Government%20Pricing%20

1
Government Pricing Commercial Contracting Big
Changes Coming
Tim Nugent Managing Director Huron Consulting
Group
Debjit Ghosh Director Huron Consulting Group
John D. Shakow Counsel King Spalding, LLP
2
Todays Agenda

• Investigations, Settlements, and Lawsuits
• Changes Enacted by the Deficit Reduction Act
• Operational Challenges of the Deficit Reduction
  Act
• Final Physician Fee Schedule Rule (ASP)
• Determining Fair Market Value for Service Fees
• Compliance Challenges for Medicare Part-D

3
Section I

• Investigations, Settlements, and Lawsuits

4
Pricing Litigation

• AWP cases
• Medicaid rebate cases
• Congressional investigations
• False Claims Act prosecutions
• Qui Tam actions
• (340B cases)

5
Pricing Litigation AWP cases

• GSK settlement
• Plain meaning ruling (November 2, 2007)
• Track I case underway
• Attempts to remove are failing
• Federal intervention in Dey qui tam
• Magistrate Bowler decision on Baxter discovery

6
Pricing Litigation State False Claims Acts

• DRA 6031
• Incentive for states to enact false claims act
  laws that establish liability to the state for
  entities that submit false or fraudulent claims
  to a state Medicaid program
• Increased percentage recovery if the state law
  qualifies
• OIG guidelines for evaluating state false claims
  acts issued August 21, 2006
• Generally modeled after the Federal False Claims
  Act

7
Pricing Litigation State False Claims Acts

• Trickle down incentive to qualify for the
  increased percentage of the recovery, the state
  law must, among other things, reward the relator
  in a way that is at least as effective in
  rewarding and facilitating federal qui tam
  relators
• Treble damages and guaranteed percentages make
  state false claims act actions more attractive to
  relators

8
Pricing Litigation Medicaid Integrity Program

• DRA 6034
• Comprehensive Integrity Plan issued in mid-July
• Well funded and staffed fraud investigation unit
  charged with addressing programmatic
  vulnerabilities including the provision of
  prescription drugs to beneficiaries and the
  underlying costs of those drugs as reported to
  the States
• Division of Fraud Research and Detection
• Enforcement authority?

9
Penalties for Non-Compliance with Price Reporting
Laws

• Exclusion from the Medicaid market
• Civil monetary penalties
• Up to 100k for false statements of AMP or best
  price
• 10k per day for failure to file AMP or best
  price
• 10k per day for misreported ASP
• Civil False Claims Act (federal and state)
• Submitting false statements is a felony
  (particularly on the ASP certification)

10
King Settlement

• November, 2005
• 124 million settlement of a false claims act
  allegation
• Payments to the Federal Medicaid program, several
  states, the Big 4 and PHS covered entities
• Based on the following conduct (performed
  "knowingly")
• failing to collect and analyze its pricing
  information in a manner to ensure that it would
  be able to accurately report AMP and BP
• failing to adequately train its personnel to
  accurately calculate AMP and BP
• failing to provide its employees with appropriate
  software and other tools for calculating AMP and
  BP correctly and 
• including inappropriate customers in its retail
  class of trade (resulting in inaccurate AMPs).

11
King Settlement (contd.)

• The "false records" are alleged to have been the
  calculations themselves, included in the
  quarterly CMS submissions
• King's failure to have adequate systems and
  training -- not that they set out to mislead or
  defraud -- that was enough to trigger an FCA
  investigation and settlement
• Attendant invasive CIA

12
Other Significant Pricing Settlements

• GlaxoSmithKline (September, 2005)
• 150 million
• AWP, AMP and ASP
• Schering Plough (July, 2004)
• 345 million
• Best price
• AstraZeneca (June, 2003)
• 355 million
• AWP and best price
• Bayer (April, 2003)
• 250 million
• Concealed discounts
• TAP (September, 2001)
• 875 million
• AWP and best price

13
Corporate Integrity Agreements

• Most settlements have attendant CIAs
• Invasive
• Independent Review Organizations
• Government Audits
• Long-lasting
• Limit sales and marketing opportunities
• Expensive
• Potentially experimental

