TRICARE Guidance Documents Available on the TMA Website

By: Meredith Taylor, Esq., CIS Senior Manager
meredithtaylor@cis-partners.com

The TRICARE Final Rule was published on March 17, 2009, and since then CIS has been providing up-to-date information and interpretations of the Rule. In addition to the conference call CIS and Reed Smith hosted on March 26, 2009 (a recording of the call is available upon request, see note below), CIS has been providing you with various blog postings including: Dana Zelig’s article summarizing the rule, Clarissa Crain’s article summarizing and interpreting the comments, and Dave Rice’s article addressing next steps for manufacturers.

In this article, I would like to address the various guidance documents provided for Manufactures on the TRICARE Management Activity’s (TMA) website. TMA is an office of the Department of Defense (DoD) and runs the TRICARE Program. NOTE: The DoD frequently posts Responses to Manufacturer Questions. This article addresses the responses posted on March 19, 2009. Additional questions and responses were posted on March 31, 2009 and can be found here.

Dear Manufacturer Letter – March 18, 2009[1]

This Dear Manufacturer Letter was distributed to advise manufacturers of the publication of the TRICARE Final Rule. The letter states the portion of the National Defense Authorization Act[2] (Act) that pertains to TRICARE, and explains that the Act required the DoD to publish regulations to interpret and implement to provisions in the Act.

The letter advises manufacturers that utilization data for the four quarters of 2008 continues to be available to manufacturers. As you may recall, in order to obtain utilization data, a manufacturer must have filled out a questionnaire and returned it to the DoD, which allows the DoD to provide the data. This has been available over the past year. In regard to Q1 2009 data, the letter indicates that it will be available on April 15, 2009.

The letter explains that refund payments calculated from this data will be required and are due on May 26, 2009, unless a waiver or compromise is negotiated. As you may recall from prior blog articles and the conference call, pursuant to the Federal Debt Collection Act[3], the DoD is permitted to enter into Agreements with manufactures to reduce or waive the refunds that are due. The DoD does not believe that these refunds are retroactive because manufactures have been on notice (since the enactment of the Act in January 200), that refunds would be collected once the regulation was published.*

Finally, the letter addresses the Agreements that manufacturers must enter into with the DoD in order to be considered for Tier 2 on the Uniform Formulary. The DoD will provide further guidance about the procedures for the Agreements and compliance with the Final Rule, but they anticipate that Agreements will have to be executed by June 1, 2009. Manufacturers must enter into an Agreement with the DoD in order to be eligible for Tier 2, but this does not necessarily mean they will be placed on Tier 2; depending on the drug, they may still be placed on Tier 3 even if they enter into an Agreement. Additionally, manufacturers should negotiate these Agreements in a timely manner because the DoD is more likely to reward proactive negotiations with a compromise/waiver on the refunds that are due.

DoD Formulary Pricing Agreement (draft) [4]

The DoD published a draft sample “Retail Refund Pricing Agreement Between TRICARE Management Activity (TMA) and the Manufacturer Identified in Section IX of this Agreement.” This is only a draft Agreement; manufacturers must negotiate their own Agreement with the DoD. The sample Agreement indicates that it does not need to be used as a template and manufacturers may deviate from this particular structure; however, the terms should be similar. The sample Agreement also notes that it does not cover the drugs that are currently part of an executed Uniform Formulary Voluntary Agreement; those arrangements are covered by pre-existing Agreements.

The sample Agreement contains the following sections:

1. Definitions

2. Manufacturer's Responsibility
- Manufacturers must provide refund payments within seventy days from the date of submission of the utilization data, unless they are going through the Dispute Resolution Process.
- There are two calculation methods to choose from in regard to refund calculation: (1) difference between the average Non-FAMP and FCP, and (2) the difference between FCP and the direct commercial contract sales prices attributed to the reported TRICARE paid pharmaceuticals.
- There are two calculated methods to choose from in regard to per unit refund amount: (1) based on units report on utilization reports, and (2) total number of package sizes units (divides total metric quantity by the package size) and round to the next whole number.
- Manufacturers must retain all relevant records for at least three years.

3. TMA's Responsibility
- TMA must include all drugs listed in Appendix A on the three tiered formulary, and consider the drugs for Tier 2.
- TMA must ensure the availability of drugs on Tier 2.

4. Dispute Resolution
- See below.

5. Confidentiality Provisions
- Proprietary information submitted will remain confidential.
- Manufacturers will hold audit information confidential.
- Confidentiality remains even if the agreement is not renewed or is terminated.

6. Non-Renewal and Termination
- The Agreement is effective for one year, and is automatically renewed unless written notice is provided 90 days before the end of the period.
- Manufacturers may terminate for any reason. Termination becomes effective sixty days after written notice is received.
- TMA may terminate for failure to honor the Agreement in writing after sixty days
- If the Agreement is not renewed/terminated, Manufacturer cannot enter into another agreement for at least one compete calendar quarter, unless there is good cause.

7. General Provisions
- Manufacturers must have an existing FSS contract for all drugs in Appendix A .
- Upon transfer of ownership, Agreement is assigned to a new owner.

8. Effective Date
- The Agreement is effective upon signing.
- This is not to be confused with the Effective Date of the Act - January 28, 2008.

9. Signatures

10. Appendix A - Covered Drugs

11. Appendix B - Dispute Resolution Process
- See below.

Dispute Resolution Process [1]

If a manufacturer disputes the accuracy of the utilization data, payment for the disputed refund amount is deferred during the resolution process. When the dispute is resolved, the refund owed, and any interest accrued, are paid by the manufacturer or credited by TMA during the next quarter.

The Dispute Process is as follows:

1. The Pharmaceutical Operations Directorate (POD) submits a Reconciliation of Quarterly Invoice (RQI), with each invoice, to the manufacturer.

