Creating a Global FMV Process

Colleen M. Roberts VP, Associate GC and CCO Rosemary E. Weghorst

Director

Lessons Learned From

Implementation

January 29, 2013

1

Table of Contents

The Current Environment – FMV in a Global Context 2

Important Factors to Consider When Implementing Global FMV 9

Global FMV Process: Barriers to Implementation and Lessons Learned 15

Questions 19

The Current Environment FMV in a Global Context

3

Global FMVThe Business Case for FMV

• Regulators are focused on bribery and undue influence

• Anti-Corruption Legislation

– FCPA

– UK Anti-Bribery Act

– French “Sunshine Act”

• Increased Enforcement Efforts

– Corporate Risk

– Individual Risk

• Impact on Business

– Exclusion from Public Contracts

– Reputational Damage

– Damage to Market Valuations

– Loss Strategic Business Opportunities

4

Fair Market ValueReferences to FMV in Regulations

Regulation/Code Country Reference to FMV

EFPIA HCP Code Europe The compensation for the services is reasonable and reflects the fair market value of the services provided.

IFPMA Code of Practice

International The compensation for the services must be reasonable and reflect the fair market value of the services provided.

Code of Deontology BelgiumArticle 49: The remuneration for the services is reasonably in line with the fair market value of the services provided. Consultancy contracts made may not be used as justification for remunerating patient organizations

RDPAC Code of Practice 2012

ChinaSection 7.4 Fees for Services: The compensation for the services must be reasonable and reflect the fair market value of the services provided.

PIF Code of Ethics FinlandSection 36 – Use of Consultants: The compensation payable for the services is reasonable, reflecting the fair market price of such services.

FSA Code of Conduct

Germany

Section 18: Contractual Collaboration with Healthcare Professionals: The remuneration must be exclusively monetary and must be proportionate to the service rendered. When judging the appropriateness of the intended remuneration, the physician’s fee schedule may serve as a reference guide. To take into account the physician’s time expended, appropriate hourly rates may also be arranged.

Code of Ethics for Pharmaceutical Communication (MAGYOSZ)

HungaryArticle 13 – Use and Remuneration of Services: The compensation for the services is reasonable and reflects the fair market value of the services provided. Payment is only made against invoice and performed by bank transfer. In this regard, token consultancy arrangements should not be used to justify compensating Healthcare Professionals.

OPPI Code of Pharmaceutical Practices 2012

India7.4 Engagement of Services from Healthcare Professionals: The compensation for the services must be reasonable and reflect the fair market value of the services provided.

Source: http://www.ifpma.org/about-ifpma/members/associations.html

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Fair Market ValueReferences to FMV in Regulations

Regulation/Code Country Reference to FMV

IPHA Code of Marketing Practices for the Pharmaceutical Industry

Ireland17. Use of Consultants: The compensation for the services must be reasonable and reflect the fair market value of the services provided. In this regard, token consultancy arrangements must not be used to justify compensating healthcare professionals.

Code of Professional Conduct Farmindustria

Italy4.6 Relations between Pharmaceutical Companies and Patient Associations: The compensation for the Services must be reasonable and not exceed the fair market value of the Services provided.

Rules Governing Drug Information Norway7.3 The Use of Health Professionals as Consultants: The compensation for the services is reasonable and reflects the fair market value of the services provided. In this regard, token consultancy arrangements should not be used to justify compensating healthcare professionals.

Code of Practice for the Marketing of Prescription Medicines in South Africa

South Africa10.5.2 Disguised Promotion: Remuneration provided must be reasonable and of fair market value to the work performed.

Code of Conduct of the Pharmaceutical Industry

Switzerland47.2.7 Contracted Services: The compensation for the services is reasonable and does not exceed the fair market value of the services provided.

IRPMA Code of Practice 2012 Taiwan7.4 Fees for Services: The compensation for the services must be reasonable and reflect the fair market value of the services provided.