14
Section II

• Changes Enacted by the Deficit Reduction Act

15
Overview of the Deficit Reduction Act 2005
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Deficit Reduction Act of 2005

• Federal Upper Limits
• Federal FULs on multiple source drugs to fall
  from 150 of lowest AWP to 250 of AMP (January
  2007)
• FULs set for any drug with one other
  therapeutically equivalent drug (down from two)

17
Deficit Reduction Act of 2005

• Retail Survey Prices and State Reports
• CMS to engage a private vendor to determine
  nationwide average retail prices for Medicaid
  drugs on a monthly basis
• CMS is required to give this data to the states
• States must submit a report annually detailing
  Medicaid payment rates and dispensing fees CMS
  must compare the national retail sales price data
  with the data reported by each state program
  (January 2007)

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Deficit Reduction Act of 2005

• Nominal sales, best price and ASP
• Excludable nominal sales are only those made to
• 340B covered entities
• intermediate care facilities for the mentally
  retarded
• state owned or operated nursing facilities
• other safety net providers (as determined by HHS)
• Nominal sales information to be reported to CMS
  (January 2007)
• Applicable to ASP in that it mirrors best price
  definition

19
Deficit Reduction Act of 2005

• Authorized generics, AMP and best price
• Best price for all single source and innovator
  multiple source drugs inclusive of the best price
  at which the associated authorized generic is
  sold (January 2007)
• Same for AMP

20
Deficit Reduction Act of 2005

• Physician administered drugs
• States to collect and submit to CMS utilization
  and NDC data on PA single source drugs (January
  2006) and the twenty most dispensed PA multiple
  source drugs (January 2008)
• This is an attempt to permit the states to
  collect Medicaid rebates on PA drugs, which are
  currently being tracked by HCPCS J-code

21
Deficit Reduction Act of 2005

• 340B eligibility
• Upon enactment, certain qualified childrens
  hospitals will be eligible to receive 340B
  covered entity pricing

22
Deficit Reduction Act of 2005

• State False Claims Act Laws and Other Fraud
  Abuse Provisions
• Powerful incentives for states to enact their own
  statutes based on the Federal False Claims Act
• May require entities (including pharmaceutical
  manufacturers) to revise and update their
  compliance training programs (January 2007)

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Deficit Reduction Act of 2005

• Rejected provisions
• Increased rebate percentages for both single
  source and multiple source drugs
• Federal oversight of dispensing fees
• Extension of rebates to Medicaid MCOs
• Limited ability to subject certain antipsychotic
  or antidepressant single source drugs to prior
  authorization

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Issues

• Operational Compliance
• Monitor and Participate
• Pricing Transparency
• Aggregation of AMP and BP and Third Party
  Authorized Generics
• False Claims Act Expansions - Litigation Threat
• False Claims Act Expansions - Employee Education
• Medicaid Integrity Program

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Operational Compliance

• Need for robust systems and resources
• Frequency of reporting
• Potential changes to AMP methods resulting from
  rulemaking
• Ability to differentiate among different
  methodological rule sets (e.g., prompt pay in ASP
  v. AMP)
• Possible need for update class of trade
  designations (e.g., ICF/MR nominal)

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Monitor and Participate

• Need to monitor AMP reforms, consider financial
  impact, and participate actively in the
  regulatory process
• Exclusion of prompt pay and potentially other COT
  discounts will increase AMP
• Mechanism to avoid apples and oranges issues
  associated with Base AMP
• Medicare ASP comments may have spillover effects
  on Medicaid

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Pricing Transparency

• Transparency and use of AMP data in reimbursement
  may raise pricing and compliance challenges
• Pharmacies now have a financial interest in AMP
  calculations
• Need to balance rebate benefits of lower AMPs
  against pharmacy product access issues
• Potential pressure for fee-based arrangements in
  lieu of discounts
• Improper AMP calculations may raise new false
  claims theories if used in pharmacy payment rates
  (directly or upper limits)
• Potential compliance effect on manufacturer AMP
  calculation look-back procedures

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Aggregation of AMP and BP and Third Party
Authorized Generics