2. The manufacturer submits the RQI to the POD if appropriate. The RQI has pre-populated fields, as well as fields to be filled out by the manufacturer (units paid, units disputed, dispute code, withheld invoice amount, rebate amount paid).

3. The manufacturer must submit a disputed claims report for each disputed claim. There is no standard claim form, but the claim must include: RX number, NDC, product name, units, date of service, pharmacy ID number, claims number, dispute code, and supporting documentation.

4. The manufacturer may submit disputes by email, fax, or in hardcopy. A POD point of contact will be provided.

5. The manufacturer must pay the portion of undisputed refunds.

6. The POD and the manufacturer will use their best efforts to resolve the dispute within sixty days.
- If they are unable to resolve the dispute, the Director of POD will issue an administrative decision.
- This decision may be appealed.

TRICARE Retail Refunds Program Responses to Manufacturer Questions[2]

TMA updated the Q&A document on their website to answer specific questions about the Final Rule. The following are a few of the answers that were provided:

- All TRICARE sales are government sales that should be excluded from Best Price. TRICARE sales are treated as government sales for AMP, Non-FAMP, and ASP as well.

- If a Manufacturer signs an Agreement, they are eligible for Tier 2, but not guaranteed Tier 2 placement. It is reviewed at the next P&T Committee.

- The old UF-VARR Agreements are still effective but may be amended if a price above FCP is being offered. It is not required to re-negotiate an old Agreement if FCP was offered because the proper price was being offered.

- Agreements for an additional amount off FCP for preferred formulary placement may be negotiated. If a manufacturer does not negotiate an Agreement, their drugs may still be purchased by TRICARE recipients and refunds must still be paid, so participation in TRICARE is no longer voluntary.

- Refund payments for utilization data from January 28 through December 31, 2008 are due May 26, 2009 unless a waiver or compromise of the amount is granted. Agreements do not have to be signed until June 1, 2009, but it is in the Manufacturer’s best interest to enter into the Agreement before then in order to waive or comprise refund payments due.

*Words in italics are my opinions and commentary on the information provided in the TMA documents.

Note: As mentioned above, CIS' Tricare Final Rule teleconference was recorded and is available upon request. For a copy of the teleconference, please email PCX GP Module Manager, Dana Zelig at danazelig@cis-partners.com

Sources:
[1] http://www.tricare.mil/pharm_mfg/downloads/Dispute%20Resolution%20Process_Web.pdf

[2] http://www.tricare.mil/pharm_mfg/downloads/Response%20to%20Manufacturer%20Questions.pdf

CIS' TRICARE Final Rule Teleconference

By Dave Rice, Director Federal Contracting
daverice@cis-partners.com

I am new to CIS and to the Pharma Compliance Blog, so let me introduce myself. I’m Dave Rice, CIS’ new Director of Federal Contracting. I have over 25 years diverse pharmaceutical industry experience including FSS Contracting, Business Development, FSS Compliance, Pricing and Contracting, Finance and Auditing. Prior to joining CIS, I worked at WSI, Pharmacia, Pharmacia & Upjohn and The Upjohn Company where I held key positions in Auditing, Pricing and Contacting, Federal Government Compliance, and Federal Government Business Development. I am also a past Chairman of the AMSUS-Sustaining Members (Association of Military Surgeons of the United States), an industry organization that brings together private healthcare industry representatives with key Department of Defense (DoD), Department of Veterans Affairs (VA), and U.S. Public Health Service decision makers to facilitate discussion of issues common to all.

Thank you to the to the 95 -100 pharmaceutical company participants who were part of the Tricare Final Rule teleconference sponsored by CIS and Reed Smith on March 26, 2009. There was a lot of information covered in a very short period of time, so I thought it would be good to summarize my thoughts on this “Hot Topic.”

As the Tricare Retail Pharmacy (TRRx) Program moves forward in seeking FCP pricing, and thereby witnessing estimated savings of hundreds of millions of dollars, manufacturers are left with many challenging questions around the legalities and operational aspects of the Final Rule. It is the DoD’s opinion that NDAA-08 and the other additional legal underpinnings sited within the Final Rule are clear… this is a mandatory program, and rebates will be retroactive to 28 January 2008. Pharmaceutical companies must decide if they should challenge the legitimacy of the Final Rule through litigation or participate in the TRRx Program. Litigate or participate… the clock is ticking.

I would break the process of deciding how to act into three parts, 1) Risk Assessment, 2) Waiver Negotiation, and 3) Operational Components.

Risk Assessment
First and foremost, manufacturers must assess the risk of not participating in the TRRx Program. As a manufacturer, you might ask yourself:

• What is the potential liability of calculating refunds back to January, 2008? Is it material?
• If you elect not to participate, and are therefore moved from Tier 2 to Tier 3 on the DoD’s Uniform Formulary, what is the impact on your sales in the retail market segment of going from a $9 copay (Tier 2) to a $22 copay (Tier 3)?
• What is the impact of having a Prior Authorization placed on your product in the various market channels?
• What is the probability that you would be referred to the Department of Justice for collection and/or other legal actions?
• If you were to litigate, what is the probability that you would be successful; and if unsuccessful, how much would it cost you in legal fees and refunds?

Waiver Negotiation
If manufacturers decide to participate in the TRRx program, some of their key considerations should be:

• What is our prospective refund liability?
• What is our retroactive refund liability?
• How much of the retroactive refund can we negotiate away if we voluntarily enter into a Manufacturer’s Agreement with the DoD?
• What is the negotiation process? Is it face to face?
• What rationale would we present for a request of waiver?
• Is the waiver request a written communication?
• How confident are we that the Director of Tricare Management Activity (TMA) would accept our waiver request?
• If the request for waiver is denied, can we resubmit another waiver request?

