Optimize Government Pricing Agreements for Maximum Returns 19 th Annual Medicaid and Government Pricing Congress We partner with our clients in the Life Sciences & Healthcare industries to provide direct access to the leading experts every day on every project.
Meet the Speakers Chad Garber Aubrey Elmore Director, Managed Services chad.garber@highpointsolutions.com Manager, PCMA Practice aubrey.elmore@highpointsolutions.com Confidential Information. Unauthorized Distribution or Duplication Prohibited. 2
Agenda Global Outlook: Pharmaceutical Market Overview of the Pharmaceutical Contracting Landscape Understand the Value of a Contract Contract Management Best Practices Contracting and Government Compliance Evaluate Contracts for Bona-Fide Service Fees Evaluate Contracts for Bundled Arrangements Evaluate 340B Drug Purchases for Duplicate Discounts 340B Drug Pricing: Penny Pricing 340B Drug Pricing: Civil Monetary Penalties (CMP) Channel Analytics Operational Challenges Questions? Confidential Information. Unauthorized Distribution or Duplication Prohibited. 3
Global Outlook: Pharmaceutical Market The pharmaceutical market is getting much tougher, with tighter regulation and greater government scrutiny: According to the World Health Organization (WHO), between 2015 and 2050, the proportion of the world s population over 60 years of age will nearly double from 12% to 22% 1 The pace of population aging is much faster than in the past Cardiovascular diseases account for most noncommunicable disease deaths (NCD), or 17.7 million people annually, followed by cancers (8.8 million), respiratory diseases (3.9 million), and diabetes (1.6 million) 2 These 4 groups of diseases account for 81% of all NCD deaths Tobacco use, physical inactivity, the harmful use of alcohol and unhealthy diets all increase the risk of dying from a NCD The Patent Cliff Abrupt drop in branded sales expected after the date of expiration Key driver of generic drug growth Regulators around the globe are collaborating more closely Products rejected in one region are more likely to be rejected in others Promotional practices are being scrutinized Penalties and fines for off-label marketing and overcharging of government programs (e.g., Medicaid, 340B) Government is investing more public funds which is attracting more attention Regulators are more proactive and patients are more demanding 1. http://www.who.int/mediacentre/factsheets/fs404/en/ 2. http://www.who.int/mediacentre/factsheets/fs355/en/ Confidential Information. Unauthorized Distribution or Duplication Prohibited. 4
Overview of Pharmaceutical Contracting Landscape Pharmaceutical manufacturers have influence over pharmaceutical prices by: assessing expected demand, future competition, and projected marketing costs to establish the wholesale acquisition cost (WAC), which is the baseline price at which wholesale distributors purchase drug products Wholesale distributors typically sell drugs to pharmacies at WAC plus some negotiated percentage. They may facilitate discounts negotiated between manufacturers and other customers Pharmacies may negotiate with manufacturers or wholesalers for discounts and rebates based on volume sales or market share, and they may negotiate with PBMs for inclusion in their networks and for their reimbursement (drug cost plus dispensing fee) Pharmaceutical Benefit Managers (PBMs) may achieve savings for their customers by negotiating discounts and through cost containment programs, including use of formularies and cost sharing Government Programs (e.g., Medicaid, Medicare Part B & D, Federal Supply Schedule, 340B Drug Pricing Program) Confidential Information. Unauthorized Distribution or Duplication Prohibited. 5
Understand the Value of a Contract The key to unlocking contract value is to develop a granular understanding of the drivers underlying the commercial relationship. In other words, how are the contracts operated? What costs are incurred? And, what impact do these activities have on the broader organization (e.g., compliance)? Value Leakage Low Medium High Contractual Complexity Clear and Transparent Contracts Some Complexity in Commercial Schedules and Cost Structure Cost Structure is Complex and Difficult to Understand Performance Subjectivity Performance and Delivery can be Objectively Evaluated Some Subjectivity in Evaluating Contractual Performance High Subjectivity in Evaluating Contractual Performance Perceived Risk Low Risk/High Control Comfort Some Risk/Inconsistent Control Environment High Risk/Lack of Control Environment Confidential Information. Unauthorized Distribution or Duplication Prohibited. 6
