Managing Third-Party Relationships

PCC Canada 2017

6 June 2017 Presented by Stephan Ekmekjian and Darren Jones

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Looking ahead to 2017 & beyond

Criticality• Defining key cost drivers for

fee-for-service activities with

HCOs and Payers

• Establishing repeatable FMV

methodologies across a wide

range of service types

Access• Understanding the necessity of

market and patient access

programs to ensure therapies are

accessible to patients, as well as

the increased risks associated

with emerging commercial

strategies

Accountability• Integration of compliance and

business

• Business ownership of

traditional compliance

responsibilities

Complexity• Mapping third-party relationships

and understanding relational risk

• Mining strategic insight from

complex, messy data

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Key questions to be addressed

1. Central risks associated with Third Party interactions

2. Focus Arrangements due diligence

3. How to effectively manage high-risk Third Parties where there are limited ex-ante

risk mitigation options

4. HCP due diligence and tiering

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Key points to be addressed

01 02 03 04

Risks

associated with

third parties

Focus

Arrangements

Due Diligence

Managing high-

risk third

parties

HCP Due

Diligence and

screening

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Bribery and corruption happen in various ways through Third Parties

Forms of bribery Risky Third parties

• Facilitation payments

• Discounts

• Vacations

• Gifts

• Meals

• Employment/Internship

• Product samples

• Free or discounted equipment

• Distributors

• Suppliers (other vendors along supply chain)

• Travel agencies

• Market access consultants

• Event & meeting management vendors

• HCP/Public officials engagements

• Customs agents

• Contract sales organizations

• Contract research organizations

• Medical society / association

• Patient advocacy organizations

Third Parties interaction with HCPs, HCOs, or government

officials is high risk…due diligence is key

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The development of systematic anti-corruption laws enhances the need for Third party (TP) monitoring

North America

USA Foreign Corrupt Practices Act (1977)

USA Federal Anti Kick Back Statutes

Europe

UK Bribery Act (2010)

German Act on Fighting Corruption in the Healthcare Sector (2016)

France Sapin 2 (2016)

APAC

China Anti-bribery laws (1979, amended in 2011)

South Korea The Act on the Prohibition of Improper Solicitation and Provision/Receipt of Money and Valuables (2016)

UAE Penal Code (1987)

South America

Brazil Clean Company Act (2014)

Colombian Transnational Corruption Act (2016)

Mexican National Anti-Corruption system (2016)

Africa

South African Prevention and Combating of Corrupt Activities Act (2004)

North

America

South

America

Africa

Europe

APAC

Note: this is a non-exhaustive list of laws in place to fight corruption

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What is a Focus Arrangement?

Definition of Focus

Arrangements

• The transactions and arrangements involving individuals or entities that

may purchase or make referrals for company products

Suggested Steps to

Follow

• Establish a centralized tracking system for all Focus Arrangements

• Track all remuneration between parties

• Keep service and activity logs

• Monitor leased space, supplies, equipment, etc.

• Establish and implement a written review and approval process for all

Focus Arrangements

• Review all Focus Arrangements by a compliance officer annually

• Effective responses when suspected violations are discovered

Why Are They

Important?

• Focus Arrangements require sensitivity when engaging government

affiliated individuals and hospital systems such as Health Canada, to

guard against anti-bribery and anti-corruption (FCPA) offences

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Third party oversight and management: 5 key objectives

As with all compliance programs, having consistent policies and procedures is essential to ensure

program effectiveness. Consistency in areas such as initial screening/risk rating criteria, risk-

based due diligence and approval/denial criteria are particularly important for TP oversight.

The volume and diversity of TP engagements makes it challenging to gain visibility into key TP

compliance data points such as: how many TPs are we actually engaged with? What do they do

for us? Who vetted and approved the engagement? Business and approval rationale?

Efficiency in execution is vital given the geographic diversity and high volume of TP vendor

engagements. For this reason, having tight and scalable policies and processes and/or some

form of automation is important.

Shared or diffused responsibility among various stakeholders (compliance, finance, business, etc.)

is common in TP management. This potential liability can be alleviated by a clear governance

model with clear lines of review and approval, as well as structured policies and SOPs.

Maintaining accurate records and documentation of all TP arrangements and decision-making

processes is an essential component of the TP program – both for internal tracking and analytics

as well as for regulatory compliance purposes.

Reliability

Transparency

Efficiency

Responsibility

Organization

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Stages of Third Party Management & Oversight Life Cycle

• Business

needs/rationale

• Initial screening

• Contracting

• Business

stakeholder

training

• Vendor training

(as required)

• Risk-based &

Purposeful

• Criteria to decide

which vendors to

monitor

• Exercise auditing

rights

• Consideration:

Who conducts

the audit – legal,

compliance,

internal audit

department

• Risk-based due

diligence

renewal

(periodic)

o Risk

o Internal

resources

• Factors for

termination

• Opportunities to

correct

• Document

conversations

with business

Identification

Engagement

&

contracting

Monitoring

& auditing

Renewal/exit

strategy

Pareto Principle – 80% of corruption risk comes from

20% of vendors

• Vendor

questionnaire

• Vendor FMV or

benchmarking

analysis

• Risk-based due

diligence

Qualification

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Polaris Fair Market Value methodology is based on four key principles

1. Pay market rate for consultant’s time not for the value of the service

Since paying for time, rates should not vary based on type of service

2. Assure methodology supports higher fees for higher expertise

Required to pay “Thought Leader” higher fees

3. Create an effective process for evaluating physician expertise and determining

“Thought Leader” status (i.e. Local, Regional, National, etc.)

Required to avoid kickback allegations

4. Ensure all elements of the fee determination are grounded on objective and

transparent data analysis

FMV methodology designed to be:

Flexible, Consistent, Objective and Auditable

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There are THREE equally important elements of FMV and each are necessary

FMV Rates

TieringModel

Activity Fees

Fair Market Value

Compensation

While FMV rates based on objective data are a key

control in the HCP engagement process they need

to be supported by robust tiering models and

consistent activity fee practice

• Compensation data used for FMV represents

national averages

o Industry does not routinely engage “average”

physicians

If you compensate based on tier, without a standard

methodology it is difficult to ensure consistency

• If you lack consistency, the control is not working

• Depending on your rate methodology, the

overpayment could be 20% - 80% depending on

country and specialty

FMV as a risk control is also strengthened if

companies pay similar fees for similar activities

based on standard service level expectations

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Polaris’ FMV methodology differentiates levels of payment based on HCP expertise

Expert premiums designed to recognize that markets will typically compensate higher levels of

expertise with higher levels of pay

Polaris methodology works with three tiers, defined on level of expertise, not on level of current

earnings

• Tier 3: associated with average to above average expertise

• Tier 2: well recognized in their field within their country but with only limited recognition (if any) in

other countries

• Tier 1: top experts in their field (e.g. top 5-10% in a country)

# physicians

FMV base

rate

Opinion leaders

Exception process

Methodology for expert premiums (KOL)

FMV rate development needs to be combined with an effective methodology for determining HCP

tiers based on standard criteria for recognizing medical and scientific expertise.