Understanding the negotiation process is a key component of determining your success in negotiating a waiver of refunds, and in determining if you want to voluntarily and proactively participate in the TRRx program.

Operational Component
If you determine you are going to participate in the TRRx program, there are a number of operation issues to consider:

• How will I validate the legitimacy of the data received from TMA?
• How do I calculate the refund amount?
• What is the procedure for paying the refund?
• How will paying the refund impact my FCP calculation? AMP? ASP?
• What SOP’s will need updating?

There are still more questions than answers related to the Tricare Retail Refund Program, but with only 2 months until the Final Rule’s effective date of May 26, 2009, the clock is ticking. CIS plans to continue dialog with the DoD to get clarification on many of these issues, and will be happy to present your messages and questions. Please tell us your concerns, and feel free to share any ideas you have to make the process work better for all of us.

The bottom line is that “litigate or participate” is not as cut and dry as we would like it to be. Many factors, including a manufacturer’s size, the number and type of drugs in its portfolio, and all the questions raised above, all go into determining your next steps as a manufacturer. What we can tell you is that CIS has the tools to help you weigh this information and come up with the best plan of action. Please feel free to contact me any time, to make sure your company is moving in the right direction. And remember… the clock is ticking.

Sincerely,
Dave Rice
daverice@cis-partners.com

CIS would also like to extend a special thanks to Joe Metro, Esq. from Reed Smith LLP for providing the Legal Perspective on the Tricare Final Rule during yesterday's teleconference. For more information, please see Reed Smith's Life Sciences Health Industry Alert: TRICARE Retail Pharmacy Program Subject to Federal Ceiling Prices Under New DoD Rule.

NOTE: For those of you who missed the May 26th teleconference, it is currently being edited and will be posted on the Pharma Compliance Exchange for reference. Details to follow...

Former President Bill Clinton and Health Care in the United States

By: Kate Lapins, CIS Director of Small and Mid-Market Pharma
katielapins@cis-partners.com

On Larry King Live on March 11, 2009, former President Bill Clinton was interviewed by Sanjay Gupta, MD, about various health care related issues. As many of you probably remember, President and Mrs. Clinton attempted to reform the US health care system during his first term without success. More than 15 years later, it is one of the big issues on the national agenda and it was interesting to hear President Clinton speak on it. Below are highlights of two issues raised in the conversation. (Please note, I have attempted to accurately represent what was said, but I do not have a transcript of the event.)

What are the differences between the previous attempt to reform health care and the current one?

• From 1993 to 2008, US health care costs have gone from 14% to 16% of GDP, whereas in the rest of the developed world, outside of Switzerland, costs have gone from 10% to 11%. Our costs are not only more but they are increasing at a faster rate.
• A greater portion of the US population is underinsured.
• Insurance companies are not as unified against reform, and some are even in favor of it.
• Doctors are more unified for reform.
• Small business owners now want reform.
• Democrats have the majority in the Senate and the House of Representatives so there is less risk of a filibuster, although it is still a risk.
• Coverage is not the challenge this time like it was last time; cost will be the challenge.

What effect does this have on the pharmaceutical industry?

• With pharmaceutical companies, the US had an unofficial “deal” that a greater proportion of the costs associated with research and development would be absorbed by the US, because we recognize its importance and we like having these activities in the US.
• In the US, we paid $66 billion more for drugs than if these same items had been purchased in other parts of the world – according to a Woods Mackenzie study.
• To close the $66 billion gap, there has to be honest, open dialogue with all parties.
• Keeping the drug companies in the US must still be a priority, but the US can no longer afford to fully subsidize the rest of the world.
• The number of new drugs introduced has decreased.
• Many pharmaceutical companies have lost their emphasis on research and development because it is cheaper to acquire late stage products, and the nature of patents has shifted to smaller components and compounds.
• The first step to lower the costs in the short-term is for the Federal government to negotiate prices for Medicare Part D. They have the volume to negotiate better prices and could serve as a model for future programs.

The other big point raised by President Clinton is that the US is spending more and getting less for health care. He said we need to find solutions that allow us to focus on prevention, screening and early treatment that can provide realized savings over the long term.

Besides the current economic crisis, health care is going to be one of the top priorities of President Obama’s administration and I think the opinions expressed by President Clinton may be indicative of the nature of the discussions and the future changes we can expect.

For more on the interview, see the following sources:
http://www.cnn.com/2009/POLITICS/03/11/lkl.bill.clinton/index.html?iref=newssearch
http://www.cnn.com/video/#/video/bestoftv/2009/03/12/lkl.bill.clinton.cnn

Drug Sales Eke out 1.3% Growth in 2008

By: Amy Lotman, CIS Senior Compliance Manager
amylotman@cis-partners.com

Sales of prescription drugs in the United States rose an anemic 1.3 percent in 2008 to $291 billion, as patients opted for cheaper generic versions of their prescriptions, or chose to go without treatment due to the economic downturn.

This has resulted in the sale of prescription drugs in the United States showing the slowest growth in at least 47 years.

It’s a new, lower-growth environment than seen in the past, although some of the factors causing the slowdown have been present for a while. In previous years, U.S. prescription drug sales rose 3.8 percent in 2007 and about 8 percent in 2006 -- those years themselves reflecting a slowdown from annual double-digit percentage sales growth often seen in earlier decades.

The worrisome snapshot comes from information supplied by IMS Health Inc, which compiles market data on the pharmaceutical industry.

Drugs that lower “bad” cholesterol and triglycerides, or raise “good” cholesterol, were the most widely dispensed U.S. retail prescription drugs on a volume basis in 2008, the report showed. These drugs were followed by drugs containing the narcotic painkiller codeine, anti-depressants, and two types of blood pressure drugs called ACE inhibitors and beta blockers.