• DRA 6003
• AMPs and BPs are to be aggregated across all
  products sold under a new drug application
• Relatively simple for a vertically integrated
  operation
• But where authorized generics are licensed to
  third party manufacturers, this aggregation poses
  significant challenges

29
Aggregation of AMP and BP and Third Party
Authorized Generics

• Potential implementation strategies
• share core transaction data, calculate
  independently, compare and reconcile?
• designate a responsible manufacturer and adopt?
• calculate independently, compare, combine and
  report?
• others
• Calculation remains the legal responsibility of
  each labeler

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Aggregation of AMP and BP and Third Party
Authorized Generics

• Legal and contractual concerns
• Indemnification
• Confidentiality
• Differing methodologies and SOPs
• Antitrust
• Obligations to provide data in a timely way
• Third party reconciliation
• Audit rights
• Costs

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False Claims Act Expansions - Litigation Threat

• DRA 6031
• Incentive for states to enact false claims act
  laws that establish liability to the state for
  entities that submit false or fraudulent claims
  to a state Medicaid program
• Increased percentage recovery if the state law
  qualifies
• OIG guidelines for evaluating state false claims
  acts issued August 21, 2006
• Generally modeled after the Federal False Claims
  Act

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False Claims Act Expansions - Litigation Threat

• Trickle down incentive to qualify for the
  increased percentage of the recovery, the state
  law must, among other things, reward the relator
  in a way that is at least as effective in
  rewarding and facilitating federal qui tam
  relators
• Treble damages and guaranteed percentages make
  state false claims act actions more attractive to
  relators

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False Claims Act Expansions - Employee Education

• DRA 6032
• Any entity that receives or pays 5 million
  annually to Medicaid must have written policies
  regarding
• federal and state false claims acts
• detection and prevention of waste fraud and abuse
• whistleblower rights (in the employee handbook)
• These policies must extend beyond just management
  and employees to contractors and agents

34
False Claims Act Expansions - Employee Education

• No guidance yet issued questions of scope and
  depth of required educational initiatives
• The DRA makes these previously voluntary
  compliance policies mandatory
• Manufacturers must establish these policies as a
  precondition of participation in Medicaid (by
  January 1, 2007)
• Monitoring for compliance

35
Medicaid Integrity Program

• DRA 6034
• Comprehensive Integrity Plan issued in mid-July
• Well funded and staffed fraud investigation unit
  charged with addressing programmatic
  vulnerabilities including the provision of
  prescription drugs to beneficiaries and the
  underlying costs of those drugs as reported to
  the States
• Division of Fraud Research and Detection
• Enforcement authority?

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Section III

• Operational Challenges of the Deficit Reduction
  Act

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Overview of the Deficit Reduction Act 2005
Internal Functional Areas Impacted

• Government Price Reporting Department
• Calculating AMP and BP
• Contracting Department
• Effect on Authorized Generics
• Narrow definition of Nominal Prices
• Financial Accounting Department
• Effects on Government and Commercial Rebate
  Accruals
• Information Technology
• Effects on implementing changes on core
  transaction systems
• Effects on implementing changes on government
  price reporting system
• Compliance Internal Audit Functions
• Monitoring and Auditing policies, procedures,
  controls and practices

38
Overview of Deficit Reduction Act 2005
Operational Challenges

• Prompt Pay Discounts to Wholesalers for drugs
  distributed to the retail pharmacy class of trade
  are excluded from the AMP calculation. In
  addition, manufacturers will be required to
  submit data regarding the customary prompt pay
  discount extended to wholesalers.
• Open Questions to CMS
• Definition of a wholesaler
• How will the Base AMP be adjusted, if at all
• What data reporting is CMS going to require
  regarding prompt pay discounts
• Will this require a certification similar to ASP?
• Operational Readiness
• Assess data systems requirements to gather, apply
  and report these amounts
• Assess the impact this will have Medicaid rebates
• Assess the ability to re-file the Base AMP