AFID Code of Good PromotionalPractice

TurkeyArticle 16 – Interactions with Consultants: the compensation for the services is reasonable and reflects the fair market value of the services provided. In this regard, token consultancy arrangements should not be used to justify compensating healthcare professionals.

ABPI Code of Practice for the Pharmaceutical Industry

UKClause 20 – The Use of Consultants: The compensation for the services must be reasonable and reflect the fair market value of the services provided. In this regard, token consultancy arrangements must not be used to justify compensating health professionals and appropriate administrative staff.

Source: http://www.ifpma.org/about-ifpma/members/associations.html

6

Fair Market ValueThe Changing Legal Landscape

• US Sunshine Act (2013)– Requires all HCP payments to be disclosed

– Data publically available

• Anti-Kickback Statute (1987) – Increasing fines and criminal charges from the OIG for perceived bribery of HCPs

• Foreign Corrupt Practices Act (FCPA) (1977)– Bribery of foreign officials to “gain unfair commercial advantage”

– HCPs who work in countries with public health systems considered foreign officials/government employees

• UK Bribery Act (2010) – Applies to UK citizens

– Companies that do business in the UK can be held liable

• French Sunshine Act (FSA) (2012)– Companies much disclose any contracts with HCP’s in R&D and consultancy agreements

• Other country specific rules and guidance– Trade associations with their own rules surrounding the engagement of HCPs

– Australia, Belgium, Netherlands, Japan, Slovakia, etc.

7

FCPA Investigation ImpactThe Pharmaceutical Industry Under Scrutiny

Table 1 Recent Judgments

Year Industry Issue Countries Fine / Settlement

2012 Drug Manufacturer - MajorImproper payments to foreign government officials to win business

Russia, China, Brazil, Poland

$29 million

2012 Drug Manufacturer - MajorIllegal payments to foreign officials to obtain regulatory approvals, sales, and increased prescriptions

Bulgaria, China,Croatia, Czech Republic, Italy,

Kazakhstan, Russia

$45 million

2012 Medical Device CompanyPaid routine bribes to officials to obtain lucrative sale contract with government hospitals

Mexico $5.2 million

2012 Medical Device CompanyBribed public doctors for nearly a decade to win business

Argentina, Brazil, China

$22 million

2012 Medical Device CompanyUS and German subsidiaries bribed public doctors in Greece for more than a decade to win business

Greece $22 million

2011 Drug Manufacturer – MajorBribing public doctors in several European countries to win contracts and paid kickbacks to Iraq to illegally obtain business

Greece, Poland, Romania, Iraq

$70 million

2009 Drug Manufacturer – MajorPaid kickbacks in connection with sale of humanitariangoods to Iraq under the UN Oil for Food Program

Iraq > $10 million

8

Codes of National Industry Associations Disclosure Requirements

Australia – Medicines Australia Code of Conduct, effective January 11, 2013:

The new Code of Conduct will require Medicines Australia member companies to report in aggregate amounts:

• All payments made to HCPs for advisory boards and consultancy arrangements

• All sponsorships of HCPs to attend medical conference and educational events

• All payments made to speakers at educational events

• All sponsorships of all individual consumer organizations for each financial year, including the value of non-monetary support.

Japan – Japan Pharmaceutical Manufacturers Association (“JPMA”):

• Establish a transparency policy to govern activities in accordance with transparency guidelines.

• Disclose payments to medical institutions and healthcare professionals by uploading data on their websites.

• Five categories of payments to be disclosed:

– Research and development-related costs

– Grants/donations

– Honoraria (speaking, writing, and consulting)

– Information exchange costs (i.e., speaker programs)

– Meals and hospitalities provided to healthcare professionals

• Companies obtain the consent of healthcare professionals in order to disclose the aforementioned information. If healthcare professionals refuse to provide consent, companies must stop working with them.