In terms of overall prescription sales through retail and non-retail channels, antipsychotics led all therapy classes, followed by lipid regulators, a leading class of ulcer drugs called proton pump inhibitors, and anti-seizure medicines.

Even as sales growth slowed in the United States, three large U.S. drugmakers are girding for patent expirations on their biggest medicines in 2011, which will leave them prey to competition from cheaper copycats.

They include Pfizer and its $12 billion-a-year cholesterol fighter Lipitor, Bristol-Myers Squibb and its Plavix blood clot preventer, and Eli Lilly and its schizophrenia treatment, Zyprexa.

Some industry analysts have expressed concern that U.S. sales of prescription drugs could come under even greater pressure if Congress and the Obama Administration require drugmakers to negotiate prices of their branded products.

The United States is the only major industrialized country that does not have price regulations on prescription drugs, a reason the U.S. is the world's most lucrative market for medicines… at least for now.

Sources:
http://www.imshealth.com/portal/site/imshealth
http://www.marketwatch.com/news/story/bristol-myers-cfo-preparing-plavix-plunge/story.aspx?guid=%7BC25B4491-AD4A-400C-98A2-52D9498C1C06%7D
http://www.iht.com/articles/2009/01/14/business/pfizer.php
http://www.zimbio.com/FDA/articles/307/Meltdown+101+drugmakers+deal+down+economy

SPECIAL EVENT: TRICARE Final Rule Conference Call

Department of Defense Publishes the TRICARE Final Rule!

Join CIS and Reed Smith, LLP for a discussion on the business and legal implications of the TRICARE Final Rule.

TRICARE TELECONFERENCE

WHO: CIS and Reed Smith, LLP are offering a free teleconference for all clients who may be impacted by the recent TRICARE Final Rule provisions.

WHAT: Understand what the Final Rule is, how to interpret it, and key aspects that will be of interest to manufacturers.

DATE: Thursday, March 26th

TIME: 11:00 am - 12:00 pm EST

ACTION: Contact CIS to reserve your space for this free teleconference event.

CONTACT: cispcx@cis-partners.com
Please include your name, title, company name, telephone number, and email address.

INFO: For more information on 3.16.09 Federal Register Notice - Final Rule Click here, log in to your GP PCX account and click on HOT TOPICS.

Spaces are limited, so register today!
*

The TRICARE Final Rule: What’s in the Comments?

By: Clarissa Crain, Senior Compliance Consultant
clarissacrain@cis-partners.com

The issuance of the Final Rule, TRICARE: Inclusion of TRICARE Retail Pharmacy Program in Federal Procurement of Pharmaceuticals, amends 32 CFR 199 and implements standards outlined in the National Defense Authorization Act for Fiscal Year 2008 (NDAA-08). The Final Rule states that prescriptions for covered drugs procured by the DoD through the TRICARE Retail Pharmacy Program (TRRx) are eligible for pricing under 38 U.S.C 8126(a) and (b), thereby making FCP pricing related to TRRx a reality.

While the amendments to 32 CFR 199 are not lengthy, the Final Rule document itself is lengthy. Interpreting the regulatory changes is important, however, much of the most pertinent information to manufacturers is within the “Public Comments” section (Section C). In this article I’ve highlighted sections of the Final Rule Comments that respond to some of the most pressing questions coming from manufacturers. Please note that, in some cases, language within this post is pulled directly from the TRICARE Final Rule. However, in other instances, the document has been paraphrased. Please reference the actual Final Rule for direct quotes from the DoD. Additionally, this article is merely informational in nature, and is based on my personal interpretation of the Final Rule. This article is not meant to act as legal guidance or interpretation, and should not be used as such.

What does the TRICARE Final Rule address?

The Final Rule sets out to implementing regulations in response to the National Defense Authorization Act for Fiscal Year 2008 (NDAA-08).

The NDAA-08 states that any prescription filled on or after January 28, 2008 (the date of enactment for NDAA-08) shall be treated as an element of the DoD for purposes of procurement, and be covered by pricing requirements of 38 U.S.C. 8126 (a) and (b) (commonly known as the Veterans Health Care Act of 1992). The pricing calculation requirement outlined by section 8126 is referred to as the Federal Ceiling Price (FCP).

Debate exists between manufacturers and the DoD as to whether or not section 8126 can be extended to TRRx. The DoD argues that TRRx acts as a “depot contracting system” - defined in 8126 as within the scope of FCP:

“a centralized commodity management system through which covered drugs procured
by an agency” are “delivered directly from the commercial source to the entity
using such covered drugs,” 8126(h)(3)

This issue was contested as part of earlier legal actions taken by manufacturers (resulting in the 2006 overturning of the DoD’s previous attempt at obtaining FCP pricing for TRRx), however, the issue of whether or not 8126 extends to TRRx through the interpretation of the “depot” definition was not heard by the court. The overturning of the DoD’s earlier efforts was based on the DoD’s failure to use the proper rule-making channels, and therefore the question of the definition of depot was not explored. This issue could be raised again by manufacturers as contest to the DoD’s current regulation.

Is participation in the TRICARE Retail Pharmacy Program (TRRx) mandatory?

The DoD acknowledges that, in large part, the pharmaceutical industry does not agree with its interpretation of 8126 to extend TRRx through the definition of depot, therefore the DoD is requesting that manufacturers partake in the TRRx Program through voluntary, separate agreements between manufacturers and DoD, independent of the VA Master Agreements. Independent agreements would indicate that a manufacturer agrees to make TRRx prescriptions subject to FCP, unrelated to VA agreements and therefore unrelated to 8126.

