Medicare Compliance & Reimbursement

The National Institutes of Health had the authority to get a better deal for taxpayers and patients when it negotiated rights for the cancer drug Taxol, whose development relied heavily on NIH research. But the agency didn't use its clout to full advantage. That's the finding of a General Accounting Office analysis released by Sen. Ron Wyden (D-OR) June 6.

NIH's agreement allowing Bristol-Myers Squibb to patent the drug netted only $35 million in royalties for the government and failed to ensure that federally insured patients, particularly in Medicare, could buy it for affordable prices, even though the government poured $484 million into clinical development of the product, according to GAO. Meanwhile, BMS, which says it invested $1 billion to develop the drug for market, received $9 billion in revenues from Taxol between 1993 and 2000.

Government collaboration with the company was "critical" to BMS's receiving 1992 approval from the Food and Drug Administration to market Taxol to treat advanced ovarian cancer, says GAO. Five of the six clinical trials submitted to support BMS's marketing application were "either conducted or funded by NIH."

In the 1991 cooperative research and development agreement signed by NIH and BMS, NIH did note that the drug should be fairly priced, given the public investment in its development, as was NIH policy, says GAO. However, the agreement "did not require that reasonable evidence be presented that this had occurred."

Instead, NIH accepted as evidence of fair pricing the discount that would be offered to payers who use the federal standard fee schedule, said Wyden in a statement. "NIH apparently failed to take into account that Medicare, which would become the primary government purchaser of Taxol, does not participate in the fee schedule."

The result of what Wyden calls an "extremely costly oversight," according to the GAO report: "In 2002, Medicare paid 6.6 times the price ... other federal programs paid for Taxol."

In his response to the analysis, NIH chief Elias Zerhouni, MD, argues that a mere quantification of royalty payments and federal discounts greatly understates the benefits that flowed to NIH - and to patients, taxpayers, and the biomedical research enterprise generally - from joint development of Taxol. For one thing, the BMS collaboration solved a dilemma faced by the National Cancer Institute in 1989, said Zerhouni. NCI had evidence of the clinical promise of paclitaxel - Taxol - but its studies were "severely hampered by the limited supply." As NIH's partner, BMS "rapidly and substantially increased the amount" available for research, ultimately a boon to many patients.

Part of the NIH miscalculation clearly flowed from the federal agency's inability to predict BMS' strategies to extend its patent. At the time NIH negotiated with BMS, federal officials believed that generic versions of Taxol would appear on the market in about five years, thus substantially limiting BMS's revenues from the drug. However,  BMS managed to greatly extend Taxol's market exclusivity through a series of patent filings that the Federal Trade Commission and numerous states and insurance companies eventually challenged as baseless and fraudulent. In March, the company reached a settlement with FTC on Taxol-related antitrust claims stemming from those patents.

BMS has continued to be aggressive in securing revenues from Taxol. In 1995 and 2002, BMS extended Taxol's market exclusivity in Canada by successfully suing a small Canadian company, Biolyse Pharma Corp., that tried to market a paclitaxel-based drug that it argued was not the same as Taxol.