Why Is Medicare Reviewing Dendreon's Provenge?

Cross-posted from The Science Business on Forbes.com.

Dendreon shares are down today on the heels of news that the Centers for Medicare and Medicaid Services (CMS) will undergo a lengthy review of whether or not Provenge “is reasonable and necessary under sections 1862(a)(1)(A) and/or 1862(a)(1)(E) of the Social Security Act” and should be reimbursed by Medicare.

Most analysts believe that Medicare will ultimately agree to pay for Provenge, because it’s FDA-approved, and it was shown to extend survival by 4 months in clinical trials.

So why is Medicare undertaking this review? Nobody knows for sure, but here is what we do know.

1. It is unusual for Medicare’s “National Coverage Determination” process, as it’s called, to be launched to review the reimbursement of a cancer therapy in its FDA-approved indication. It appears that CMS “received informal inquiries for a national coverage determination,” which suggests that local Medicare contractors are looking for guidance as to how to proceed.

2. Provenge is not your everyday treatment. It’s a customized active immune therapy, in which a patient’s own immune cells are extracted from the bloodstream, biologically manipulated at an external site, and then reinserted into the patient. It’s quite possible that Medicare is simply trying to figure out the logistics of how to pay for such a complicated and unprecedented therapy. A recent report by Matthew Herper of Forbes lends credence to this idea; Herper quotes Louis Jacques, the director of the Coverage and Analysis Group at CMS, as suggesting that Medicare’s interest is driven by the unusual aspects of Provenge’s delivery.

3. Those with private insurance who have received Provenge therapy appear to be having no problems getting insurers to pay for the treatment; those on Medicare can receive the treatment while the review is under way.

4. Medicare is proscribed by law from considering price in its reimbursement decisions. “The cost of a particular technology,” according to CMS, “is not relevant in the determination of whether the technology improves health outcomes or should be covered for the Medicare population.” In other words, if Dendreon had chosen to charge $2 million for Provenge, instead of $93,000, Medicare is not supposed to take that into consideration. CMS has to go by what the FDA has approved—and the FDA can’t take cost into account either.

5. The timeline will proceed as follows: CMS has opened up a 30-day public comment period on whether or not Provenge should be covered, which will expire at the end of July. CMS will commission a technology assessment from a third party. The Medicare Evidence Development and Coverage Advisory Committee (MEDCAC) will then conduct its own review, and will be expected to produce a decision memorandum by March 30, 2011. Implementation of Medicare’s decision will begin no later than June 30, 2011.

So, bottom line: if you are a patient, reimbursement is not likely to be an issue. The biggest challenge is obtaining the therapy itself, which will suffer from manufacturing supply constraints for the next several quarters.

The larger question is: should the government be able consider price in deciding whether or not to pay for a particular treatment? There are pluses and minuses to each answer, but the Dendreon case shows us that the question is not going away.