By making the TRRx program voluntary, the DoD is not saying that it believes there is no legal obligation to participate, however, it feels that voluntary action consistent with the law is preferable to reliance on enforcement action. Further, the DoD states that it has no reason to, and expressly does not, waive the right to pursue any action authorized by law. The DoD suggests that in order for manufacturers to remedy uncertainties that may exist with respect to the potential existence or scope of enforcement actions, they should enter into voluntary agreements, making uncertainties moot.

While the DoD believes it has the statutory authority to require a manufacturer to agree to provide all covered products at FCP, the DoD is allowing agreements to be negotiated on a product-by-product basis.

What products fall within the purview of the Final Rule?

The DoD states that regardless of whether drugs are currently on the TRICARE Uniform Formulary or are non-formulary drugs, any prescriptions for covered drugs filled on or after January 28, 2008 are subject to FCP pricing (FCPs that apply are those in effect in the year in which the prescription is filled). Therefore, any drug meeting the definition of a covered drug falls within the parameters of 10 U.S.C. 1074g(f) and is subject to FCPs. Manufacturers have argued that U.S.C. 1074 g(f) does not expressly address refunds and, therefore, that refunds can only be required by establishing regulation or entering into contract/agreement with a given manufacturer. With this argument, overpayment reconciliation as requested by the DoD will most likely be contested. Expect to see manufacturers argue this in their request for waiver/compromise on refunds from the NDAA-08 enactment date through final rule effective date, if not as a more formal industry appeal.

It should be noted, however, that if a drug was on formulary during the timeframe of January 28, 2008 through enactment of the Final Rule, and a manufacturer elects not to sign an agreement to honor FCP going forward, the DoD is stating in commentary that this does not change the legal obligation with respect to prescriptions filled on or after the enactment of NDAA-08. Therefore, the DoD seems to expect that overpayments will be reconciled, despite the fact that the manufacturer is not agreeing to honor FCP.

How has the Pharmacy and Therapeutics (P&T) Committee and the Uniform Formulary process been affected?

There are three tiers of drugs on the Uniform Formulary:
Tier 1 – Generics
Tier 2 – Brand name Uniform Formulary Drugs
Tier 3 – Non-Formulary Drugs

Tier 2 drugs are provided at co-payment values of $9, as opposed to higher copayments of $22 dollars for non-Formulary drugs in the TRRx program. In order for Tier 3 drugs to be dispensed through TRRx, a pre-authorization is required. The DoD provides details on how pre-authorization and the utilization of the TRICARE Mail Order Pharmacy Program relate to Uniform Formulary for TRRx.

Based on the DoD’s interpretation of 1074 g(f) and 1074g(a), DoD decisions made by the P&T Committee with respect to Uniform Formulary status will be based on both relative and fixed standards. Relative standards will relate a drug’s cost effectiveness to other drugs in the class. The fixed standard will not allow for a drug to be placed on formulary if its price exceeds the maximum price – FCP. Based on the standards outlined by the DoD, a manufacturer’s agreement to honor FCP pricing has become a condition of Tier 2 status. The only time at which the fixed standard will be waived is when there is not at least one drug in a given drug class (Tier 1 or 2).

Products that have already gone through formulary review, for which uniform formulary status has been granted based on an agreement to honor pricing at or below FCP, will remain on formulary. Products on formulary based on agreements for pricing exceeding FCP, continuation of formulary status will be subject to the requirement that an agreement to honor FCP be in place. Failure to agree to honor FCP pricing will result in the product being reclassified as Tier 3. For drugs remaining on Uniform Formulary through agreement to honor FCP pricing, the secondary, relative review requirement for cost effectiveness will be waived pending the next periodic review of the drug class involved.

Are refunds retrospective?

The NDAA-08 required that regulations be put into place implementing the statute. Manufacturers argued that despite the statute’s intent, in the absence of a regulation the statute had no legal effect. The DoD counters this by arguing that the absence of a regulation does not mean the statute has no legal effect. Therefore, from the enactment of the NDAA-08 on January 28, 2008 through the effective date of the Final Rule, the statute states in express terms that all prescriptions filled on or after the date of enactment “shall” be treated so as to “ensure” that they are subject to FCP. Therefore, with respect to prescriptions filled on or after January 28, 2008, drug companies have a right to payment at FCP and no more. If payment was received in excess of FCP for prescriptions during this timeframe, the transaction produced an overpayment and an overpayment refund is required.

In order to enter into an agreement to honor FCP on a “going forward” basis, manufacturers will be required to refund overpayments accrued on or after January 28, 2008. Overpayments are calculated as either based on average commercial sales price less FCP or non-FAMP less FCP, dependent on how the product was procured.

However, understanding that manufacturers will site a multitude of legalities surrounding overpayment refunds, the DoD has added a provision to the final rule to address the request for compromise or waiver of overpayment refunds.

Paragraph (q) of the final rule addresses a request for waiver or compromise of a refund amount. Although the DoD prefers that agreements to honor FCP also include refund procedures, the DoD provides that manufactures may request waiver or compromise of a refund amount separate from a manufacturer’s written agreement to honor FCPs. Therefore, during the pendency of the refund amount waiver/compromise, a manufacturer may honor the FCP pricing agreement on a go forward basis and not be considered to fail to uphold regulation.

Possible reasons for waiver/compromise request already sited by the industry in comments submitted to the final rule include safe harbor issues with respect to anti-kickbacks, financial reporting issues for historical periods, the lack of appropriate utilization data, and the existence of prior incentive pricing agreements between the DoD and a given manufacturer. It should be noted that waiver criteria (q)93)(iii)(c) does allow a manufacturer to request voluntary exclusion of a covered drug from TRRx and a waiver of refund obligations.

