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November 16, 2004. Government Price Reporting – Operational Challenges and Solutions. 4.02 Pharmaceutical Price Reporting Issues, Challenges, and Solutions. Ben Barrameda CPA, JD Senior Manager, Life Sciences & Health Care Regulatory Deloitte & Touche LLP. Jody Ann Noon RN, JD - PowerPoint PPT Presentation
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©2004 Deloitte Development LLC. All rights reserved.
2004 Pharmaceutical Regulatory and Compliance Congress
Government Price Reporting –Operational Challenges and Solutions4.02 Pharmaceutical Price Reporting Issues, Challenges, and Solutions
Jody Ann Noon RN, JDNational Practice Leader, Life Sciences & Health Care RegulatoryDeloitte & Touche LLP
November 16, 2004
Ben Barrameda CPA, JDSenior Manager, Life Sciences & Health Care RegulatoryDeloitte & Touche LLP
Copyright © 2004 Deloitte Development LLC. All rights reserved. 2Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 2
2004 Pharmaceutical Regulatory
and Compliance CongressHistorical Perspective • The government pricing requirements have been in place since the inception
of the Medicaid Drug Rebate Program in 1990. In 1992, the Veterans Health Care Act required additional pricing requirements.
• Enforcement has intensified in recent years. Recent settlements involving allegations of false or fraudulent price reporting include the following:
Settlement Date
Company Settlement Amount
Allegations
July, 2004 Schering-Plough $345 million Underpayment of Medicaid drug rebates on Claritin
December, 2003 AstraZeneca Pharmaceuticals
$355 million Fraudulent marketing and drug pricing involving inflation of AWP for Zoladex
April, 2003 Bayer Corporation $257 million “Lick and stick” concealment of discounts to a HMO related to relabeled Cipro to fraudulently inflate Best Price and reduce government rebate payments
April, 2003 GlaxoSmithKline $88 million “Lick and stick” concealment of discounts to a HMO related to relabeled Paxil and Flonase to fraudulently inflate Best Price and reduce government rebate payments
October, 2002 Pfizer $49 million Concealment of discounts to a HMO to fraudulently inflate Best Price and reduce government rebate payments for Lipitor
December, 2001 TAP Pharmaceutical $875 million Fraudulent marketing and drug pricing involving inflation of AWP for Lupron
Copyright © 2004 Deloitte Development LLC. All rights reserved. 3Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 3
2004 Pharmaceutical Regulatory
and Compliance CongressToday –
•Governmental Price Reporting is a monumental challenge due to –– Numerous legal & contractual requirements that
have varied price calculations– Complex business processes with many types of
customers & transactions– A variety of business IT systems that do not integrate– Information that is required but unobtainable
Copyright © 2004 Deloitte Development LLC. All rights reserved. 4Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 4
2004 Pharmaceutical Regulatory
and Compliance CongressPricing Requirements
• Manufacturers must calculate and report BP and AMP to CMS within 30 days of the end of each quarter for all outpatient drugs covered under the manufacturer’s rebate agreement with CMS.
• Manufacturers must pay rebates to each State Medicaid agency within 30 days of receiving Medicaid Utilization information for the covered drugs paid for by the Agency in the quarter.
Medicaid Rebate Program
•Best Price (BP)•Average Manufacturers Price (AMP)
•Unit Rebate Amount (URA)
Copyright © 2004 Deloitte Development LLC. All rights reserved. 5Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 5
2004 Pharmaceutical Regulatory
and Compliance CongressPricing Requirements
• Manufacturers must calculate and report non-FAMP to the Dept of Veterans Affairs (VA) within 30 days of the end of each quarter for all drug products covered under the manufacturer’s Pharmaceutical Pricing Agreement with the VA.
• Manufacturers must calculate and report non-FAMP for all covered drug products by November 15 of each year for the one-year period ended September 30.
• Manufacturers may not charge more than the FCP for covered drug products purchased by Federal Agencies and State homes represented by the VA.
Veterans Affairs
• Non-Federal AMP (non-FAMP)
• Federal Ceiling Price (FCP)
• Federal Supply Schedule (FSS)
Copyright © 2004 Deloitte Development LLC. All rights reserved. 6Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 6
2004 Pharmaceutical Regulatory
and Compliance CongressPricing Requirements
• Manufacturers must calculate and report ASP to CMS within 30 days of the end of each quarter for all Medicare and Part B drugs and biologics covered under the Medicare Prescription Drug, Improvement, and Modernization Act and the Social Security Act.
• ASP will be used to calculate payment allowances to manufacturers for covered drugs and biologics effective January 1, 2005.
