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Replies to post #94658 on Biotech Values
04/23/10 4:27 PM
The more accurate description of these numbers is they represent what HCR will cost these companies in the short term. Costs for most, though perhaps not device companies, will be offset by added customers once UC kicks in.
04/23/10 6:26 PM
04/27/10 12:39 PM
…I'll take a few minutes now to provide some insights on how healthcare reform will impact Amgen...
First, it’s important to recognize that although the new law begins to impose costs in the pharmaceutical sector in 2010, it does not begin providing appreciable increases in coverage into 2014. As a result, costs for the industry will be recognized for several years before appreciable revenue is recognized from coverage expansion.
Besides form a potential lift from the insurance mandate within the legislation, there are seven additional components of the healthcare legislation that may have a meaningful impact on our financial performance over time, and I’ll briefly touch on each one of these. Note that there are a wide range of reflected dates with these elements, and that must be considered in estimating the evolution of financial impact to Amgen.
The first item shown here is the increase in the statutory base Medicaid rebate from 15.1% to 23.1% on the current Medicaid book of business. This rate is applied to the statutory to find average manufacturers price or AMP, to establish the minimum dollar value of rebates that Amgen pays to the States. Note that an increase in Medicaid rebates also reduced public health service (PHS) pricing [i.e. the price AMGN gets on drugs sold to so-called 340B public health institutions]. The effective date of this item is January 1, 2010, so we have already booked a quarter one accrual for the estimated cost of this item.
The second item on the list is a definitional change in the calculation of average manufacturer’s price. In the healthcare reform bill, this price definition was refined to exclude clinics and hospital, effectively making it a measure of retail pricing; historically our lowest discount segment. The effect of this is to raise AMP, thus raising the dollar value of Medicaid rebates and reducing PHS pricing for certain products. This item has been effective the date of October 1, 2010, so it did not impact our quarter one accrual.
The third item here is the extension of rebates for the Medicaid reimbursed business and managed care organization. The Medicaid rebates will be extended to $15 million to $20 million additional Medicaid beneficiaries, now in managed care organizations that do not receive statutory rebates. This [item] is effective as of March 23, 2010, so it had a small incremental Health Care Reform accrual for Q1. The annualized impact of this item may be double that of the increase noted in item 1.
The fourth item on the list is the expansion of Medicaid eligibility to include those below 133% of the federal poverty level from the prior cut off that in general was about a 100% of FPL or lower. When affected, this will increase the Medicaid beneficiary base by an estimated 16 million people. Because this provision is not effective until 2014, there is no 2010 national impact.
The fifth item on the list is the mandate for manufacturers to provide a 50% discount to Medicare patients who reach the Part D share coverage limit, and to the so-called donut hole. For Amgen, this impact is limited to our two current products that are reimbursed in pharmacies that will be [amble] in Sensipar and eventually will have some impact on Prolia. There should be some benefit offsetting the cost due to more patients successfully getting through the donut hole into catastrophic coverage, but this is very difficult to project at this time. It has a January 1, 2011 effective date, so no accrual will be taken this year.
Item six, is an expansion of the Public Health Service (PHS) eligible hospitals. Additional children hospitals, free standing cancer centers, critical access hospitals and rural referral centers will now be eligible for PHS pricing for their outpatient purchases. The PHS price approximates the Medicaid price. This item is one of the more modest factors on the list and the effective date for this item is January 1, 2010. So our quarter one accrual contains a full quarter’s impact of this one.
Finally, the last item is the annual pharmaceutical industry fee. This is one of the most straightforward items conceptually. There is in the legislation an annual dollar amount that must be assessed across large companies in our industry. This amount is apportioned to each individual company based upon the calculation of that entity’s share total public-plan sales. This item is also one of the largest on the list, and additionally is not tax deductible. It has an effective date of January 1, 2011, so we will not be accruing for this in 2010.
On an individual product basis, it’s important to consider the highly variable difference in exposure to these seven items. The key driver of these differences is each products exposure to effected public program. So in summary we have seven important elements of Health Care Reform that will impact Amgen meaningfully, two of these items have a full first quarter impact in quarter and one has a very small quarter one impact. Thus, the $33 million quarter one accrual represents largely the impact of the base rebate increases and the PHS program expansion.
On a full year basis, we expect the impact from Health Care Reform to be in the, as Bob mentioned $200 to $250 million for 2010 or roughly 2% of domestic sales. As of the beginning of 2011 two more elements will begin to effect our sales line, we expect to provide additional information on the ramp-up of the sales effects of healthcare reform in future calls. [Later in the CC, the 2011 hit was estimated to be 5-6% of sales.]
AI