***note: the VA has already provided guidance stating that the there is no need for reclassification of 2008 sales data to redesignate commercial sales as DoD sales because of section 1074g(f).***

What happens to existing Uniform Formulary Voluntary Agreements?

The DoD will continue voluntary negotiation concerning price, but does not have the authority to accept prices above FCP. For existing UF-VARR agreements above FCP, cancelation by the FCP is anticipated. However, it should be noted that they are not canceled merely by the issuance of the Final Rule.

Where will the DoD be responding to additional questions?

The DoD will continue to provide means to answer specific manufacturers’ questions regarding refund procedures, Uniform Formulary, etc. at http://tricare.mil/tma/Pharmacy.aspx

Join CIS and Reed Smith, LLP Thursday, March 26th at 11:00 AM EST for a discussion of the TRICARE Final Rule. To sign up, please send your Name, Title, Company Name, Telephone Number, and preferred Email Address to cispcx@cis-partners.com. A confirmation email with dial-in information will be provided.

Spaces are limited, so sign up today!

The TRICARE Final Rule!

By: Dana Zelig, CIS Senior Associate
danazelig@cis-partners.com

Well readers, it has finally happened. The Department of Defense (DoD) has published the TRICARE Final Rule it has been working on since January 28, 2008. On March 17, 2009, Federal Register Vol. 74, No. 50 announced the TRICARE Final Rule: Inclusion of TRICARE Retail Pharmacy Program in Federal Procurement of Pharmaceuticals. According to the Federal Register’s Summary:

Section 703 of the National Defense Authorization Act for Fiscal Year 2008 (NDAA–08) states with respect to any prescription filled on or after the date of enactment of the NDAA, the TRICARE Retail Pharmacy Program shall be treated as an element of the DoD for purposes of procurement of drugs by Federal agencies under section 8126 of title 38, United States Code (U.S.C.), to the extent necessary to ensure pharmaceuticals paid for by the DoD that are provided by network retail pharmacies under the program to eligible covered beneficiaries are subject to the pricing standards in such section 8126. NDAA–08 was enacted on January 28, 2008. The statute requires implementing regulations. This final rule is to implement section 703 of the NDAA–08… This final rule is effective May 26, 2009.

Background

If you’ve read the Pharma Compliance Blog for a while, you will remember that CIS Senior Compliance Manager Meredith Taylor has been tracking the DoD’s progress in drafting this document, and providing answers to manufacturers confused and frustrated by the lack of guidance around processing TRICARE utilization data. For example, you wondered if you were really supposed to use Medicaid ROSI templates to process TRICARE rebates. In her April 16, 2008 TRICARE Update: Where Oh Where is My Utilization Data?, Meredith confirmed that the DoD did, in fact, want manufacturers to use the ROSI templates (used to process state Medicaid rebate claims) to submit TRICARE rebate data to the federal government.

TRICARE Proposed Rule

On July 25, 2008 the DoD issued a Proposed Rule, to address the TRICARE provisions outlined in the NDAA-08 (see TRICARE Proposed Rule by Meredith and Katie Lapins, Director of Small and Mid-market Pharma). The Proposed Rule established refund procedures, and stated that:

…in the case of the failure of a manufacturer of a covered drug to make or honor an agreement to ensure that DoD pays no more than the Federal Ceiling Price (FCP) for covered drugs provided through the TRICARE Retail Pharmacy Network component of the program, the Director, TRICARE Management Activity (TMA), in addition to other actions referred to in the rule, may take any other action authorized by law. (Federal Register Vol. 74, No. 50 - Section B. Provisions of the Proposed Rule)

However, many companies still struggled to format TRICARE utilization data, calculate rebates, and accrue refunds (see Manufacturers Wrestle with TRICARE Data). Now that the TRICARE Final Rule has been issued, manufacturers are hopeful that a clear-cut path to participating in the TRICARE Retail Pharmacy Program and dealing with TRICARE data has been provided.

Provisions of the TRICARE Final Rule

Section D. Provisions of the Final Rule, describes changes and additions made to the Proposed Rule, based on comments provided by the pharmaceutical industry (good work peers!) and the retail pharmacy sector (Section C. Public Comments), and additional research performed by the DoD between issuing the Proposed Rule on July25, 2008, and issuing the Final Rule on March 17, 2009. We have included the most relevant excerpts from Federal Register Vol. 74, No. 50, Section D for your review:

Like the proposed rule, the final rule adds to section 199.21 of the TRICARE regulation a new paragraph (q) regarding pricing standards for the retail pharmacy program… to state in simpler terms DoD’s interpretation of the statute as requiring that all covered drug TRICARE Retail Pharmacy Network prescriptions are subject to Federal Ceiling Prices under 38 U.S.C. 8126.

Paragraph (2) provides that a written agreement by a manufacturer to honor Federal Ceiling Prices in the retail pharmacy network as required by the statute is with respect to a particular covered drug a condition for inclusion of that drug on the Uniform Formulary (Tier 2) and for the availability of that drug through retail network pharmacies without preauthorization. A covered drug not under such an agreement requires preauthorization to be provided through a retail network pharmacy. This preauthorization requirement does not apply to other points of
service… The final rule adds to the list of non-covered drugs for this purpose any drug provided under a prescription and dispensed by a pharmacy under the Section 340B program.

The final rule adds a new paragraph (q)(2)(iv) stating that the requirement for a manufacturer’s agreement to honor FCPs in the Retail Pharmacy Network as a precondition to Uniform Formulary (Tier 2) placement may, upon the recommendation of the P&T Committee, be waived by the Director, TMA if necessary to ensure that at least one drug in the applicable drug class is included on the Uniform Formulary. Any such waiver, however, does not waive the statutory requirement that all covered TRICARE Retail Pharmacy Network prescriptions are subject to Federal Ceiling Prices; it only waives the exclusion from the Uniform Formulary of drugs not covered by agreements.