Medicare Modernization Act
(MMA)
• Average Sales Price (ASP)
Copyright © 2004 Deloitte Development LLC. All rights reserved. 7Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 7
2004 Pharmaceutical Regulatory
and Compliance CongressPricing Requirements
• Manufacturers may not charge Federally-qualified health centers and other entities enrolled in the 340B Program more than AMP reduced by a rebate percentage calculated for the preceding calendar quarter for outpatient drugs covered under State plans for medical assistance.
Public Health Service Act (PHSA)
Copyright © 2004 Deloitte Development LLC. All rights reserved. 8Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 8
2004 Pharmaceutical Regulatory
and Compliance CongressComplex Business Process
Customer Order and Sales
Contract Management
Chargeback Processing
Incentives & Rebates
Pharmaceutical Manufacturer
Drug Sales
Payment per Contract
Adjustments/Credits
Chargeback Payment
Rebates Payment
DrugPurchaser
Government Price Reporting
Government PricesReported to
CMS, VA
FCP, PHS Prices forVA, PHS Sales
Claims Processing
URA forCalculation ofState MedicaidDrug rebates
Copyright © 2004 Deloitte Development LLC. All rights reserved. 9Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 9
2004 Pharmaceutical Regulatory
and Compliance CongressComplex Business Process - Sales
•All U.S. sales (and Puerto Rico for non-FAMP)•All products participating (practically all)•All distribution channels•All rebates and discounts given•All adjustments to transactions (e.g. shipment in
error, picking error, damaged shipments, etc.)•All other marketing incentives given to induce sale
(e.g. non-bona fide grants)
Copyright © 2004 Deloitte Development LLC. All rights reserved. 10Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 10
2004 Pharmaceutical Regulatory
and Compliance Congress
Complex Business Process – Accounts Receivable & Accounts Payable
•Sales are recorded in period that they occur•Chargebacks are recorded when they are received
and may have 15–45 days of lag time. Chargeback adjustments are received up to 6-8 months later
•Rebates are recorded when they are paid – usually with 2-3 quarters of lag time
•Returns are recorded when received – as much as 1 year of lag time
•Other adjustments may come with several quarters of lag time (e.g. volume discount adjustments, disputed items, etc.)
Copyright © 2004 Deloitte Development LLC. All rights reserved. 11Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 11
2004 Pharmaceutical Regulatory
and Compliance Congress
Pharmacies WholesalersMedicaidPatients
Doctors
StateMedicaidAgency
What Can BePrescribed(Formulary)
Cla
ims/
Utiliz
atio
n
Prescriptions
Cla
ims
Paym
ent
Bill for Medicaid Rebate
Pay Medicaid Rebate
Federal Government
(CMS)
Government Price Reporting
Price Information Drug
Sales
Business Process – Medicaid Rebates
Pharmaceutical Manufacturer
Payments Per
Contract
Rx
Copyright © 2004 Deloitte Development LLC. All rights reserved. 12Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 12
2004 Pharmaceutical Regulatory
and Compliance Congress
Business Process – Managed Care Rebates
Remit Rebates
PBM
-Process/Administer Data
- Program Changes
- Formulary
DoctorsPatients
Pharmacies
Contract
What Can BePrescribed(Formulary)
Transmit Claim Summary
HMOs
PPOs
Networks
Insurers
Employers
Maintain Contract
Transmit Enrollment Data
Generate Summary of Claims Filed/Paid
Medicatio
nPrescr
iptionPayment
Formulary; Claims PaymentPayment
Prescription
Transmit Data
PharmaCompany
Calculations for Government Price
Reporting
Rebates
Copyright © 2004 Deloitte Development LLC. All rights reserved. 13Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 13
2004 Pharmaceutical Regulatory
and Compliance CongressBusiness Process – Chargebacks
Wholesaler
Customer/Patient
Wholesale Price = $20
Customer Pays Contract Price =
$18
Contract Price = $18
Chargeback (CB) =
$2 ($20-$18) Wholesaler
Delivers Drugs
Pharmaceutical Manufacturer
Chargebacks Calculations for Government Price
Reporting
Rx
Copyright © 2004 Deloitte Development LLC. All rights reserved. 14Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 14
2004 Pharmaceutical Regulatory
and Compliance Congress
A Variety of Non-integrated IT Systems
• Many of the systems are legacy and/or customized systems that rely heavily on manual inputs – Contracting system – Invoicing System – Chargeback System– Rebate System– Sales ERP System– Financial Reporting System (general ledger)– Accounts Payable System– Government Price Reporting System– Medicaid Rebate System– Sales ERP system– Various Excel spreadsheets– Access database– Medicaid rebate system– Hardcopy (e.g. customer contracts)
Copyright © 2004 Deloitte Development LLC. All rights reserved. 15Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 15
2004 Pharmaceutical Regulatory
and Compliance CongressUnavailable Information
•Obtaining class of trade of members of GPOs•Tracing back chargebacks to the original
invoice•Tracing back expired products to the original
sales invoice•Obtaining units of returned damaged products
Copyright © 2004 Deloitte Development LLC. All rights reserved. 16Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 16
2004 Pharmaceutical Regulatory
and Compliance Congress
