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Payment Proposal Could Hurt Profits at Dialysis Services

Health care: Clinton wants 10% cut in Medicare reimbursements for Epogen.

January 29, 1998|From Bloomberg News

Providers of kidney dialysis services could see a decline in earnings and revenue growth if Congress adopts a proposal to reduce Medicare payments for Amgen Inc.'s anti-anemia drug, Epogen, industry analysts said Wednesday.

President Clinton on Saturday proposed a 10% cut in payments for Epogen by the government health insurance program for the elderly.

The drug is acquired from Amgen by dialysis providers such as Torrance-based Total Renal Care Holdings Inc. and Renal Treatment Centers Inc. of Pennsylvania to treat anemia in patients with chronic kidney failure. Total Renal and Renal Treatment have announced plans to merge.

The dialysis providers have been buying the drug at a discount from Thousand Oaks-based Amgen and then getting higher reimbursements from Medicare. Epogen accounts for as much as 20% of some providers' revenues, making them vulnerable if the Republican-controlled Congress approves the Clinton recommendation to cut reimbursements.

"The Epogen news is not particularly good for dialysis providers," said Peter Emch, health industry analyst with BT Alex. Brown Inc.

The proposal, if it were to become law, could reduce revenue growth and have an even greater impact on earnings, he said.

On Wednesday, Amgen shares rose $1.19 to close at $50.31 on Nasdaq; in New York Stock Exchange trading, Total Renal shares fell 38 cents to close at $22.88 and Renal Treatment shares fell 44 cents to close at $30.

A GOP congressional aide said the Clinton administration has authority to cut Epogen payments without Congress' approval.

Emch said any fallout to dialysis providers from an Epogen pay cut depends on whether Amgen would absorb some of the price cut.

Amgen Chairman Gordon Binder said last week that the dialysis providers would absorb some of the cut in Medicare payments for Epogen.

Emch also said the kidney dialysis companies are expected to gain from a new law that extends the length of time that a patient's private insurance policy must cover kidney dialysis before Medicare coverage kicks in.

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