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Theodore J. Cohen, Ph.D., a research scientist, has been an investor for more than 50 years. Since 1980, he has focused his attention on investment research and investigative analyses of companies developing therapeutic drugs in the biotech sector. Dr. Cohen is a frequent contributor of Guest... More
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  • Provenge Reimbursement Already On The Way To A Solution  4 comments
    Aug 10, 2011 8:51 AM | about stocks: DNDN
    You would have to be living under a rock, together with some of the more well-known characters from an insurance company’s television commercial, not to know that the common stock of Dendreon took a significant ‘hit’ in the after-hour and succeeding markets following the announcement that Provenge providers were concerned about reimbursement. At this writing, the stock is trading at just over $12, down from $35 when the stock was halted for the quarterly conference call.
    One of the two major reasons cited for the shortfall in earnings was the reluctance of some centers to administer Provenge. The reason cited by Dr. Mitch Gold, CEO of Dendreon, was that small business medical providers, many of whom lacked the infrastructure and financial resources (e.g., a line of credit) needed to survive in an environment that required them to lay out $93,000 for the full treatment, were reluctant to administer Provenge. This apparently was not an impediment until Dendreon began expanding its provider base beyond the academic medical community, which is better able to operate in an environment where delays in Medicare and Medicaid reimbursement at the federal and state levels can take many months.
    I recently spoke about the reimbursement problem with Dr. Leonard Liang, a urologist and transplant surgeon with a solo private practice in Los Angeles, CA. Dr. Liang is an ‘early adapter,’ and long ago saw Provenge as what he perceived to be a preferred way of treating end stage prostate cancer. [Full disclosure: Dr. Liang is a Dendreon shareholder.] Thus, when it became possible for his practice to administer the treatment, Dr. Liang was one of the first to apply for, and obtain, authorization. To aid in his marketing efforts, and more importantly, to help him explain Provenge and its benefits to his patients, Dr. Liang even developed his own presentation, which now is available on the Web.
    To date, Dr. Liang has administered Provenge to two patients. The information below is current as of August 4, 2011. Obviously, for reasons related to patient privacy, only the most general data are provided. The charges cited do not include office visits or the administration of the infusions. The doctor has a four-month line of credit with McKesson, which supplies him with Provenge.
    Patient A has what should be considered good insurance. He has Medicare primary, Blue Shield PPO secondary. As primary, the Medicare allowable was calculated to be $32,860 for one infusion ($31,000 plus 6%).
    Patient A: First infusion
    Date of infusion - 6/6//2011
    Code used: J3490
    Date charges given to billing service: 6/7/2011
    Date billing sent out: 6/14/2011
    Date Medicare payment received: 7/14/2011
    Amount Medicare paid: $26,288 (80% of $32,860)
    Date Blue Shield payment received: 7/19/2011
    Amount Blue Shield paid: $6,572 (20% of $32,860)
    Date $31,000 payment to McKesson is due: 10/6/2011
    Patient A: Second infusion
    Date of infusion: 6/20/2011
    Code used: J3490
    Date charges given to billing service: 6/28/2011
    Date billing sent out: 7/14/2011
    Payment pending
    Date $31,000 payment to McKesson is due: 10/20/2011
    Patient A: Third infusion
    Date of infusion: 7/11/2011
    Code used: Q2043
    Date charges given to billing service: 8/1/2011
    Date billing sent out: In process
    Payment pending
    Date $31,000 payment to McKesson is due: 11/11/2011
    You can see from the data above why having a four-month line of credit is so important to this type of operation. The need to ‘carry’ charges for Provenge over a period of several months are not insignificant.
    The second patient has received two infusions. Liang called him Patient B. The third infusion has been delayed but will be given in a couple of weeks. This patient has what would be considered marginal insurance. He has Medicare primary and MediCal secondary. MediCal is insurance from the state of California for low-income patients. It's what is known as Medicaid elsewhere in the U.S. Prior to infusing this patient, MediCal had not reimbursed for Provenge, so for Dr. Liang, infusing Patient B was a leap of faith. Happily, he reported that he received a check from MediCal for essentially the full secondary amount on the afternoon of August 4, 2011. This is important information because reimbursement for Medicare/MediCal patients has been a significant issue.
    Here’s the full billing and payment history, to date, for Patient B.
    Patient B: First infusion
    Date of infusion: 6/3/2011
    Code used: J3490
    Date charges given to billing service: 6/7/2011
    Date billing sent out: 6/14/2011
    Date Medicare payment received: 7/14/2011
    Amount Medicare paid: $26,288 (80% of Medicare allowable $32,860)
    Date MediCal payment received 8/4/2011
    Amount MediCal paid: $6,463.85 (19.7% of Medicare allowable $32,860)
    Date $31,000 payment to McKesson is due: 10/3/2011
    Patient B: Second infusion
    Date of infusion: 6/17/2011
    Code used: J3490
    Date charges given to billing service: 6/28/2011
    Date billing sent out: 7/14/2011
    Payment pending
    Date $31,000 payment to McKesson is due: 10/17/2011
    Here’s a summary of what Dr. Liang had to say regarding payment: “Speaking only for myself, I currently have no reimbursement concerns regarding Provenge for patients with good private insurance, patients with Medicare/private insurance, or patients with Medicare/MediCal insurance. I would still be reluctant to infuse a patient with MediCal insurance alone.”
    Finally, with the issuance of the final CMS J-Code for Medicare reimbursement of Provenge expected momentarily, the procedures should be in place to speed payment to all medical service providers. There already are indications that some providers are being reimbursed in as little as two weeks.
    Disclosure: I am long DNDN and will not alter my position within 72 hours of the time of publication of this article.
    Stocks: DNDN
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Comments (4)
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  • XTigerX
    , contributor
    Comments (237) | Send Message
     