Contract Management Best Practices Objective Ensure performance Watch over the finances Record keeping and reporting Audit compliance Invest in the relationship Develop an integrated network Gauge issues and manage variations Forecast demand and supply Maintain market intelligence Drive continuous improvement Best Practice Set, review, and monitor KPIs Budgets, billing and payment, total cost of contract, and financial trends Real-time audit trails and reporting to stakeholder Monitor compliance of both parties adherence to contractual documents Strong relationship management at all levels Operate within a conceptual framework as a cross-functional team Ongoing identification, prioritization, tracking and resolution Business needs and changes, provider capabilities, etc. Understand your competitors tendencies and the market as a whole (e.g., technology, prices standards, and market conditions) Know your SWOT profile and work cross-functionally to exploit Confidential Information. Unauthorized Distribution or Duplication Prohibited. 7
Contracting and Government Compliance 01 Contracting Strategy Understand the impact healthcare reform has on contracting landscape Government Pricing Impact Evaluate the impact of healthcare reform has on government pricing methodology 02 03 Bridge Gap between Commercial/Compliance Evaluate contracting strategy in light of healthcare reform and impact to government pricing Confidential Information. Unauthorized Distribution or Duplication Prohibited. 8
Evaluate Contracts for Bona Fide Service Fees In accordance with the Center for Medicare and Medicaid Services (CMS) AMP Final Rule, agreements should be evaluated pursuant to 447.502 Bona Fide Service Fee definition using a four-part test. 1. FMV The fee represents fair market value 2. Performance Fee was charged for a bona fide, itemized service actually performed on behalf of the manufacturer 3. Transaction Paid by the manufacturer to an entity 4. Non-product Not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug A company may consider certain fees BFSF s, but should have documented their understanding of those fees and how they arrived at the conclusion. Failing to document conclusions inclusive of FMV framework, may result in non compliance of regulatory requirements, which could lead to hefty fines and an impact on business operations. Confidential Information. Unauthorized Distribution or Duplication Prohibited. 9
Evaluate Contracts for Bundled Arrangements In accordance with the Center for Medicare and Medicaid Services (CMS) AMP Final Rule, agreements should be evaluated for bundled sales pursuant to 447.502 Bundled Sale definition. Any arrangement regardless of physical packaging under which the rebate, discount, or other price concession is conditioned upon the purchase of the same drug, drugs of different types (that is, at the nine-digit National Drug Code (NDC) level) or another product or some other performance requirement (for example, the achievement of market share, inclusion or tier placement on a formulary), or where the resulting discounts or other price concessions are greater than those which would have been available had the bundled drugs been purchased separately or outside the bundled arrangement. Step 1 Calculate the unit discount for each drug Step 2 Calculate the total discount in the bundled sale (unit discount times quantity, summed across bundled drugs) Step 3 Calculate the discount % Step 4 Calculate adjusted unit price for each drug, by multiplying each drug s WAC by 1 minus the discount % Confidential Information. Unauthorized Distribution or Duplication Prohibited. 10
Evaluate 340B Drug Purchases for Duplicate Discounts The 340B Drug Pricing Program provides access to the prices often up to 50% lower than typical market prices. In order to participate, entities must meet eligibility criteria and agree to comply with program requirements. The 340B statute prohibits duplicate discounts. A duplicate discount occurs when a drug purchased with a 340B discount is also subject to a state Medicaid rebate. Method Review Search Be Aware: Some Medicaid managed care organizations (MCOs) offer lower reimbursement if there is no Medicaid rebate collection Description The Medicaid Exclusion File (MEF) by Quarter A covered entity (CE) may have multiple 340B ID s to represent the parent and child sites Each 340B ID must include in the MEF the MPN and NPI numbers used to bill 340B drugs to Medicaid Entities not found in the MEF are carve-out for the full quarter. Entities found in the MEF are carve-in for the full quarter Office of Pharmacy Affairs (OPA) 340B Database Review Medicaid Billing Info by CE: Will you bill Medicaid for drugs purchased at 340B prices? Review Contract Pharmacy listing: validate compliance Confidential Information. Unauthorized Distribution or Duplication Prohibited. 11