39
Overview of Deficit Reduction Act 2005
Operational Challenges, contd

• The DRA narrows the definition of ineligible
  nominal price transactions by limiting
  ineligibility to certain entity types to be
  excluded from the Best Price Calculation. In
  addition, DRA requires manufacturers to report
  these nominal prices.
• Entity types where defined as
• A covered entity described in section 340B(a)(4)
  of the Public Health Service
• An intermediate care facility for the mentally
  retarded
• A State-owned or operated nursing facility
• Other entities determined by the Secretary as a
  safety net provider
• Operational Readiness
• Assess current nominal price contractual
  arrangements
• Assess the current class of trade schema
• Assess the impact this will have Medicaid rebates
• Which functional area will track, manage, monitor
  and report nominal pricing

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Overview of Deficit Reduction Act 2005
Operational Challenges, contd

• The DRA expands Childrens Hospitals
  participation in Section 340B drug discount
  program beginning February 8, 2006.
• Operational Readiness
• If these entities are not added to HRSAs 340B
  list of participating entities, manufacturers
  will have to establish a process (both business
  and systems) to
• Identify the appropriate facility within an
  entity
• Assess the pricing being offered to such
  facilities
• Determine the appropriate inclusion/exclusion
  from each of the calculations
• Assess and monitor SOPs and controls to ensure
  that 340B membership eligibility is being
  maintained

41
Overview of Deficit Reduction Act 2005
Operational Challenges, contd

• The DRA amends the definition of AMP and Best
  Price to include all drugs that are sold under a
  new drug application approved under section
  505(c) of the Federal Food, Drug and Cosmetic
  Act. Therefore, authorized generic product
  pricing data will be included in the branded
  product AMP and Best Price.
• Open questions to CMS
• What information is required to be reported to
  each entity without violating anti-trust laws
• How will these amounts be included in the AMP and
  Best Price calculations
• Are transfer prices and/or commercial sales
  prices included
• Royalty, license and revenue sharing payments
• Operational Readiness
• Begin reviewing contractual arrangements and
  begin discussing the process to manage and
  receive data from/to each entity
• System capabilities for transferring data
• Controls in place to ensure accuracy and
  completeness of the data being provided
• Assess the impact Authorized Generic pricing data
  may have on Medicaid Rebates

42
Overview of Deficit Reduction Act 2005
Operational Challenges, contd

• The DRA amends the Medicaid rebate statute to
  increase the reporting frequency of AMP and Best
  Price from quarterly to include a monthly
  reporting requirement. CMS will be providing
  this information on a website accessible to the
  public.
• Open questions to CMS
• What methodology is required to calculate monthly
  AMP and BP
• What are the AMP and BP calculation restatement
  or smoothing requirements
• Will the Medicaid rebates still be based on the
  quarterly AMP and BP calculations
• Will this require certification similar to ASP
• Operational Readiness
• What processes and/or systems would need to be
  updated or modified
• What additional resources (both manual effort and
  automated systems) are required
• Can the appropriate data elements be gathered and
  applied on a monthly basis
• What controls are in place to ensure the data is
  accurate and complete
• What updates to the current policies, procedures,
  systems and controls need to implemented
• What will the process be for training (all levels
  of management and operations) and how will the
  process be monitored on a go forward basis
• What level of variability would be expected from
  a monthly amount and what implications may that
  have on Medicaid rebates

43
Overview of Deficit Reduction Act 2005
Operational Challenges, contd

• The provisions of the DRA require any entity that
  receives or makes at least 5 million in annual
  Medicaid payments needs to perform the following
• Manufacturers must establish written policies
  for all employees (including management), and of
  any contactor or agent, that provides detailed
  information about the False Claims Act, any
  State laws pertaining to civil or criminal
  penalties for false claims and statements, and
  whistle blower protections under such laws.
• Detailed provisions regarding the
  manufacturers policies and procedures for
  detecting and preventing fraud, waste, and abuse
  must be included as part of such written
  policies,
• The employee handbook for the manufacturer must
  include in a specific discussion of the laws
  described above, the rights of employees to be
  protected as whistleblowers, and the
  manufacturer's policies and procedures for
  detecting and preventing fraud, waste, and
  abuse.
• These requirements take effect on January 1,
  2007.

