OIG Increases Auditing of Pharmaceutical Manufacturers: Coupons, Part D Remuneration and Medicaid Rebate Administration

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1 For Discussion Purposes Only; Not Intended as Legal Advice. BEIJING BOSTON BRUSSELS CHICAGO DALLAS FRANKFURT GENEVA HONG KONG HOUSTON LONDON LOS ANGELES NEW YORK PALO ALTO SAN FRANCISCO SHANGHAI SINGAPORE SYDNEY TOKYO WASHINGTON, D.C. OIG Increases Auditing of Pharmaceutical Manufacturers: Coupons, Part D Remuneration and Medicaid Rebate Administration William Sarraille, Senior Partner, Sidley Austin LLP , wsarraille@sidley.com October 29, 2013

2 Agenda Recent Department of Health and Human Services ( HHS ) Office of Inspector General ( OIG ) Audits Manufacturer Coupons Medicare Part D Rebates & Fees Medicaid s Average Manufacturer Price ( AMP ) Calculation Lessons Learned and Best Practices in Responding to OIG Requests Where Might OIG Direct Its Attention in the Future? Questions? 2 For Discussion Purposes Only; Not Intended as Legal Advice.

3 Recent OIG Audits: Manufacturer Coupons Work Plan Description: Review of selected manufacturers copayment coupon programs to identify the safeguards they have in place to ensure Medicare Part D beneficiaries do not use them, and states that use of coupons: in Federal health care programs implicates the Anti-kickback Statute ( AKS ); may cause Part D beneficiaries to chose more expensive brand-name drugs; and by Part D beneficiaries was found in a recent survey, causing Medicare to pay more for prescription drugs. OIG Survey : Focus: On manufacturers with known coupon programs, seeking to identify programs being offered by manufacturers and how these coupons are processed at the points of sale. Expected report: The report is still being drafted and undergoing review, and is expected no sooner than Spring 2014 and is expected to include recommendations. 3 For Discussion Purposes Only; Not Intended as Legal Advice.

4 Recent OIG Audits: Manufacturer Coupons (Cont d) Surveyed requested information on: The type (i.e., print, debit, electronic, direct reimbursement) and distribution (i.e., hubs, patient groups, pharmacies, physicians) of coupons. The processes in ensuring consumers do not have Part D coverage with the different types and distributions of coupons. Use and types of any coupon-related auditing practices to ensure consumers do not have Part D coverage. Samples of follow-up items: Sought additional detail on processes used to identify and screen Part D beneficiaries, including front-end v. back-end checks. Asked to speak with hubs, where identified as employing processes to screen Part D beneficiaries. Some manufacturers sought to distinguish patient assistance and/or vouchers from coupons. 4 For Discussion Purposes Only; Not Intended as Legal Advice.

5 Recent OIG Audits: Manufacturer Coupons (Cont d) Possible results of report: The identification of the type and/or distribution of coupons that is believed to be the most/least problematic. A recommendation that Part D plans develop mechanisms to identify/screen Part D beneficiaries from coupons. The development of guidance that auditable processes to screen Part D beneficiaries from coupons must exist as part a price reporting exclusion test. Could have an impact on government enforcement and/or qui tam relator claims, if the findings are negative. Could be used by OIG to try to influence the Centers for Medicare and Medicaid Services ( CMS ) pending federal program decision in connection with exchange implementation. 5 For Discussion Purposes Only; Not Intended as Legal Advice.

6 OIG Increases Auditing of Pharmaceutical Manufacturers: Part D October 29, 2013 Josh O'Harra Assistant General Counsel Legal Eli Lilly & Co. All views expressed are the views of the speaker and not any other individual or entity.

7 Recent OIG Audits: Medicare Part D Rebates & Fees 7 All views expressed are the views of the speaker and not any other individual or entity.

8 Recent OIG Audits: Medicare Part D Rebates & Fees (Cont d) Manufacturer involvement can be incidental. Scrutiny of manufacturer, sponsor, and pharmacy benefit manager ( PBM ) contracts by the government. Don t expect perfect alignment between OIG s Office of Audit Services ( OAS ) and OIG s Industry Compliance branch, but it is an opportunity to educate. Also an opportunity to disclose reasonable assumptions and interpretation of relevant guidance. 8 All views expressed are the views of the speaker and not any other individual or entity.

9 Medicaid s Average Manufacturer Price ( AMP ) Calculation 29 October 2013 Todd LaMastres, Partner Government Contract Services todd.lamastres@ey.com All views expressed are the views of the speaker and not any other individual or entity.