340B Drug Pricing: Penny Pricing Under the Medicaid Drug Rebate Program, CMS indexes quarterly AMPs to the rate of inflation; therefore, if the AMP increases at a rate faster than inflation, the manufacturer pays an additional rebate amount which is reflected in an increased URA. In some cases, the basic rebate and the inflation factor could result in a zero or negative 340B price. The Health Resources and Services Administration (HRSA) allows manufacturers to charge $0.01. 1 2 3 Contract Authoring Understand access strategies and their implications on Best Price (BP) Monitor customer relationship and subsequent contract renewals Price Actions Work with commercial teams to gain an understanding of anticipated price increases Review CPI-U trends Analysis Develop expectation model to facilitate an understanding of a future period penny pricing outcome Communicate outcome to key stakeholders Confidential Information. Unauthorized Distribution or Duplication Prohibited. 12
340B Drug Pricing: Civil Monetary Penalties (CMP) The Final Rule entitled, 340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation now effective May 22, 2017, HRSA discussed the imposing CMPs on manufacturers that overcharge 340B Covered Entities (CE). Key Takeaway The penalty When is a penalty likely to happen? What constitutes an instance? Product Launch Description The Department of Health and Human Services (HHS) may impose a penalty not to exceed $5,000 for each instance, for overcharging a CE where a manufacturer, knowingly and intentionally charged a covered entity a price for purchase of a drug that exceeds the maximum applicable price under subsection 340B(a)(1) An instance of overcharging may occur at the time of initial purchase or at subsequent ceiling price recalculations An instance of overcharging is considered at the NDC level and may not be offset by other discounts provided on any other NDC or discounts provided on the same NDC on other transactions, orders, or purchases Recalculations Mitigate Estimated (Provisional) PHS price. Subsequent Actual. Refund overcharged CE s within 120 days. Quantify impact to 340B pricing. Perform liability analysis and resolve. Clear understanding of guidance. Build in processes to prevent pricing error. Confidential Information. Unauthorized Distribution or Duplication Prohibited. 13
Channel Analytics Analytics provides critical intelligence and insight across the contracting landscape, which allows GP teams to be proactive and help to drive outcomes based decision-making. Area 10 9 8 7 6 5 4 3 2 1 0 Physcians Retail Mail Order Best Practice Gross Sales Total of all sale transactions during a period, without any deductions. Chargebacks Discounts that occur when contracted customers purchase directly from an intermediary wholesale purchaser Additional Incentives Rebates paid to contract customers Approach Use structured method and document detailed, systematic steps Create detailed work instructions specific to each step within the process (e.g., acquiring data, formatting data, data pull-through, assumptions, etc.) Updates Well documented auditable process (e.g., establish formal reviews) Input validations (e.g., reconcile to G/L or authoritative source) Validation Reconcile model outputs against expectations and domain expertise (e.g., Oncology therapy, managed care, standard rebates etc.) Scenario Analysis Leverage outputs to explore potential market access opportunities Provide results to key stakeholders (e.g., BU Directors, Managed Markets etc.) Confidential Information. Unauthorized Distribution or Duplication Prohibited. 14
Operational Challenges Operational areas require collaboration and intra-departmental communication to maximize government returns. Some of the functional areas that impact Government Pricing (GP) are identified below: Contract Operations 01 02 03 Contract terms Class of Trade (COT) Contract Strategy Development of strategies Rebate programs Pricing Product launch prices Product price changes Finance Government program accruals GP impact due to (01, 02, 03) above Analytics Legal/Advisory GP Methodologies Contract interpretation Regulation changes 04 05 06 Customer Service Direct sales and customer management Returns Product launch incentives (one time) Business Development 07 08 09 Innovative agreements Market activity (e.g., M&A) Divestitures Brand Managers Market outlook Target population Patent term Government Regulatory landscape Federal, State, Local outlook Advocacy Confidential Information. Unauthorized Distribution or Duplication Prohibited. 15
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