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Netherlands – Code of Pharmaceutical Advertising (CGR)• Under the Dutch code, companies must disclose two different types of financial relationships with

healthcare professionals:– Service agreements (consulting, advisory, speaker; non-speaker research)– Sponsorship agreements of meetings between a company and associations of

professionals/institutions that directly or indirectly improve healthcare to patients or promote medicalscience

Slovakia – Code of Ethics of the Pharmaceutical Industry in Slovakia (Feb 2012), companies must disclose:• Value of advertising and marketing expenses and non-monetary benefits provided directly or indirectly to

healthcare professionals. The Ministry must then publish a report of that information on its website.

United Kingdom – Association of the British Pharmaceutical Industry (“ABPI”) – Companies must disclose:• Provision of medical goods and services in the form of donations, grants, and benefits in-kind to certain

institutions, organizations, or associations• Meetings, hospitality, and sponsorship• The use of consultants• Relationships with patient organizations• Total amount paid in a calendar year in respect of all recipients and the total number of recipients• The total number of attendances at meetings sponsored in the year must also be given.• Registration fees for UK health professionals and administrative staff when paid by overseas affiliates, head

offices in the UK, and UK-based European offices

10


France – French Sunshine Act, December 29, 2011:

• Pharmaceutical companies must disclose the existence of agreements with and all in-kind benefits or in-cash benefits that are provided directly or indirectly to:

– Healthcare professionals, health facilities, and students for relevant occupations

– Associations of healthcare professionals and associations of students for relevant occupations

– User associations of the health system (public or private), foundations, learned societies, and consulting companies or organizations in the health sector

– Legal entities contributing to the initial training of healthcare professionals

– Publishing companies: press, radio, television, and on-line media

– Editors of prescription and dispensing software

• Agreements Types – a broad range that includes:

– Research and development contracts

– Consultancy agreements

– Invitations to healthcare professionals to attend scientific or medical events

• The French Sunshine Act includes various criminal sanctions, including monetary fines, for violations. Furthermore, companies may be prohibited from continuing to manufacture products if they violate the law.

Important Factors to Consider When Implementing Global Fair Market Value

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Components that Drive the Valuation ProcessKey Market Factors

Overall Socio-Economic Environment

• Business environment and competitive pressures

• GDP and Purchasing Price Parity

• Variability in pay and hours

• Inflation – frequency/speed of market changes in compensation

• Unique market challenges – local country practices

Healthcare Systems

• Country’s healthcare system – public vs. private

• Average healthcare spend

• Physician density within each country

• National and international healthcare regulations

Healthcare Professional Compensation

• Variability in pay across specialties

• Variability in pay for qualifications/stature

• Normalizing against annual hours worked per country

Nature of Activities/Services

• Typical structure of agreements and components

• Variability in pay for event type

• Travel time – location of event

13

Socio-Economic FactorsPPP Comparison of General Practitioner’s Pay

Compensation values vary widely by country even when normalized with PPP, due to the different socio-economic factors in each country.

$0 $50 $100 $150 $200

United States

U.K.

Netherlands

Switzerland

Denmark

Canada

France

Australia

Finland

Sweden

Portugal

Belgium

Czech Republic

Hungary

Mexico

AVERAGE

U.S. $1,000 P.P.P’s

General Practitioner’s Pay, in U.S. $1,000 P.P.P’s

Source: OECD Health Data

14

Socio-Economic FactorsAnnual Hours Worked Per Worker

OECD (Organisation for Economic Co-operation and Development) data shows that countries exhibit variability in annual hours worked. This will affect the fair market value of each physician’s hourly rate based on their home country.

