Monitoring Better Practices: Key Risk Areas in Building Your Program

Katherine BuckleySharon WhiteOctober 21, 2010

www.pwc.com

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Agenda

Planning – Scope, Timing and Risks to Consider

Price Reporting Program Compliance Structure

Monitoring Risk Areas

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Planning

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Price Points to Consider

Program Prices Products Use

Medicaid FFS and MCO Programs

• Average Manufacturer Price (AMP)

• Best Price (BP)

• Unit Rebate Amount (URA)

• Drugs marketed under NDA or ANDA

• Sets the rebate paid by the manufacturer to state Medicaid programs for product dispensed to Medicaid patients

• AMP sets the reimbursement rate used by Medicaid state agencies to make pharmacies whole for dispensing product to Medicaid patients

Medicare Part B • Average Sales Price (ASP) • Physician administered injectable products

• Sets the reimbursement rate for Part B product utilization

Veterans Administration

• Non-Federal Average Manufacturer Price (NFAMP)

• Drugs marketed under NDA

• Informs the price charged to Big 4 entities

Public Health Service / 340B Program

• 340B Price = AMP – URA • Drugs marketed under NDA or ANDA

• Sets the price charged to 340B covered entities

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January 1, 2010 March 23, 2010 October 1, 2010 January 1, 2011

• Base Medicaid Rebate Increase

– Brand Drugs from 15.1 to 23.1%

– Generic Drugs from 11% to 13%

– Clotting Factors and Pediatric from 15.1% to 17.1%

• Alternative Rebate Calculation for New Formulations of Existing Drugs

• URA for S/I Drugs Capped at 100% of AMP

• Expansion of 340B Program

– New 340B Entities

– Exclusion of Orphan

Drugs

• Expansion of Medicaid rebate program to include Medicaid MCOs

• Revised AMP Definition

– Retail Community Pharmacy (RCP)

– Wholesaler

• Expansion of Payments Excluded from AMP

• Monthly Obligation to Report AMP Units to CMS

• Manufacturers to provide 50% Medicare Coverage Gap Discount

– Discounts are excluded from AMP and BP calculations

• Annual Fee for Pharmaceutical Manufacturers effective in 2011

PPACA Government Price Reporting Provisions

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Owner(s):Government PricingGovernment ContractingFinanceRebate Operations/Administration

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Industry Individualities

•Different considerations

- NDA vs. ANDA

- Part B (injectable, physician administered)

- Single vs. Dual Pricer

•Marketing and discount strategies

•Product distribution channels

- wholesaler, specialty pharma, drop ship, hospital, etc.

•System

- type (off the shelf, home grown, Excel), limitations and interfaces

•Range of reasonable assumptions due to manufacturer interpretation of legislation and guidance

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Risks

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• False Claims Act and Qui Tam considerations:

• Settlements have exceeded $100 million for several companies including Schering Plough, Pfizer, AZ, Merck, etc

• Regulations are complex and errors typically exist in the certain high risk areas including:

• Class of Trade;

• Application of Bundling Rules;

• Authorized Generics;

• 340B Eligibility; and

• Completeness of customer discounts.

• Internal Audit departments have increased the level of review and audit

• PPACA required changes and lack of CMS guidance on certain issues

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Timing Considerations

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Q1 YY Q2 YY Q3 YY Q4 YY

Monthly AMP

Dec AMP

Jan AMPFeb AMPMar AMPApr AMP

May AMP

June AMP

July AMP Aug AMPSept AMP

Oct AMP Nov AMP

Quarterly AMP

Q4 AMP Q1 AMP Q2 AMP Q3 AMP

Best Price Q4 BP Q1 BP Q2 BP Q3 BP

Average Sales Price

Q4 ASP Q1 ASP Q2 ASP Q3 ASP

Quarterly NFAMP

Q4 NFAMP

Q1 NFAMP

Q2 NFAMP

Q3 NFAMP

Annual NFAMP

Annual NFAMP

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Price Reporting Program Compliance Structure

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Changing Landscape of Compliance Risk

Compliance departments must revise their approach and develop new solutions that integrate ongoing monitoring procedures into the business processes.

