesp®utilization and appropriate hematocrit outcomes of dialysis patients. This policy, EMP, was revised,
effective January 1, 2008, requiring a 50% reduction in Medicare reimbursement if a patient’s Hb is above 13 g/
dL for three or more consecutive months. In addition, the EMP reduces the monthly dosing limits to 400,000 IUs
of EPOGEN®, from 500,000 IUs, and to 1,200 mcgs of Aranesp®, from 1,500 mcgs.
Changes resulting from the MMA, which beginning in 2005 lowered reimbursement for our products, could
negatively affect product sales of some of our marketed products. However, we believe that our product sales for
2005, 2006 and 2007 were not significantly impacted by the reimbursement changes resulting from the MMA.
However, additional provisions of the MMA and other regulations affecting reimbursement that have gone or
may go into effect could affect our product sales and related sales growth in the future. For example, the MMA
required a report to Congress and a demonstration project with regard to a bundled payment system for dialysis,
including separately billable drugs and EPOGEN®. The report to Congress was issued on February 20, 2008, but
the demonstration project, which was scheduled to start in January 2006, has been delayed with no announced
start date. Bundling initiatives that have been implemented in other healthcare settings have resulted in lower uti-
lization of services that had not previously been a part of the bundled payment. Because CMS is continuing to
study bundled payments in the ESRD setting and legislation is possible, we cannot predict what impact a bundled
payments system would have on sales of EPOGEN®or Aranesp®used in the treatment of persons receiving out-
patient dialysis services.
In addition, on December 29, 2006, the MedPAC released its second Congressionally-mandated report on
the impact of changes in Medicare payments for Part B Drugs specifically recommending that the Secretary of
the Department of Health and Human Services clarify ASP reporting requirements “to ensure that ASP calcu-
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