10 Recent OIG Audits: Medicaid s AMP Calculation Work Plan Description: Review of selected manufacturers AMP and Best Price methodologies in light of the available guidance and recent statutory changes, as well as the potential impact on drug reimbursement. OIG Surveys : Focus: Some letters requested only AMP information and data. Methodology Request: List of included and excluded transactions and price concessions/remunerations, including any reasonable assumptions. Data Request: Transactions that mathematically support a specific reported metric(s) for a specific period and a specific national drug code ( NDC ). Minimum detail: Customer name, type of transaction (i.e., sale, chargeback, rebate, etc.), dollar amount, date, and number of units. Deadline: 30 days. Page 10 All views expressed are the views of the speaker and not any other individual or entity.

11 Recent OIG Audits: Medicaid s AMP Calculation (Cont d) The evolution of AMP from the Omnibus Budget Reconciliation Act of 1990 ( OBRA 90 ) to now to 2001: AMP guidance generally limited to sub-regulatory and informal guidance (i.e., CMS releases). HHS issued 4 reports on Medicaid Drug Rebate Program ( MDRP ); review scope and results limited due to lack of clear MDRP guidance. 2002: Congress requests HHS OIG audit of several manufacturers. Audit ultimately performed instead by the Government Accountability Office ( GAO ). Feb. 2005: GAO reported considerable variation in the methods that manufacturers used to determine AMP and Best Price. Feb. 2006: Deficit Reduction Act ( DRA ) signed into law. Called for CMS promulgation of clarifying regulations by July May 2006: Pursuant to DRA requirement, OIG performs review and reports that AMP methodology guidance is unclear and is not comprehensive, causing inconsistently determined AMPs. July 2007: DRA Final Rule issued (effective Oct. 1, 2007). Defined AMP to include specific customer types, adopted an expansive bundle sale definition, and required lagged price concession smoothing. Changed federal upper limit ( FUL ) formula to be a percentage of AMP. Page 11 All views expressed are the views of the speaker and not any other individual or entity.

12 Recent OIG Audits: Medicaid s AMP Calculation (Cont d) The evolution of AMP from OBRA 90 to now (cont d). March 2010 (effective Oct. 2010): The Affordable Care Act ( ACA ) amended the AMP definition to only include Retail Community Pharmacy ( RCP ) sales, which necessitated the Aug i AMP statutory amendment. Effective Dec. 2010: CMS withdrew the AMP portions of the 2007 Final Rule as superseded by ACA. Jan. 2012: CMS releases Proposed AMP Rule to interpret and implement new ACA statutory provisions on AMP. Bottom Line to interested parties? Manufacturers: Operational challenges. Manufacturers: Compliance risks. Pharmacies: AMP use in determining FULs. Page 12 All views expressed are the views of the speaker and not any other individual or entity.

13 Recent OIG Audits: Medicaid s AMP Calculation (Cont d) Could this OIG report muddle the waters, as has occurred before? Prior GAO/OIG reviews have generated Congressional concern and prompted regulatory changes. Does the proposed Post-ACA AMP Rule raise more questions than answers?????: OIG Report?????: Final AMP Rule? Page 13 All views expressed are the views of the speaker and not any other individual or entity.

14 Lessons Learned and Best Practices in Responding to OIG Requests To cooperate or not to cooperate? Surveys v. audits? How best to deal with vague, unclear, and/or overly broad requests? Seek clarification v. answer based on your best understanding? Documentation of clarifications or assumptions? Response mechanism? Oral v. written? Combination? How best to document oral responses? As you v. through outside counsel? Combination approaches? 14 For Discussion Purposes Only; Not Intended as Legal Advice.

15 Lessons Learned and Best Practices in Responding to OIG Requests (Cont d) Who to involve from within the organization? In preparing and in actually responding to requests? Asking for permission to speak with third parties. Best practices in ensuring accurate responses. Dissemination information gleaned from an inquiry? How best to do that? Following-up with OIG after a response. Advantages and disadvantages. Before and after a report is issued. 15 For Discussion Purposes Only; Not Intended as Legal Advice.

16 Where Might OIG Direct Its Attention in the Future? Additional focus on administrative fees and bona fide service fees. Follow-up to Final AMP Rule, when issued. Price appreciation credits, group purchasing organization ( GPO ) fees, etc. Authorized generic calculations. Line extension designations and calculations. Negotiations/contract concessions in exchanges v. commercial v. Part D. Coupons in exchanges. Impact of newly asserted Part D formulary restrictions. 16 For Discussion Purposes Only; Not Intended as Legal Advice.

17 17 Questions?