The trend is shifting from the niche applications to backbone solutions, data integration, process automation and business intelligence

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Holistic Approach

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Covered Recipient

MedicalAffairs

MedicalAffairs

Finance, HR, & ITFinance, HR, & IT

Executive Leadership

Executive Leadership

Suppliers/Third-Party Vendors

Suppliers/Third-Party Vendors

Alliance Partners & New Acquisitions

Alliance Partners & New Acquisitions

US HCP Engagement

O-US

US HCP Engagement

O-US

Field Sales & Sales Agents

Field Sales & Sales Agents

MarketingMarketing

Legal & Compliance

Legal & Compliance

Research & Development

Research & Development

Aggregate spend requirements and an increased scope of transparency is causing companies to assess multiple points of interaction and information flow and for companies to refocus on whether flows trigger discount inclusion

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Controls

Back to basics

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Policies and Procedures

Communications

Training

Auditing & Monitoring

Data Integrity

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Controls

Formal living written policies and procedures that address:

• automated and manual calculation methodologies

• inclusion/exclusion by customer classification (CoT)

•inclusion/exclusion by transaction type

• procedures and reports used to analyze results of calculations

•reasonable assumptions

•Methodology change control

•documentation and approvals

•exceptions to procedures

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Policies and Procedures

Communications

Training

Auditing & Monitoring

Data Integrity

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Controls

Open, timely and productive communication between ALL stakeholders:

•Government pricing

•Contract strategy

•Account Directors

•Brand teams

•Legal

•Compliance

•IT

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Policies and Procedures

Communications

Training

Auditing & Monitoring

Data Integrity

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Controls

Training should be for allstakeholders and should:

•include detailed calculation methodologies and processes

•include legislative requirements

•emphasize consequences of non-compliance

•updated to reflect changes in law

Training should be frequent and allow for resources to ask follow-up questions.

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Policies and Procedures

Communications

Training

Auditing & Monitoring

Data Integrity

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Controls

Monitoring:

• Owned by business stakeholders and pricing

• Regular and periodic review and analysis of activities, data or processes to evaluate the business decisions that impact customer pricing

• Random, risk based or selectively targeted sample

• Assist in the development of enhancements and corrective actions

Auditing:

• Owned by Compliance, Internal Audit or Third Party

• Conducted on a set schedule after the completion of calculations

• Agreed-upon random sample of calculations

• Identify opportunities to strengthen controls and business processes, but are typically not involved with enhancements or corrective actions

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Policies and Procedures

Communications

Training

Auditing & Monitoring

Data Integrity

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Controls

•Completeness

•System interface failures

•Manual and automated overrides control

•Data integrity

•Data retention and audit trails

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Policies and Procedures

Communications

Training

Auditing & Monitoring

Data Integrity

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Monitoring Risk Areas

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Monitoring

Controls need to be in place to monitor and identify price concessions before they are offered to customer to assess if:

•a new Best Price is going to be set

•a new FSS price is going to be set based on price concessions offered to a VA negotiated most favorable customer

•a contract represents a bundled arrangements (product and time)

• bona fide service arrangement or price concession

• contingent free goods

Controls need to be in place to ensure entities being offered PHS pricing are 340 eligible customers

Understand when nominal pricing is being offered and why

Monitor and assess if pricing offered at the nominal levels meetexclusion requirements

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Upcoming challenges

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• Evolving contract strategies – move from formulary to outcomes

• “Networked pharma” – outsourcing, in-sourcing, collaborations, and out-licensing

• Licensing arrangements

• CROs, foreign marketing companies, contract manufacturers

• U.S. Attorney interest in 340B programs

• Mergers, mergers, mergers

Thank-you for your attention.

www.pwc.com/pharma

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