Country Annual Hours

Australia 1693

Austria 1600

Belgium 1577

Canada 1702

Chile 2047

Czech Republic 1774

Denmark 1522

Estonia 1924

Finland 1684

France 1476

Germany 1413


Greece 2032

Hungary 1980

Iceland 1732

Ireland 1543

Israel 1890

Italy 1774

Japan 1728

Korea 2090

Luxemburg 1601

Mexico 2250

Netherlands 1379


New Zealand 1762

Norway 1426

Poland 1937

Portugal 1711

Slovak Republic 1793

Slovenia 1662

Spain 1690

Sweden 1644

Turkey 1877

United Kingdom 1625

United States 1787

Source: http://stats.oecd.org/Index.aspx?DatasetCode=ANHRS

15

Considerations When ImplementingKey Internal Factors

Culture• Country expectations• Language differences• Deference to authority• Collaborative ability

Business Structure• Centralized vs. de-centralized compliance• Payment source• Regional/Country structure• International committees/Task forces• Cross-border relationships and activities

History• Previous attempts at centralized process• Decision-making authority• Relationships with key influencers

Communication

� Proactive discussions

� Understanding of drivers

� Opportunity for feedback/buy-in

� Incorporating appropriate stakeholders

HCP Structures

� Current payment structure

� Cross-border relationships and activities

� Expectations related to travel and compensation

16

The Current Status of Company FMVLevels of FMV Framework Sophistication

Stage Description

No System• No particular strategy, approach, or tracking

mechanisms

Rate Card• Group similar activities• Payments based on historical payments for similar

transactions

FMV Process

• Inventory and group transactions• FMV analysis, models, and tools• Validate with external data, where available• Payments tracked and monitored

Global FMV Framework

• Multi-national need for governance at global, regional, country, and company levels

• Standardized processes and methods• Oversight, testing, and monitoring

Global FMV ProcessBarriers to Implementation and

Lessons Learned

18

International FMV Challenges Creating a Plan Up Front

� Understand drivers of FMV

– Law/Regulations (Stark II, Anti-kickback, Sunshine, FCPA)

– International Disclosure Requirements (UK, France, Slovakia)

– National/International Codes of Conduct

� Understand the impact of internal structure and historical issues

– Past payment history and arrangements

– Decision-making structure

� Incorporate key stakeholders up front

– Communicate needs and requirements of FMV

– Make stakeholders and influencers part of the process

– Consider functional teams that cross regions/countries/departments

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International FMV Challenges Driving the Process

� Know data sources and methodology

– Utilize objective third-party payment data

– Consider components that affect FMV service rates:

� Rate structure: hourly rate, activity rate, day rate, multi-day rate

� Payment for travel time: none, partial, capped

� Parameters for travel time: mileages, borders, time spent

� Number of HCP “Tiers”/KOL parameters

� Exception process/exception rates

� Create an ongoing communication plan during process

– Ensure appropriate countries/regions are incorporated

– Ensure appropriate levels-of-effort are incorporated for HCP services

– Ensure appropriate specialties and HCP tiers are incorporated

– Review payment amounts and structures (e.g., multi-day and multi-activity rates)

– Determine level of standardization within the organization

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Implementing an FMV StrategyRolling Out Tools and Ongoing Support

� Determine tools for users� Rate Cards

� Calculators (FMV, KOL)

� Process Documents

� Training Materials

� Determine procedural documents� FMV Methodology/Background

� FMV Policy/Procedures

� Exceptions Process/Methodology

� Determine ongoing support� Additional Specialties

� Additional Counties

� Frequency of Updates

� Sources for Questions and Information

Questions?

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For Further InformationToday’s Presenters

Rosemary E. WeghorstDirector

Huron Life Sciences

Six Concourse Parkway, Suite 1550

Atlanta, GA 30328

T: 678-672-6011

C: 859-802-0136

[email protected]

www.huronconsultinggroup.com

Colleen M. Roberts VP, Associate General Counsel & Chief Compliance Officer

Fresenius Kabi USA, LLC

1501 East Woodfield Road, Suite 300 East

Schaumburg, Illinois 60173

T: 847-706-2090

C: 773-620-2984

[email protected]

www.fresenius-kabi.us