EXAMINE THE BREAKDOWN OF FEES IN MANAGED MARKETS AND SPECIALTY PHARMACIES

Transcription

1 EXAMINE THE BREAKDOWN OF FEES IN MANAGED MARKETS AND SPECIALTY PHARMACIES CBI 4TH ANNUAL FMV CONGRESS March 28, HURON CONSULTING GROUP INC.

2 SPEAKER INTRODUCTIONS John Moose, CPA, ABV Director T E jmoose@huronconsultinggroup.com Jonathan Connell, JD, MBA Senior Counsel Bristol-Myers Squibb HURON CONSULTING GROUP INC.

3 DISCLAIMER +The views expressed in this presentation are the views of the speakers alone and not the views of their respective employers. +None of the information or analyses presented is intended to be legal advice, and should not be relied upon as legal advice. You should consult with your own Legal organizations or outside counsel if you are seeking legal advice on these topics. 3

4 1 BACKGROUND

5 WHY DO PHARMA COMPANIES CARE ABOUT FMV? + In our industry, the service vendors that are best able to provide services on our behalf are often also either customers that either buy our products or are in a position to influence prescribing or purchasing (e.g., soctors, wholesalers or pharmacists (e.g., wholesalers or pharmacies) ) + That raises two principal reasons: Adherence to the Personal Services Safe Harbor to the Federal Anti-Kickback statue Adherence to CMS Bone Fide Service Fee test HURON CONSULTING GROUP INC.

6 THE FEDERAL ANTI-KICKBACK STATUTE (AKS) + The AKS prohibits any person (of Company) from Knowingly and willfully Offering, paying, soliciting or receiving Remuneration (anything of value) Directly or indirectly With the intent to induce or reward business reimbursed under federal healthcare programs + Applies broadly to Company and Company s customers, patients, and vendors For example, wholesalers, hospitals, physicians, retail pharmacies, specialty pharmacies, payers, IDNs, etc HURON CONSULTING GROUP INC.

7 THE PERSONAL SERVICES SAFE HARBOR TO THE FEDERAL AKS + See 42 CFR (d) Requirements: Written agreement signed by parties. Term of at least one year. Agreement must specify aggregate payment and such payment must be set in advance. Compensation must be reasonable, determined through arm s length negotiations and consistent with fair market value. Must set exact services required to be performed. Compensation must not be determined in manner that takes into account volume or value of referrals. The arrangement must serve a commercially reasonable business purpose HURON CONSULTING GROUP INC.

8 FMV THE FOUR PART BONE FIDE SERVICE FEE TEST + To calculate a number of different government pricing metrics relating to Medicaid Rebates and Medicare physician reimbursement (AMP, BP, ASP), regulations dictate that manufacturers should apply a 4 part test. + Under the four-part test, a fee is a bona fide service if the fee: 1. represents fair market value; 2. for a bona fide, itemized service actually performed on behalf of the manufacturer; 3. that the manufacturer would otherwise perform in the absence of the service arrangement; and 4. that is not passed on in whole or in part to a client or customer of an entity HURON CONSULTING GROUP INC.

9 FMV WHY IS THIS SO IMPORTANT? + Enforcement actions over the last five years have brought more focus to service fee arrangements and the importance of establishing fair market value, both in the context of the AKS and in the context of government price reporting. + Examples: Cephalon Litigation (AKS) Warner Chilcott Litigation (AKS) Streck Litigation (GP) Recent Streck-like Civil Investigative Demands from EDPA (GP) HURON CONSULTING GROUP INC.

10 SERVICE FEES AND FMV + With respect to Government Price reporting obligations, manufacturers are required to subject all service and administrative fees paid to Best Price eligible entities to the BFSF test and to document their conclusions at the time the agreement pay the fee is made. + Note that the law does not make a qualitative judgement about the treatment of service or administrative fees. All the law requires is that we subject these fees to the BFSF test. Passing the BFSF test does not make the fee legal, any more than failing the BFSF test makes the fee illegal HURON CONSULTING GROUP INC.

11 EXAMPLE DECISION RULES BONA FIDE SERVICE FEE DECISION RULES I. The fee paid must be for a bona fide, itemized service that is actually performed on behalf of the manufacturer. A. Service is bona fide: Is the service reasonably necessary or useful for the efficient distribution of drugs? B. Service is itemized: Is the service identified in the contract and does it identify specific activities the service provider is to conduct? C. Service is actually performed: Was the service actually performed? D. Service is performed on behalf of the manufacturer: Two criteria may be used to determine if the service provider is performing the service on its own behalf (that is, the service is core to the provider). If the response to both of these criteria is No, then the service may be presumed to be performed on behalf of the Company. a. Does the service provider have an independent legal obligation to perform the service (by operation of law or contract)? b. Would the service provider perform the service in the absence of payment by the Company? HURON CONSULTING GROUP INC.

12 EXAMPLE DECISION RULES BONA FIDE SERVICE FEE DECISION RULES II. Manufacturer would contract for the service in the absence of the arrangement. A. The service is of value to the manufacturer: Does the business case for each of the services support a determination that the Company would have paid for the services, or itself borne the costs associated with them, if the service provider was not retained. III. The fee is not passed on in whole or in part to a client or customer of the service provider A. The service fee was not passed on to a client or customer of the service providing entity: Is there an express understanding that the fee is or is not passed on, or if the Company has evidence or notice that the fee is passed on to a client or customer of the service-providing entity HURON CONSULTING GROUP INC.