44
Deficit Reduction Act 2005 Next Steps

• Most manufacturers have done some level of review
  to assess the impact of DRA
• Some have commissioned studies or internal
  projects to study the financial impact
• A typical DRA Impact Assessment should assess the
  following
• Policy and Procedures Developing and/or
  updating the current guidelines and processes, as
  well as requirements of DRA
• Data How is the data currently being gathered,
  assessed and applied and how is the data and/or
  feeds going to have to change
• Systems Current data management and government
  price reporting systems and what will need to be
  changed to address DRA
• Customer and Contracting Strategy What new
  pricing and contracting strategies of products
  and customer segments needs to be changed to
  address the changes of DRA
• Training and Monitoring - What level of training
  at all levels of management and operations is
  being performed, as well as what controls have
  been put in place and how are they being
  monitored throughout this process and going
  forward
• The DRA Impact Assessment should provide a
  complete understanding of the current government
  price reporting environment, changes required to
  assess and meet the DRA requirements and a
  detailed timeline of implementation throughout
  the organization

45
Section IV

• Final Physician Fee Schedule Rule (ASP)

46
Overview of CMS Final Ruling

• Key highlights to the Final Ruling include
• Published and distributed on November 3, 2006
• Additional changes and clarification to the ASP
  calculation
• Addresses Deficit Reduction Act of 2005 (DRA)
  effect on the Medicare Average Selling Price
  (ASP) calculation
• Majority of the changes are effective for the
  quarter beginning January 1, 2007

47
Summary of ASP Clarification and Changes

• Determining and applying fees not considered to
  be Price Concessions
• Application of excluding non-eligible sales on a
  lagged basis
• Determining and applying nominal sales
• Other price concession issues

48
Determining and Applying Fees Not Considered
Price Concessions

• Currently Manufacturers must consider
• Volume Discounts
• Prompt Pay Discounts
• Cash Discounts
• Free Goods that are contingent on any purchase
  requirement
• Chargebacks and
• Rebates (other than rebates under the Medicaid
  drug rebate program)
• Clarification on the application of Service and
  Administrative Fees
• Fee paid must be for a bona fide, itemized
  service that is actually performed on behalf of
  the manufacturer
• The manufacturer would otherwise perform or
  contract for the service in the absence of the
  service arrangement
• Fee represents fair market value
• Fee is not passed on in whole or in part to a
  client or customer of any entity.

49
Determining and Applying Fees Not Considered
Price Concessions

• Points for consideration
• Application of the above definition is first
  quarter of 2007
• Encompass any reasonably necessary or useful
  services of value to the manufacturer that are
  associated with the efficient distribution of
  drugs
• CMS would not establish a list of bona fide
  services
• CMS did not mandate the methodology for
  determining fair market value, manufacturers must
  determine a reasonable method
• If a manufacturer determines that a fee meets the
  requirements of a bona fide service (excluding
  Not Passes On), the presumption can be made
  (absence any evidence or notice to the contrary)
  that the fee paid is not passed on
• Contrary to DRA provisions, prompt pay discounts
  extended to wholesalers will not be excluded from
  ASP reporting.

50
Application of Excluding Non-Eligible Sales on a
Lagged Basis

• Certain chargebacks, rebates and other
  transactions are not eligible for ASP
  calculation, however are lagged in nature, such
  as
• VA transactions
• 340B transactions
• Eligible SPAP transactions
• Other ASP ineligible entities.
• A 12 month rolling average ratio methodology
  based on units must be calculated to more
  accurately estimate and exclude these sales from
  the ASP calculation, such as
• Sum of the lagged exempted sales units for the
  most recent 12-month period
• Sum sales units after non-lagged exempt sales
  have been subtracted from total sales units for
  the same period.
• A / B rolling average percentage estimate for
  lagged exempt sales
• C Sales (both and units) after non-lagged
  exempt sales have been subtracted for the current
  quarter

51
Determining and Applying Nominal Sales

• Currently ASP requires sales considered to be
  nominal to be excluded from the ASP calculation
• A price less than 10 of the AMP in the same
  quarter for which AMP is computed.
• Effective January 1, 2007, DRA revised to limit
  this definition to nominal prices made to the
  following
• Covered entities as described in section 340B(a)
  (4) of the Public Health Services Act
• Intermediate care facilities for the mentally
  retarded (ICFs/MR)
• State-owned or operated nursing facilities
• Any other facility or entity that the Secretary
  determines is a safety net provider.
• Effective January 1, 2007, ASP definition of
  nominal pricing will mirror the DRA definition,
  therefore a single method for identifying nominal
  sales for both ASP and AMP will be in effect.

