In his speech to the American Medical Association, President Obama made an oblique reference to the costliest drug Medicare buys -- recombinant erythropoietin (EPO), which is used to treat anemia in dialysis, cancer and HIV-AIDS patients. It came during his call for creating a pathway at the Food and Drug Administration for approving follow-on biologics.

We need to introduce generic biologic drugs into the marketplace. (Applause.) These are drugs used to treat illnesses like anemia. But right now, there is no pathway at the FDA for approving generic versions of these drugs. Creating such a pathway will save us billions of dollars.

It turns out that at the very moment the president was speaking, a suburban Washington research institute was filing a citizens petition asking the Centers for Medicare and Medicaid Services to scale back its reimbursement of EPO used in dialysis. The petition was filed by the Medical Technology and Practice Patterns Institute, which has documented the cardiovascular risks associated with the promiscuous use of EPO.

According to the petition, several recent studies have shown that raising hemoglobin levels above the FDA-approved label increases risk of heart attacks, strokes and death by as much as 50 percent in dialysis patients, who are already at risk of heart disease. The petition also quotes Nancy-Ann DeParle, now the president chief health care aide, who, while running CMS (it was then called the Health Care Financing Administration or HCFA) expressed concerns about the cardiovascular risks associated with overuse of the drug.

MTPPI chief researcher Dennis Cotter estimates that CMS now pays about $2 billion a year for EPO, which is manufactured by Amgen. If reimbursement stopped when dialysis clinics went over the FDA-approved level, the agency could save about half that amount or $10 billion over the next decade. That's 1 percent of what is needed to pay for health care reform.

However, there's a chance that health care reform improperly managed could bungle away those savings. As part of reform, the government is considering turning to bundled payments for many of its most costly diseases, including dialysis program (it's called the End Stage Renal Disease program). If the initial bundle includes money to pay for the current high use of EPO, the dialysis clinics would appropriately cut back on EPO use but pocket the extra money for themselves. 

Cotter says both for safety and financial reasons, the reimbursement level should be cut immediately -- before CMS establishes the bundled payments for dialysis clinics treating patients suffering from ESRD.