13 EXAMPLE DECISION RULES BONA FIDE SERVICE FEE DECISION RULES IV. The fee represents FMV for the services rendered A. The payment for the service represents the FMV of the service: For each service arrangement that passes the first three prongs of the BFSF test, Huron will conduct an FMV analysis of that service or set of services, using the appropriate valuation methodology and assumptions. Huron will publish a range of values for each service or set of services HURON CONSULTING GROUP INC.

14 THE FINAL RULE CONSISTENTLY REFERENCES REASONABLE ASSUMPTIONS Treatment of a service fee as an excludable BFSF would potentially drive all price points higher. This would tend to lead to higher AMPs (which would mean higher Medicaid rebates, unless the BFSF treatment leads to an increase in Best Price) but also an increase in ASP (which implies higher Medicare physician reimbursement). ASP AMP PHS URA HURON CONSULTING GROUP INC.

15 2 PBM AND SP SERVICES

16 PBM ADMINISTRATIVE FEES FEE-FOR-SERVICE ARRANGEMENTS IN THE NEWS The Situation - PBMs The U.S. Department of Justice is investigating several major pharmaceutical companies and PBMs regarding their contractual relationships. Regulatory filings with the Securities and Exchange Commission show that Johnson & Johnson's Janssen unit, Merck, Endo International, and Eli Lilly have all received civil investigative demands (CIDs) from the U.S. Attorney's Office requesting documents and contract information. In October 2016, Express Scripts disclosed that the U.S. Attorney s Office had requested information about two different issues: financial ties with pharma companies and relationships among manufacturers and specialty pharmacies that fill prescriptions. Johnson & Johnson noted that the request for information on its contracts with PBMs from 2006 to present was tied to a False Claims Act investigation HURON CONSULTING GROUP INC.

17 PBM ADMINISTRATIVE FEES FEE-FOR-SERVICE ARRANGEMENTS IN THE NEWS + Administrative fees paid to PBMs can range up to more than 5% of WAC. + These administrative fees may have been treated by pharmaceutical manufacturers as a fee-for-service arrangement rather than a discount (or some combination thereof). + To be treated as a fee-for-service arrangement, the services must satisfy the bona fide fee test as set forth in the Covered Outpatient Drug Final Rule published by CMS. + The DOJ may define bona fide services narrowly for PBM administrative fees HURON CONSULTING GROUP INC.

18 PERVERSE INCENTIVES FEE-FOR-SERVICE ARRANGEMENTS IN THE NEWS [I have never] met, in my entire experience, a PBM or a payer outside of the Medicaid segment that preferred a price of $50,000 over $75,000 and a rebate back to them. - Jim Meyers, EVP of worldwide commercial operations, Gilead PBM revenue received from manufacturers is almost entirely based on the price of the product. This moves the PBMs to compete on the size of the discount and rebate they receive and there appears to be a pecking order common to the oligopolistic PBM industry. Express Scripts responded to Jim Meyers comment aggressively with requests to drop the price of a popular drug sold by Gilead HURON CONSULTING GROUP INC.

19 LACK OF TRANSPARENCY FEE-FOR-SERVICE ARRANGEMENTS IN THE NEWS The plan sponsors of the PBMs lack visibility leading to information asymmetry. Prescription Drug Price Transparen cy Act Creating Transpare ncy (C- THRU) Act The Community Oncology Alliance (COA) endorses the Prescription Drug Price Transparency Act (H.R. 1316) and thanks Congressman Doug Collins (R-GA) and the bill's bipartisan co-sponsors for standing up to the abuses of Pharmacy Benefits Managers (PBMs). rising drug prices and an unnecessary layer of bureaucracy that has a very real - and sometimes dangerous - impact on patient care," said Ted Okon, executive director of COA. "If passed, the Prescription Drug Price Transparency Act, and other legislation like it, will finally help curb PBM abuses. Increasing PBM transparency and fees will also finally move our country closer to solving rising drug costs." Proposed by Senator Ron Wyden as legislation that would force drug middlemen to disclose discounts they receive from manufacturers. The bill would require PBMs to reveal the aggregate rebates that they receive from drug companies for Medicare plans HURON CONSULTING GROUP INC.

20 PBM ADMINISTRATIVE FEES FEE-FOR-SERVICE ARRANGEMENTS IN THE NEWS + Services potentially offered by PBMs may include (not comprehensive): Creating a network of retail pharmacies and processing pharmacy claims Mail-order and specialty pharmacy dispensing Creating drug formularies Drug utilization reviews Compliance and therapy management programs Negotiating and processing manufacturer drug rebates Provision of utilization data and related information + The DOJ may define some or all of the above services as not performed on behalf of the manufacturer with the implication that at least some of the administrative fee should be treated as a discount HURON CONSULTING GROUP INC.

21 SPECIALTY PHARMACY SERVICES FEE-FOR-SERVICE ARRANGEMENTS IN THE NEWS + Services potentially offered by specialty pharmacies may include (not comprehensive): Dispensing and Related Services (ordinary course) Hub Services - BI & PA - Adherence Patient Assistance Programs - Co-pay - Free drug Sales and Inventory Data Adverse Event Reporting Performance Metrics - Time to First Fill - Inventory Level - MP Ratio HURON CONSULTING GROUP INC.

22 5 QUESTIONS?