52
Other Price Concession Issues

• Lagged Price Concession for NDCs with less than
  12 months of Sales
• If less than 12 months of data is available than
  the 12 month rolling average will be based on the
  lesser period, except when the products NDC has
  been re-designated.
• Re-designated NDCs
• Use of sales and price concession data for both
  the prior and re-designated NDCs to estimate
  lagged price concessions applicable to the
  re-designated NDC.
• Bundled Price Concessions
• Given the potentially wide range of bundling
  arrangements that might exist and the information
  they currently have around such arrangements,
  methodology for applying bundled arrangements
  was provided at this time.
• MedPac is studying this issue in the upcoming
  year and this position may change.

53
Other Price Concession Issues

• Other ASP Reporting Issues
• Further clarification around drugs covered by
  Medicare Part B, as well as resources to assist
  in identifying NDCs requiring ASP reporting
• Manufacturers are not required to report ASP
  data for an NDC beginning the reporting period
  after the expiration date of the last lot sold
  occurs
• Wholesalers that relabel or repackage NDCs and
  pharmacies must report ASP data to the extent
  they qualify as a manufacturer for Medicaid drug
  rebate purposes
• Returns should not be included in the ASP
  calculation
• Units of drugs sold to an approved CAP vendor for
  use under the CAP are excluded from the ASP
  calculation
• If a manufacturer has a good cause for
  resubmitting its quarterly ASP data, it may do so
  following the submission instructions available
  at
• http//questions.cms.hhs.gov/cgi-bin/cmshhs.efg

54
Section V

• Determining Fair Market Value for Service Fees

55
Stark II Definition for Fair Market Value

• Fair Market Value
• This term appears in most of the compensation
  exceptions. The definition in the final rule is
  almost the same as the January 1998 proposal. It
  defines "fair market value" as the value in an
  arm's-length transaction, consistent with the
  general market value. "General market value" is
  defined as the price an asset brings, or the
  compensation that would be included in a service
  agreement, as the result of bona fide bargaining
  between well-informed buyers and sellers who are
  not otherwise in a position to generate business
  for the other party on the date of the
  acquisition or time of the service agreement. The
  fair market price is the price at which other
  sales have been consummated for similar assets in
  a particular market, and for services, the
  compensation included in other bona fide service
  agreements with comparable terms at the time of
  the agreement.

56
The Compliance Challenge

• Unlike Medicaid, PHS, and Federal Supply Schedule
  Pricing, ASP is a reimbursement mechanism.
• The level of reimbursement may adversely affect
  physician choice for a product.
• In particular, the treatment of service fees may
  be a critical factor in the determination of ASP.

57
Example w/o Service Fees

• WAC/List Price 100.00
• Only discount (constructive or otherwise) is
  prompt pay at 2 or 2.00
• Average Sales Price 98.00
• Reimbursement at 106 of ASP 103.88
• Assume product is sold by wholesaler/distributor
  at list or 100.00
• Net difference to provider at purchase price of
  100.00 3.88

58
Example w/ Service Fees Treated as Discount

• WAC/List Price 100.00
• Only discount (constructive or otherwise) is
  prompt pay at 2 WAC or 2.00
• Average Sales Price 98.00
• Reimbursement at 106 of ASP 103.88
• Assume product is sold by wholesaler/distributor
  at list or 100.00
• Net difference to provider at purchase price of
  100.00 3.88

Service fees paid to wholesalers/distributors
1.5 of WAC or 1.50
If treated as a discount ASP 96.50 (reduced
from 98.00)
Reimbursement at 106 of ASP 102.29
Net difference to provider at purchase price of
100.00 2.29
59
CMS Final Guidance - Treatment of Service Fees

• Clarification on the application of Service and
  Administrative Fees
• Fee paid must be for a bona fide, itemized
  service that is actually performed on behalf of
  the manufacturer
• The manufacturer would otherwise perform or
  contract for the service in the absence of the
  service arrangement
• Fee represents fair market value
• Fee is not passed on in whole or in part to a
  client or customer of any entity.
• Bona fide service fees paid at fair market
  value can be excluded from the calculation of
  ASP.