    The Dendreon conference call announcing the problem should have cited a hypothetical example similar to the real one that Dr. Liang provided. The use of the term "cost density" was annoying and looked like obfuscation.

     

    Thanks for the clear write up.
    10 Aug 2011, 09:35 AM Reply Like
  • SBResident
    , contributor
    Comments (46) | Send Message
     
    Well, only time will tell. We shall see the results of the jcode when next earnings are released.

     

    What really concerned me more was when he mentioned there were Doctors out there who did not know what patients are eligible for Provenge? Did Dendreon's sale force not properly educate the medical community on which patients should receive Provenge?
    10 Aug 2011, 10:07 AM Reply Like
  • Theodore Cohen
    , contributor
    Comments (1898) | Send Message
     
    Author’s reply » Thanks for your comments. I reposted this Instablog because it the previous posting contained some personal information of Dr. Liang's (his cell phone number) that was intended for the editors' use only.

     

    I agree, the term 'cost density' was confusing to the layperson.

     

    Sometimes corporate officers speak to the Street.

     

    But if that were the case here, the officers of Dendreon should have give more consideration to what they were saying because I have never, in all the years I have been investing, seen a more amateurish CC. To do what they did--pull guidance without stating a path forward--was just about the dumbest thing I've ever heard. What did they expect analysts to do? Sit back and say, ah...let us know when you think you get a handle on things. It's no wonder the Street cut the stock off at the knees.

     

    But the fact is, there may not be a reimbursement problem. Certainly, Dr. Liang's only concern was treating patients whose only insurance was MediCal. Those he wouldn't even consider treating.

     

    It's all a matter of commercial providers (and others, as well) having a line of credit with McKesson. The people at Dendreon would have known this if they would have gotten off their collective asses, put feet to the street, and talked to their customers! Duh! That's Marketing 101. Even a college freshman knows that.

     

    It's like that old joke about the guy who had to hit the mule with a 2x4 at the end of the row he and his cousin from the city were plowing. After doing that, the country boy would whisper in the mule's ear, and the mule would dutifully turn around and head back up the next row. "Why did you hit the mule with the 2x4 before whispering instructions in his ear?" asked the city boy of his country cousin. "Because," answered the country boy, "I had to get his attention first."

     

    I guess the Street got Dendreon's attention.

     

    And yes, SBResident, there apparently is a simple test (scan) that can be done to identify early those patients who are candidates for Provenge. The company needs to ensure that this test is performed in a timely fashion and that doctors aware of the need to do so.

     

    Again, thanks for your comments.

     

    Ted
    10 Aug 2011, 11:34 AM Reply Like
  • Theodore Cohen
    , contributor
    Comments (1898) | Send Message
     
    Author’s reply » By the way...

     

    The J-code goes into effect January 1, 2012.

     

    The temporary Q-code went into effect July 1st.

     

    The NCD was published by all MACs last Monday, August 8th.

     

    There should be no question as to how Medicare will reimburse providers for Provenge now.
    10 Aug 2011, 11:47 AM Reply Like
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