Healthy Skepticism Library item: 1065

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: news

McGinley L.
Dispute Over Anemia Drug Is Dragged to Capitol Hill: Amgen, J&J Take 18-Year Fight For Market Control to Legislators
The Wall Street Journal 2003 Apr 22

Full text:

Pharmaceutical companies Amgen Inc. and Johnson & Johnson have taken their long-running blood feud to Capitol Hill.

The companies’ 18-year fight over market control for a pricey anemia drug has flared up over a federal decision to cut in half outpatient Medicare reimbursements for Amgen’s version of the medication. Thomas Scully, administrator of the Centers for Medicare and Medicaid Services, decreed that Amgen’s Aranesp should be reimbursed at roughly the same rate as Johnson & Johnson’s drug, Procrit, because they have essentially the same effect on patients.

Mr. Scully says that if he hadn’t lowered outlays for Aranesp, Medicare would have had to cut payments for such things as emergency treatments. “I had a capped amount of spending,” says Mr. Scully, who has been more aggressive than his predecessors in trying to contain costs.

His decision went into effect in January, and the ensuing lobbying battle has split the small world of Washington health-care policy just as the pharmaceuticals industry and the Bush administration face a far larger fight over a prescription-drug benefit for Medicare beneficiaries. Medicare covers only a limited number of medications; the White House has proposed spending $400 billion over 10 years to expand this coverage.

J&J told Medicare officials last year that the company was concerned Aranesp threatened Procrit’s market share and contended the products largely were interchangeable, according to people familiar with the discussions. J&J’s backers portray Mr. Scully as pursuing good public policy at a time when Medicare dollars are being stretched thin.

But Amgen says its drug is superior and asserts that Mr. Scully’s action imperils innovation and violates a government rule-making law. The company, which claims the decision could cost it more than $100 million this year alone, successfully has solicited dozens of letters from lawmakers that tried to pressure Mr. Scully to reconsider his stance — or better justify it.

Amgen’s Washington office is headed by Pete Teeley, who served as press secretary to President George H. W. Bush and long has known Mr. Scully, who worked in that administration’s Office of Management and Budget. Fred Graefe, an outside lobbyist working for Amgen, worked for Mr. Scully when the latter headed the Federation of American Hospitals, the trade association of for-profit hospitals.

One of J&J’s chief lobbyists is Michael Bromberg, who had been head of the hospital association before Mr. Scully, and has served as something of a mentor to him.

“This is not a fun fight,” says Mr. Scully, who is finding his personal friendships strained. “I had no desire to get into it.”

But he has no choice. His ruling has become a rallying point for Amgen and other biotechnology and pharmaceuticals companies worried that they won’t get adequate government reimbursement for new therapies. Amgen also says Mr. Scully should have issued a formal proposal saying he planned to use a new standard — “functional equivalence” — in assessing payments for outpatient drugs.

Earlier this month, the Biotechnology Industry Organization dispatched 200 industry officials to Congress to complain about “functional equivalence” and other matters and is considering suing Medicare over a raft of issues. “We think it’s a terrible precedent for our companies,” says Stephan Lawton, vice president and general counsel at BIO. The Pharmaceutical Research and Manufacturers of America, the main trade association for brand-name drugs, has asked lawmakers to bar Medicare from declaring drugs functionally equivalent for reimbursement purposes.

Aranesp and Procrit are two of the most costly drugs covered by Medicare, the federal health program for the elderly and disabled. Amgen says that under federal law enacted to encourage innovation in the medical arena, it is entitled to a higher payment for its product for two to three years. After that, Medicare payments are based on the actual charges of outpatient facilities.

Mr. Scully insists he didn’t create a new standard or payment policy when he cited the functional equivalence of the anemia drugs in the final outpatient rule. Rather, he says, he based his decision on an evaluation by a highly regarded kidney specialist. While the two drugs aren’t structurally identical, they “are almost identical in the biological mechanism they use within the body and in their clinical effect stimulating bone marrow to create red blood cells,” Mr. Scully wrote in a letter to Sen. John Breaux, a Louisiana Democrat who asked for an explanation of the decision.

Moreover, Mr. Scully says, he has the authority, when there isn’t enough money to go around, to make “equitable redistribution” in payments for outpatient drugs and procedures.

Amgen officials are hoping Congress will increase payments for Aranesp as part of any Medicare bill that is passed this year. Senate Finance Committee Chairman Charles Grassley, an Iowa Republican, has raised concerns about Medicare’s actions. In addition, Rep. Nancy Johnson, the Connecticut Republican who heads the House health subcommittee, has asked the General Accounting Office, the congressional watchdog agency, to look into the matter. Other groups, including some that represent cancer patients and community cancer centers, are complaining to Congress about other parts of the Medicare outpatient rule that result in cuts for a variety of oncology drugs.

J&J supporters say they doubt Congress will pass legislation to boost payments for the Amgen drug — in part because it would be expensive. In addition, they contend lawmakers are looking for ways to contain costs without hurting care, which is what Medicare is doing. Lawmakers, they say, appreciate Mr. Scully’s efforts to safeguard the Medicare trust fund even though he sometimes irritates them. Over the past year, he has challenged the costs of some new technologies — from implantable cardiac defibrillators to drugs.

But Amgen contends Medicare goofed when it tried to come up with a way to compare the dosing of Aranesp and Procrit, using the standard dosages recommended for each drug during its approval by the Food and Drug Administration. Amgen says the big flaw in the Medicare calculation is that the Aranesp label recommends weekly doses, but most physicians prescribe it every two weeks.

Mr. Scully says he expects Amgen to submit additional dosing information to Medicare, which he will be happy to examine. In addition, Medicare and the National Cancer Institute are planning a head-to-head comparison study of the two drugs.

If the politics seem personal, so do the company relations. Back in 1985, Amgen agreed to split the rights to erythropoietin, or EPO, the generic name for the anemia drugs, with J&J in exchange for J&J’s help developing the drug. But before long, J&J sued Amgen to enforce its interpretation of the agreement, sparking a series of legal and arbitration battles. Amgen still sells an EPO drug called Epogen that is identical to Procrit.

Aranesp was Amgen’s ticket out of that dysfunctional relationship. By modifying six amino acids in the original EPO molecule, Amgen produced a longer-lasting version of the anemia medicine that, it believes, was no longer bound by the 1985 agreement. Arbitrators agreed with that assessment in 1998, ruling that Amgen was free to sell Aranesp in direct competition with Procrit.

In a statement Monday, J&J refrained from criticizing the Medicare decision on Aranesp, noting that it resulted from an “independent analysis.” But it added that “innovative products should be rewarded with higher reimbursements,” and said it shares industry concerns about restrictive reimbursement rates that could harm innovation.