Paragraph (q)(3) addresses refund procedures. Paragraph (q)(3)(i) states that refund procedures to ensure that pharmaceuticals paid for by DoD that are provided by retail network pharmacies under the Pharmacy Benefits Program are subject to Federal Ceiling Prices shall be established. Such procedures may be established as part of the agreement referred to above, or in a separate agreement, or pursuant to section 199.11…

Paragraph (q)(3)(ii) provides that the refund procedures shall, to the extent practicable, incorporate common industry practices for implementing pricing
agreements between manufacturers and large pharmacy benefit plan sponsors. The
procedures will provide the manufacturer at least 70 days from the date of the
submission of the TRICARE pharmaceutical utilization data needed to calculate
the refund before the refund payment is due. The basis of the refund will be the
difference between the average non-federal price of the drug sold by the manufacturer to wholesalers, as represented by the most recent annual non-Federal average manufacturing prices (non-FAMP) (reported to the Department of Veterans Affairs (VA)) and the corresponding FCP or, in the discretion of the manufacturer, the difference between the FCP and direct commercial contract sales prices specifically attributable to the reported TRICARE paid pharmaceuticals, determined for each applicable NDC listing. The current annual FCP and the non-FAMP on which it was based will be those applicable during the calendar year in which the prescription was filled.

As under the proposed rule, paragraph (q)(3)(iii) provides that a refund due under the law is subject to section 199.11 of the TRICARE regulation, the section that governs recovery of overpayments. The final rule provision has been revised to clarify that the refund amount will be treated, in the vernacular of section 199.11, as an erroneous payment. The final rule has also been revised to elaborate that the
applicability of section 199.11 brings with it a procedure for a manufacturer to request waiver or compromise of a refund amount due under the statute. During
the pendency of any request for such a waiver or compromise, a manufacturer’s
written agreement to honor FCPs shall be deemed to exclude the matter that is
the subject of the request for waiver or compromise so that the agreement, if
otherwise sufficient, will continue to be sufficient for purposes of satisfying the precondition to Uniform Formulary Tier 2 placement.

Also, during the pendency of any such request, the matter that is the subject
of the request shall not be considered a failure of a manufacturer to honor an
agreement for purposes of remedies for noncompliance. The final rule is further
revised to state that a request for waiver may also be premised on the voluntary removal by the manufacturer in writing of a drug from coverage in the TRICARE Pharmacy Benefit Program. This change further protects a manufacturer from involuntary involvement in the program.

One other change to the refund procedures paragraph is that a new paragraph
(q)(3)(iv) has been added to state that in the case of disputes by the manufacturer of the accuracy of TMA’s utilization data, a refund obligation as to the amount in dispute will be deferred pending good faith efforts to resolve the dispute. If the dispute
is not resolved within 60 days, the Director, TMA will issue an initial administrative decision and provide the manufacturer with opportunity to request reconsideration or appeal consistent with procedures under the TRICARE regulation. When the
dispute is ultimately resolved, any refund owed relating to the amount in dispute will be subject to an interest charge consistent with the normal regulatory practice.

Paragraph (q)(4) provides that in the case of the failure of a manufacturer of a covered drug to make or honor an agreement under paragraph (q), the Director, TMA, in addition to other actions referred to in the paragraph, may take any other action authorized by law. This paragraph is unchanged from the proposed rule.

Finally, a new paragraph (q)(5) has been added. It provides that in cases in which a
pharmaceutical is removed from the Uniform Formulary or designated for
preauthorization, the Director, TMA may for transitional time periods determined
appropriate by the Director or for particular circumstances authorize the continued availability of the pharmaceutical in the retail pharmacy network or in MTF pharmacies for some or all beneficiaries as if the pharmaceutical were still on the Uniform Formulary.

Look for an in-depth account of these changes on the Blog and in the upcoming PCX Newsletter, and feel free to contact CIS at any time to discuss how the changes might affect you and your company! We at CIS are working hard to make sure you have the tools you need to comply with the TRICARE Final Rule by its effective date of May 26, 2009!

Also stay tuned for an upcoming CIS conference call, where we will take your questions and provide our insight into the TRICARE Final Rule.

*

FDA Drug and Device Requirements Workshop

This week HHS announced the Association of Food and Drug Officials (AFDO) 113th Annual Education Conference, which will be held in Chicago from June 6-10, 2009. The following information was posted in the Federal Register, Vol. 74, No. 49:

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Food and Drug Administration
[Docket No. FDA–2009–N–0664]

Industry Exchange Workshop on Food and Drug Administration Drug and Device Requirements; Public Workshop

AGENCY: Food and Drug Administration, HHS.

ACTION: Notice of public workshop.

SUMMARY: The Food and Drug Administration (FDA) Chicago District, in co-sponsorship with the Association of Food and Drug Officials (AFDO), is announcing a public workshop entitled ‘‘Drugs and Devices—Promoting and Protecting the Public Health Through Risk Management and Product Cycle Improvement.’’ This 2-day public workshop is intended to provide information about FDA drug and device regulation to the regulated industry.

Date and Time: The public workshop will be held on Monday, June 8, 2009, from 10:20 a.m. to 5 p.m. and Tuesday, June 9, 2009, from 8 a.m. to 5 p.m.

Location: The public workshop will be held at the Doubletree Hotel Chicago—Oakbrook, 1909 Spring Rd., Oak Brook, IL 60523, 800–222–TREE, 800–222–8733, or 630–472–6000, FAX: 630–573–1909.

Attendees are responsible for their own accommodations. To make reservations at the Doubletree Hotel Chicago—OakBrook, at the reduced conference rate, contact the Doubletree Hotel Chicago—OakBrook before May 5, 2009, citing meeting code ‘‘AFDO
Conference’’.