Source: Deloitte Consulting client and vendor experience and analysis
• Identify the business units & departments engaged in any aspect of the supply chain with respect to contracting, sales & collections
• Map all the processes
• Identify the systems that support the processes
• Identify related policies, procedures and business practices
Identify the Current Processes & Technology
•Identify alternatives to improve or change the processes and systems
•Perform system selection analysis if indicated
•Identify areas requiring remediation and/or corrective action (e.g. SOX, Regulatory or Contractual)
•Develop a plan and a budget
Identify Solutions
Implement Plan
• Purchase & implement new systems
• Draft or revise procedures
• Conduct training
• Conduct testing
Action Plan
Copyright © 2004 Deloitte Development LLC. All rights reserved. 17Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 17
2004 Pharmaceutical Regulatory
and Compliance Congress
Improved Payment Accuracy
Increased Market Share
Increased Profitability
AC
TIV
ITIE
S
Improve access to business information and analytic capabilities
Improve customer experience (self-service, support)
Improve automated validation processes
Ensure accuracy level of calculations
Ensure adherence to Sarbanes Oxley requirements
Increase focus on high-value and high potential customers
Improve anticipation and understanding of potential regulatory/ legislation
Improve account management strategies (including retention, win-back strategies)
Improve access to information and analytics
Improve access to business information and analytic capabilities
Improve emphasis on account/ relationship development
Increase emphasis on staff develop- ment (user training)
Improve account management tools and methods
Proactively manage transition points (using notifications, alerts)
Improve responsiveness to customer needs (self-service, support)
Improve tailoring of offerings to customers
Improve account management tools and strategies
Improve breadth, depth, quality, and timeliness of business information
Improve identification and understanding of defection candidates and drivers
Focus/refine retention priorities and strategies
Improve identification of valuable customer relationships
Improve management of contracts and agreements
Develop more comprehensive contract development strategies
Improve access to information and analytical capabilities
Improve integration of source systems
Improve/redesign processes to minimize manual processing, where possible
Ensure adequate documentation maintained (audit trail)
Align internal audit practices with business and risk objectives
Increase focus on risk management and regulatory compliance
Improve security of applications, systems, and data
Improve breadth, depth, quality, and timeliness of business information
Improve breadth, depth, quality, and timeliness of business information
Financial ManagementRevenue Growth Business Performance
Management
Reduced Operational
Costs
ReducedRisk
Improved Cash Flow
Key Business Goals
DRIVERS
Source: Deloitte Value Map – Life Sciences
Strategically, core contracting and pricing processes – and enabling systems – are important drivers of revenue, profitability, and ultimately, shareholder value
Copyright © 2004 Deloitte Development LLC. All rights reserved. 18Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 18
2004 Pharmaceutical Regulatory
and Compliance CongressContract Development Process - Sample
Typical Contract Development Process
Con
trac
tA
dmin
istr
atio
nPay
men
tsG
over
nmen
tP
rici
ngIn
form
atio
nTe
chno
logy
Prici
ngSeg
men
t Developcontractstrategy
Developcontractmaterials
Preparecontracts for
customersignature
Maintaincontracts
Process andpay
chargebacks
Process andpay incentivesand rebates
Calculate andreport
governmentprices
Prepare systemto store
incentives andrebates
Build reports tosupportcontract
Ongoing evaluation of segment and contract performance
Ongoing support for field and customers
Ongoing processing of payments, reporting QA and support for Finance
Ongoing dispute resolution, Medicaid invoice payments, quarterly submissions
Ongoing dispute resolution, Medicaid invoice payments, quarterly submissions
Developtraining
materials
Provide trainingto supportcontract
Notifywholesalers of
bid award
Maintaincontract
membership
Copyright © 2004 Deloitte Development LLC. All rights reserved. 19Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 19
2004 Pharmaceutical Regulatory
and Compliance Congress
Technology SolutionsFunctional Capability Spectrum
Incentives & RebatesModule
GovernmentPricingModule
ChargebacksModule
• Contracts Library
• Workflow Capability
• Standard templates
• Extensive analytical tools
•“What if” scenarios
• Rule based notification broadcasting
• Rule based automatic alerts throughout contract lifecycle
• User generates all reports
• Customer self service
Contract Management
Module
Middle ofClass
Basic System
Best in Class
• Basic analytical tools (e.g. contract profitability)
• Standard templates
• Some notification capabilities
• Reporting requires IS support
• Captures basic contract information and supports ERP sales system
• No analytical capability
• No standard templates
• Automatic validation
