Medicare Agency Questions Anemia Drug’s Cost, but Increased Use Is Urged

By any measure, Epogen is a true wonder drug. Since it went on sale 15 years ago, it has improved the lives of thousands of kidney dialysis patients and made its inventor, Amgen Inc., a biotech behemoth.

The medicine has racked up more than $17 billion in sales since 1989 and reduced the need for blood transfusions in patients with anemia, a consequence of kidney failure.

Now the agency that administers the federal Medicare program is asking whether Epogen’s success has come at too high a price. Since 1998, federal payments for the drug have skyrocketed -- more than doubling to $1.2 billion in 2002 -- and the agency is concerned that Epogen is overprescribed.

Amgen maintains that Epogen is properly used. In fact, the company is pressing for Medicare policy changes that would boost Epogen sales. The company’s top customers -- the four largest for-profit dialysis chains -- are urging other changes that would also spur Epogen use.

The proposed changes have to do with the range of red blood cell counts Medicare uses to determine a patient’s need for Epogen. “We are being told that our high end is too low and our low end is too high,” said Steve Phurrough, who is directing a review of Medicare’s Epogen reimbursement policy.

Most kidney patients obtain their Epogen treatments at dialysis centers, which buy the drug from Amgen or wholesalers and are reimbursed by private insurers or Medicare.

A report last week from the investigative arm of the Department of Health and Human Services said the four largest dialysis chains made a 12% profit in 2003 on Epogen billed to Medicare.

For Amgen, the stakes are high. Epogen was the Thousand Oaks company’s biggest drug and accounted for nearly 30% of the company’s $8.4 billion in 2003 revenue. And Epogen sales are under pressure.

A little-noticed provision of last year’s Medicare Modernization Act -- the law giving seniors full prescription drug coverage -- requires the agency to bring its Epogen payments in line with the drug’s cost, which is roughly $62 for an average dose.

Dialysis chains might use less Epogen if the Medicare margin on the drug narrowed or disappeared. That is one reason analysts surveyed by Thomson First Call predict Amgen’s earnings growth will slow to 18% in 2005 from 37% in 2003.

The Medicare policy changes proposed by the dialysis chains and Amgen could reverse the expected slide in Epogen sales. “It could be a wash,” said Ronald Renaud of Schwab Soundview Capital Markets.

In Washington, the review of Medicare’s Epogen reimbursement policy focuses on how much of the drug is necessary and safe for patients to avoid blood transfusions and keep up a normal lifestyle.

“We want to make sure that patients are getting enough, but we also want to make sure that they are not getting too much,” Phurrough said.

Wall Street’s attention has been focused on potential changes to the standard for red blood cell counts, or hematocrits, that Medicare uses to determine a patient’s need for Epogen. Medicare supports hematocrits between 33 and 36. Amgen and the dialysis industry want to expand that range.

Medicare faced similar proposals in 1997 after it adjusted the range to control a fast-growing Epogen tab. The policy worked and Epogen sales stalled as patients’ hematocrits fell.

In 1998, Medicare raised its upper limit under pressure from Amgen and patients’ groups that said anemia had gotten worse. Since then, cases of anemia have lessened and Epogen payments have risen.

This time, the four dialysis chains have told Medicare that it should support hematocrits of at least 39. Raymond Hakim, chief medical officer of Renal Care Group Inc. of Nashville, said it was too difficult to keep patients in the 33-to-36 range because red blood cell counts naturally rise and fall in response to infections, exercise and other factors.

“Ideally, you would want no upper limit,” he said, because patients would benefit from having hematocrits closer to those in healthy people, which range from 38 to 42.

“Even if you use more Epogen, it is better for patients. And what is better for patients is better for Medicare,” said Hakim, who is chairman of Kidney Care Partners, a lobbying group to which Amgen belongs.

Amgen hasn’t joined the dialysis chains in seeking higher red blood cell counts; its recommendations concern the lower end of the range. Medicare supports the start of treatment when a patient’s hematocrits falls below 30. According to Amgen, it is better for patients to go on the drug sooner and not wait for the red blood cell counts to fall. The company noted that 25% of dialysis patients have, at any given time, red blood cell counts below Medicare’s standard.

Amgen spokesman Michael Beckerich acknowledged that the company’s recommendation would spur Epogen use, but he said Amgen’s purpose wasn’t to drive sales.

“The intent is to make sure that many patients who do not now have access to Epogen are able to be treated,” he said.

The benefits of higher red blood cell counts are a subject of research and debate. The Food and Drug Administration, in an unrelated review of anemia drugs last week, said hematocrits above 36 “may contribute to an increased risk of cardiovascular ... events” in dialysis patients.

The risk isn’t a small matter for dialysis patients, many of whom already have high blood pressure and other physiological complications.

Other studies have shown that hematocrits in the high 30s made people feel better, though at significant cost. A year-old study led by researchers in Canada found that allowing higher red blood cell counts in dialysis patients would add hundreds of millions of dollars to Medicare’s Epogen bill.

“It is not a small number,” said William Owens, an adjunct professor at Duke University who submitted the study to Medicare. Lifting hematocrits to 42 would add $1.4 billion, said Owens, who is also chief scientist in Baxter International’s renal products division.

Some on Wall Street don’t see a massive boost in spending. “I don’t think it would be off the charts,” said Schawb’s Renaud. “But it’s far too early to draw any financial conclusions.”