Editor’s Note: The post by Dennis Cotter below addresses the way in which Medicare should incorporate erythropoiesis-stimulating agents (epoetin) into its composite-rate payment for end-stage renal disease treatment. Watch for subsequent posts on this topic from Amgen and others. 

Statement of the problem. The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) mandates that the Department of Health and Human Services (HHS) recommend a strategy to incorporate separately billable drugs — the most expensive being erythropoiesis-stimulating agents (ESAs) to treat dialysis-related anemia — into the composite rate for end-stage renal disease (ESRD). Congress has directed the Centers for Medicare and Medicaid Services (CMS) to use historical archived data to assess an equitable payment for ESAs. Given its documented overuse and recent allegations of “gaming” in preparation for future ESA bundling, we feel that the CMS approach is problematic. We encourage Health Affairs readers to enter into a discussion regarding alternative evidence-based approaches, especially those that incorporate clinical criteria, to determining a fair and equitable method of bundling ESAs.

Background. The Preserving Access to Medicare Act of 2008 calls for rewarding clinically effective health care and reforming Medicare. Given that the Congressional Budget Office (CBO) cites that as much as one-third of the nation’s $2.1 trillion 2006 health care expenditure was wasteful, this legislation comes at a critical time, as more costly diagnostic and therapeutic technologies enter into the U.S. health care system. To adopt a more rational approach, the U.S. Congress’ Medicare Payment Advisory Commission (MedPAC) recommends that the “Secretary [of HHS] should introduce clinical criteria for eligibility of drugs and biologicals . . . (arguing that clinical benefit be a criterion),” for newly approved drugs and biologicals. Recently, the Institute of Medicine (IOM) echoed similar recommendations: “Solutions to some of the nation’s most pressing health policy problems hinge on the ability to identify which diagnostic, treatment, and prevention services work best for various patients and circumstances.”

In setting fixed payments — resulting in a shift in provider incentives from a profit to a cost center — Medicare’s prospective payment system (PPS) encourages providers to select an appropriate amount, type, and intensity of service for its beneficiaries. Medicare’s ESRD program is the country’s first national health care program and employs a composite-rate (fixed) payment scheme similar to PPS for the care of ESRD patients — a scheme employed to achieve this prudent use PPS goal.

Until now, ESAs used to treat dialysis-related anemia have not been included in the ESRD composite-rate payment. However, Section 623(f) of MMA requires HHS to make recommendations on the design of a bundled PPS for ESRD services that includes separately billed drugs and other services. An important example of the challenge that lies ahead is the CMS proposal to use historical drug use charges as the basis for calculating the future fixed payment adjustment for ESAs (or epoetin) for dialysis patients — a conundrum that pits the interests of a single supplier (Amgen) against those of essentially a single payer (Medicare).

Unlike traditional market forces made up of competing health care technologies used to treat similar conditions that set prices based on demand, critics maintain that the single-source ESA product and corresponding Medicare policy rewards overuse, accounting for approximately 25% (approximately $2 billion in 2005) of Medicare ESRD costs. In implementing Congress’ directive, CMS proposes to use utilization data (patient claims and Medicare cost report information during 2007-09) as the baseline for calculating the adjustment to the ESRD composite-rate amount. However, since 1991, the congressional Office of Technology Assessment (OTA), U.S. Government Accountability Office (GAO), CBO, MedPAC, and others have reported that the Medicare payment for separately billed services has created perverse incentives that have led to overuse of ESAs. The proposal to use archived Medicare claims data containing arguably historical overuse of this product appears to be a flawed approach.

Current use patterns and clinical benefit. ESA use among Medicare dialysis patients requires that caregivers submit both a monthly dose and achieved hematocrit on their claims for payment — a unique Medicare billing requirement. Analyzing this information, Thamer et al (2007) found that dialysis facilities’ organizational status and ownership were associated with variation in epoetin dosing in the United States. Large for-profit chain facilities used larger dose adjustments and targeted higher hematocrit levels compared to smaller nonprofit units. In terms of clinical benefit, recent clinical trials have shown that patients targeted to higher hematocrit levels with higher epoetin doses might have an increased mortality.

As a result of these concerns, a recent Food and Drug Administration (FDA) black-box warning advises health care providers to use “the lowest [epoetin] dose possible to gradually increase the hemoglobin concentration” and to maintain the hematocrit level below 36%. Based on our analysis of Medicare claims data, a dose-response study (KI 2008) indicates that, on average, a starting dose of 2,500-5,000 units per treatment can maintain the hematocrit level in the desired target range of 33-36%. However, Lazarus et al. (2007) reported that the largest U.S. for-profit dialysis facility chain used a mean epoetin dose of approximately 8,100 units per treatment in 2006.

Cost impact. Compared to the CMS’ stated method proposing to use historical data, which might further ensconce excessive payment amounts in the adjustment, if epoetin were to be bundled into the ESRD composite rate based on our dose-response research (KI 2008), current Medicare epoetin payments (around $2.5 billion per year) would be reduced by approximately 53%. In addition to the widely documented historical overuse of ESAs discussed earlier, there have been concerns regarding “gaming” of billing and cost information, as alleged in cited sworn testimony.(1) Legislation directing the CMS to fold ESA costs into the ESRD composite-rate payment adjustment might overstate a fair and equitable adjustment amount, resulting in a windfall payment opportunity to dialysis providers should they cut back on ESA dose levels once the new system is implemented.

The challenge. We encourage Congress to implement the advice of their agencies and the IOM to use documented clinical benefit as the foundation for bundling ESAs. Because of this rare opportunity to study both drug dose and hematocrit response, we have an ability to look at the clinical effectiveness of a costly therapeutic intervention in a “real-world” setting. This is the place that we must start!

Footnote (1):  “He said we, meaning Fresenius, have a tacit agreement with Amgen to allow them to increase price of EPO in the time period before bundling, and we, Fresenius, will take less profit in the interim because that will keep the price and the reimbursement rates that go into the bundle higher.” Hoffmann-La Roche Inc. against an infringement suit brought by Amgen Inc. over Amgen’s erythropoietin anemia drug, testimony of Barbara Senich, Vice President of Marketing and Sales for Roche Testimony, pp. 556-609, Part IV, United States District Court for the District of Massachusetts, Civil Action no. 05-12237-WGY, AMGEN, INC., Plaintiff, v. F. HOFFMANN-LA ROCHE LTD, ROCHE DIAGNOSTICS GmbH, and HOFFMANN-LA ROCHE, INC., Defendants. Daily Transcript of Evidentiary Hearing in re Remedy Phase (Volume 4), BEFORE: The Honorable William G. Young, District Judge, 1 Courthouse Way, Boston, Massachusetts, December 7, 2007.