• Integrated Credit/Check generation process
• Customer self-service capabilities
• Sales force self-service capabilities
• User generates all reports
• Automatic submission of chargebacks
• Validation is not integrated and time consuming
• No self-service capability
• Reporting requires IS support
• Manual submission of chargebacks
• No systematic validation
• No reporting capability
• User friendly template creation process
• EDI interfaces for input/output
• All transactions are handled by system (no manual processes)
• Settlement process is integrated
• Sophisticated analytical tools (e.g. “what if” scenarios)
• Customer self-service
• User generates all reports
• Manual uploads
• Few templates; complex transactions are performed manually
• No analytical capability
• User templates are available but requires expert assistance to use
• Some analytical capabilities
• Settlement process is not integrated
• Complex transactions are processed manually
• Reporting requires IS support
• Fully automated. Government prices are automatically calculated with minimal manual review
• Audit trails are built-in. Fully supports compliance requirements (e.g. SOX)
• Extensive analytical tools (e.g. “what if” scenarios)
• Automated reconciliations
• EDI interfaces (input/output)
• User generates customer reports
• Integrated settlement process
• Systems are fragmented and manual processes are extensive
• No analytical capability
• Few audit trails
• Ownership is defined but accountability is still issue
• Some system integration. Some government prices are fully automated
• Canned reports available to users
• Some audit trails
Source: Deloitte Consulting client and vendor experience and analysis
Copyright © 2004 Deloitte Development LLC. All rights reserved. 20Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 20
2004 Pharmaceutical Regulatory
and Compliance Congress
Technology SolutionsFunctional Capability Spectrum
Change Management
GeneralInterfaces
• Web based MVC Architecture
• Service oriented architecture
• Object oriented programming language
• Rules based and configuration driven changes
• Compliance with standards
Architecture
• Monolithic application architecture
• Mainframe driven
• Highly customized with proprietary language
• Non modular/tired architecture
• Web based architecture with thin client
• N Tired architecture
• Modular division of functionality
• Use of standard programming languages
• Business Process driven integration
• BPM capability
• Standards based – BPEL, WSDL,XML
• Plug and play with canonical messages format
• Standards based message format
• Process driven EDI capability
• Point to Point interfaces
• Proprietary message formats
• Batch/File based interfaces
• Proprietary communication
• Manual error handling
• Enterprise Application Integration technology
• Synchronous and Async capability
• Publish/subscribe architecture
• Application specific message formats
• Basic EDI capabilities
• Automated error handling
• Available Knowledge base
• Workflow driven process
• Well defined SLA with the users
• Audit controls and documentation
• Historical analysis and rollbacks
• Planned releases based on release numbers
• Manual change management
• Ad hoc process for changes
• Ad hoc release management
• No prioritization
• No audit control and history tracking
• Database to log problems
• Proper analysis for changes
• Planned releases
• Defined process for assignments
• Load balancing and H/A
• Session management and Transaction recovery capability
• Search engine capability
• No High availability
• More than 85% change requests need changes to code
• Need of specialized resources
• H/A
• More Configuration based changes
Basic System
Best in Class
Middle of Class
Copyright © 2004 Deloitte Development LLC. All rights reserved. 21Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 21
2004 Pharmaceutical Regulatory
and Compliance Congress
Jody Ann Noon RN, JDPrincipalNational Practice LeaderLife Science and Health Care Regulatory PracticeDeloitte & Touche [email protected](212) 436-2558
As an RN, JD, Jody utilizes her past experience practicing law to assist life science companies to develop systems to comply with complex legal and regulatory requirements. Jody has experience working with the OIG Compliance Guidance, the federal False Claims Act, Anti-kickback Statute, Medicare & Medicaid requirements, Physician Self-Referral Law (Stark) and Privacy requirements.
Ben Barrameda, Esq., CPA, MBASenior ManagerLife Science and Health Care Regulatory PracticeDeloitte & Touche [email protected](212) 436-3555
Ben is a senior manager in Deloitte’s Life Science and Health Care Regulatory practice, and he is one of Deloitte and Touche’s leading pharmaceutical pricing practitioners. Ben has over 15 years of experience in providing dispute consulting and litigation support, due diligence, internal investigations, developing, implementing and monitoring corporate compliance programs, audit, control, financial modeling, and business processes.
Copyright © 2004 Deloitte Development LLC. All rights reserved. 22Confidential and Proprietary Material of Deloitte Consulting. Copyright © 2002 Deloitte Consulting (US) LLC. All Rights Reserved 22
2004 Pharmaceutical Regulatory
and Compliance Congress