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Arthritis treatment scrutinized

Medicare officials blame Synvisc for overpayments

By Christopher Rowland

The Globe, August 25 2003

Synvisc has been a moneymaker for its manufacturer, a subsidiary of Cambridge-based Genzyme Corp. And, it turns out, Synvisc also has been profitable for doctors who prescribe it.

Federal Medicare officials have named Synvisc, an arthritis pain treatment that is injected into the joint, as one of nearly three dozen culprits they say contribute to large government overpayments to physicians, which cumulatively amounted to from $1.7 billion to $2 billion in 2002 alone.

Medicare administrator Thomas A. Scully last week presented four alternatives to eliminate the overpayments, each focused on eliminating the "spread" between the wholesale cost of drugs and higher rates the government pays, a difference that is now pocketed by doctors.

Synvisc, a fluid that relieves pain by working as a shock absorber inside the knee, is just one small example of how that spread costs taxpayers billions. Both expensive and heavily prescribed, it accounted for at least $93 million in total Medicare claims last year. According to data the government has gathered, rheumatologists around the country have benefited from a spread of 14 percentage points on Synvisc, reaping approximately $100 extra on each set of three injections, or at least $13 million in overpayments for 2002.

The disparity between real market prices and Medicare payments has been the subject of intense controversy for several years, sparking complaints from advocates and in some cases investigations and lawsuits around the country by state governments alleging some drug firms have gamed the system. Critics contend certain manufacturers inflated the "average wholesale price" that is the basis for the government's payments and then marketed the resulting spread to doctors as an inducement to prescribe a particular drug.

"We think that's a bad system," said Kim Glaun, Washington counsel for the Medicare Rights Center, speaking generally about the pricing phenomenon. "There's perverse financial incentives that could lead to inappropriate prescribing."

A negative side effect, she said, is that the higher prices drive up the size of a Medicare patient's 20 percent co-payment.

Genzyme, which manufactures Synvisc in New Jersey through its Genzyme Biosurgery subsidiary, has never been named in any of pricing lawsuits or investigations. Dan Quinn, a company spokesman, said neither Genzyme nor its marketing partner, Wyeth Pharmaceuticals, has ever used the Medicare pricing spread on Synvisc as a sales motivator.

"We have never been involved in an effort to market this product or any product based on reimbursement rates for Medicare or any reimbursement rates," said Quinn. Genzyme is anticipating Synvisc sales of up to $115 million in 2003.

The three-injection price of Synvisc is $589 for all commercial customers, Quinn said. The "average wholesale price" of $736 that is quoted in a primary trade publication used by Medicare price-setters, the Drug Topics Red Book, is not a figure the company recommended, he said. "It's completely outside of our control," Quinn said.

But Michael Soares, vice president of editorial at Thomson MICROMEDEX, the Red Book publisher, said Wyeth, Genzyme's marketing partner, was involved in setting the average wholesale price until recently.

In November 2001, he said, a Wyeth representative told the Red Book publishers to add a 25 percent markup to the factory cost to arrive at the published "average wholesale price" for Synvisc.

In 2002, the 25 percent markup was reauthorized by Wyeth, he said. Then in April 2003, Wyeth said it would no longer provide guidance on Synvisc's average wholesale price, according to Soares. Following its policies for such instances, Thomson now adds a 20 percent markup to the factory cost, Soares said. The current factory cost of $589 was provided by Wyeth, he said.

A Wyeth spokesman would not comment, saying he had no way of checking Soares's account. "Pharmaceutical companies, in this case Wyeth and Genzyme, have nothing to do with setting AWP for this product," he said.

Even with increased attention to the issue, the Medicare spread on Synvisc is still aggressively touted as a money maker by at least one source, a Fort Lauderdale, Fla., company called Empire Medical Training.

"Pain management, and the many injection procedures, is generously reimbursed by Medicare," says the company's website, pitching a three-injection kit of Synvisc at a "discount price" of $435 for doctors who sign up for its profit-training seminars. "You can increase the profitability of this procedure by reducing costs!"

Quinn, the Genzyme spokesman, said Genzyme had been unaware of Empire Medical Training's marketing practices until contacted by a Globe reporter. He suggested that Empire Medical Training was obtaining Synvisc in Canada, where prices are lower because of government price controls.

"We've never heard of them," he said of Empire. "We're aware that some companies are trying to profit by purchasing our product at a lower price in Canada and selling it illegally to US doctors. We have worked aggressively with federal regulators and outside consultants to try to stop this practice." Quinn would not provide details of what companies Genzyme has previously reported.

A spokesman at Empire Medical Training who identified himself only as Vincent said the company does not purchase pharmaceuticals from Canadian sources. He disputed the characterization that Empire was attempting to entice doctors with a favorable spread then hung up when asked about the company's pricing arrangements with doctors.

Medicare provides prescription drug coverage for inpatient hospital stays, outpatient visits, and treatment in doctor's offices. The issue of the built-in profits for doctors was identified as early as 1997 and was the subject of critical reports by the General Accounting Office and the Office of Inspector General for the Department of Health and Human Services. The spreads ranged from 13 to 20 percent for more expensive treatments like Synvisc to 84 percent for the cheapest drugs.

How the "spreads" for treatments like Synvisc will be affected now that they have been cited on the Medicare list will depend on which of the four pricing options recommended by Medicare administrator Scully is selected by Medicare at the end of a 60-day comment period. Congress may get involved, because the issue has been drawn into the debate over whether to expand the Medicare prescription drug benefit to medicines used by patients at home.

Already some rheumatologists are arguing the elimination of the Medicare price spread could force them to limit access. They say they use the extra money to pay for office overhead, including staff.

"Certainly these procedures offer another way of supplementing your income, but that is not the driving force for the vast majority of physicians," said Dr. David Borenstein, a rheumatologist in Washington D.C. and chairman of the government committee of the American College of Rheumatology. "I just want to make sure it is not costing me money. If I find that I'm losing money, I'm going to have to say we can't give that therapy."

Christopher Rowland can be reached at crowland@globe.com.