New Medicare Rules for Dialysis Affect Biotech: BioBuzz

BOSTON, Mass. (TheStreet) -- The early morning biotech buzz will be about the stock impact of Tuesday night's release by Medicare of proposed rules for bundled reimbursement of drugs and services for end-stage kidney disease patients, i.e. dialysis patients.

The proposed bundling rules are complicated (550 pages!), but simply put, Medicare, starting in 2011, will reimburse dialysis service providers with single fixed payment for each patient treated. In the old system, drugs used in the dialysis were a profit driver for dialysis providers because they were reimbursed separately.

Under the new Medicare rules, however, drugs are included in the fixed bundled payment. That means drugs used in dialysis are now a cost driver for dialysis providers, which theoretically will mean reduced use and lower revenue for the drug companies.

So who wins and loses in biotech? As I sort through reams of analyst notes this morning dissecting the Medicare proposals, Amgen(AMGN Quote) and Genzyme(GENZ Quote) seem to be on the losing side, although some of the negatives for both were entirely expected.

The biggest hit to Amgen will be from reduced use and sales of its anemia-fighting drug Epogen, a mainstay drug in dialysis clinics but one that is expensive. Under the new rules, dialysis clinics will try to use less Epogen in patients. The positive for Amgen is that reduced Epogen use is very much baked into investor expectations.

Amgen may take another hit, however, because in a surprise move, Medicare wants to include oral drugs in the dialysis bundle. This was not expected and could also pinch use of Amgen's Sensipar. A hit to Sensipar is not a critical blow for Amgen, however, as the drug only accounts for 4% of expected total revenue in 2009, according to J.P. Morgan.