60
Typical Types of Fees This May Affect

• Typical customer classes that may be affected
• Wholesalers
• Distributors
• Specialty Pharmacies
• MCOs PBMs
• GPOs
• Various fee types
• Inventory management
• Service level delivery
• Chargeback processing
• Data fees
• Customer solicitation and management
• Product and patient support
• Shipping and handling (pick, pack, ship, etc.)
• Brand protection activities

61
The Standards Being Imposed

• Bona Fide Service Fees
• A determination must be made by the manufacturer
  with regard to the specific itemized service
  being bona fide based on the latest guidance.
• The guidance provides a basic minimum standard
  for determination.
• Specifically, it states the following -
  itemized service actually performed by an
  entity on behalf of the manufacturer.
• Fair Market Value
• CMS is also providing a basic minimum standard
  for FMV.
• Based on the above referenced quote, FMV is being
  referenced as at the same rate had these
  services been performed by other entities.

62
Valuation Basics Service Agreements

• In applying the cost approach to services, a
  cost build-up approach is often utilized.
  Under the cost build-up approach, actual or
  expected costs incurred are analyzed and an
  assumed profit level is estimated to derive an
  indication of the fair market value of the
  services.
• In applying the market approach we are looking
  for agreements involving the sale of similar
  services. This market data is adjusted for
  significant differences. Based on types of
  services provided, data provided, pricing for
  services can greatly impact value and lead to
  appropriate adjustments.
• Services provided by outside companies
  Outsourcing functions (e.g., sales force
  training, contract enrollment and administration,
  call center support, data fees)
• Services performed in similar settings or
  environments and
• Our industry knowledge from other projects of a
  similar nature.
• In applying the income approach to services,
  analyses of various rates of return provide
  corroboration for estimated fair market values.

63
Section VI

• Compliance Challenges for Medicare Part-D

64
CMS Issued Comprehensive FWA Guidance for Part-D
Plan Sponsors

• Earlier this year, CMS issued comprehensive
  Fraud, Waste and Abuse (FWA) guidance to
  Medicare Part-D Plan Sponsors.
• Prescription Drug Benefit Manual Chapter 9
• Section 60 outlines the implementation guidelines
  for detecting, correcting, and preventing FWA.
• CMS provides examples of risks to Part-D Plan
  Sponsors, Pharmacies, Prescribers, Wholesalers,
  Pharmaceutical Manufacturers, and Medicare
  Beneficiaries.

65
Section 70.1.6 Pharmaceutical Manufacturer
Fraud, Waste and Abuse

• Lack of integrity of data to establish payment
  and/or determine reimbursement
• Kickbacks, inducements, and other illegal
  remuneration
• Inappropriate marketing and/or promotion of
  products reimbursable by federal health care
  programs
• Improper inducements inappropriate discounts,
  inappropriate product support services,
  inappropriate educational grants, inappropriate
  research funding, or other inappropriate
  remuneration
• Formulary and formulary support activities
• Inappropriate relationships with formulary
  committee members, payments to PBMs, and
  formulary placement payments

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Section 70.1.6 Pharmaceutical Manufacturer
Fraud, Waste and Abuse

• Inappropriate relationships with physicians
• Switching arrangements
• Incentives to physicians to prescribe medically
  unnecessary drugs
• Consulting and advisory payments, payments for
  detaling, business courtesies and other
  gratuities, and educational and research funding
• Improper entertainment or incentives offered by
  sales agents
• Illegal off-label promotion Illegal promotion
  of off-label drug usage through marketing,
  financial incentives, or other promotion
  campaigns.
• Illegal usage of free samples

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Questions?