Contact: William Weissinger, Food and Drug Administration, 550 W. Jackson Blvd., 15th Fl., Chicago, IL 60661, 312–596–4210, FAX: 312–596–4242, e-mail: William.weissinger@fda.hhs.gov.

Registration: You are encouraged to register by May 12, 2009. The AFDO registration fees cover the cost of facilities, materials, and breaks. Seats are limited; please submit your registration as soon as possible. Course space will be filled in order of receipt of registration. Those accepted into the course will receive confirmation. Registration will close after the course is filled. Registration at the site is not guaranteed but may be possible on a space available basis on the day of the public workshop beginning at 7:30 a.m.

The cost of registration is as follows:
Government (AFDO/North Central AFDO Member) - $395.00
Government (Non-Member) - $495.00
Non-Government (AFDO/NCAFDO Member) - $450.00
Non-Government (Non-Member) - $550.00
*To be added to registration fee for workshop registration postmarked after May 12,2009 - $75.00

If you need special accommodations due to a disability, please contact William Weissinger at least 7 days in advance of the workshop.

Registration instructions:
To register, please submit your name, affiliation, mailing address, phone, fax number, and e-mail, along with a check or money order payable to ‘‘AFDO.’’ Please mail your payment to: AFDO, 2550 Kingston Rd., suite 311, York, PA 17402.

To register via the Internet, go to http://www.afdo.org/. (FDA has verified the Web site address, but is not responsible for subsequent changes to the Web site after this document publishes in the Federal Register).

The registrar will also accept payment by major credit cards (VISA/MasterCard only). For more information on the meeting, or for questions on registration,
contact AFDO, 717–757–2888, FAX: 717–755–8089, or e-mail: afdo@afdo.org.

SUPPLEMENTARY INFORMATION:
The public workshop helps fulfill the Department of Health and Human Services’ and FDA’s important mission to protect the public health. The workshop will provide FDA-regulated drug and device entities with information on a number of topics concerning FDA requirements related to the production and marketing of drugs and/or devices. Topics for discussion include the following:

• Risk management approach to consumer protection and industry regulation
• How quality management systems (including corrective and preventive action) contribute to product cycle improvement
• Supplier management and component controls for drugs and devices
• Adverse drug event reporting requirements
• Medical device reporting requirements
• Recalls, corrections and removals
• Complaint handling from the FDA investigator’s perspective.

FDA has made education of the drug and device manufacturing community a high priority to help ensure the quality of FDA- regulated drugs and devices. The workshop helps to achieve objectives set forth in section 406 of the Food and Drug Administration Modernization Act of 1997 (21 U.S.C. 393), which includes working closely with stakeholders and maximizing the availability and clarity of information to stakeholders and the public. The workshop also is consistent with the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104– 121), as outreach activities by Government agencies to small
businesses.

Dated: March 4, 2009.
Jeffrey Shuren,
Associate Commissioner for Policy and
Planning.
[FR Doc. E9–5648 Filed 3–13–09; 8:45 am]
BILLING CODE 4160–01–S

Elaborate Medicare Fraud Schemes Rob Taxpayers and Patients

By: Meredith Taylor, Esq., CIS Senior Compliance Manager
meredithtaylor@cis-partners.com

Medicare waste, fraud, and abuse are running rampant in our country and costing taxpayers billions of dollars a year. The ultimate price to be paid, however, is the deteriorating medical care provided to seniors and the disabled. In his February 24, 2009 address to Congress, President Obama acknowledged this problem and pledged to “root out the waste, fraud, and abuse in our Medicare program” through comprehensive healthcare reform.[1]

The U.S. Department of Health and Human Services, along with the U.S. Department of Justice, investigates and prosecutes fraudulent Medicare claims. With the assistance of state investigators, this “multi-agency team of federal, state and local investigators is generating results.”[2] The following examples are some of the most current fraudulent Medicare schemes that were identified, investigated, and prosecuted (or are being prosecuted) by the Government.

On February 13, 2009, six employees at a Miami clinic, claiming to specialize in treating HIV/AIDS patients, were indicted in a $10 million Medicare fraud scheme. Three doctors and other clinic employees ordered infusions and injections for patients who they claimed, through false medical records, were HIV positive. In some cases, the infusions were ordered but never provided. The doctors and clinic employees also manipulated HIV positive blood samples in order to make it appear that the patients had certain HIV-related conditions warranting particular treatments. The doctors and clinic employees billed over $10m to Medicare for unnecessary services, and for services that were never provided, over the course of three years. This case is currently pending in Florida’s Federal court.[3]

On February 19, 2009 in Dallas, the owner of a medical equipment supplier was sentenced to five years in prison and fined $132,955.35 for Medicare fraud. The supplier paid a hospital employee for information on Medicare patients, then sold that information to other medical equipment suppliers. These suppliers used the information to submit Medicare reimbursement forms, claiming that wheelchairs were provided to the patients. The 200 false claims indicated that the patients had prescriptions for the wheelchairs, when they did not, and cost Medicare over $804,344.42.[4]

On February 9, 2009, a business owner and his daughter admitted to falsely billing Medicare on behalf of his company for counseling services made to patients in personal care homes. In fact, these counseling services, in the amount of $67,000, never took place. Once the investigation began, the business owner created false records to try to persuade investigators that the services were rendered. These fraudulent billings could lead to a sentence including a $500,000 fine, and imprisonment for up to 18 years.[5]

On February 26, 2009, a doctor in California pled guilty to administering less than the prescribed dosage of drugs to AIDS patients. He then billed his patients' health insurance providers for the full dose of the drugs, even when patients were no longer taking the drugs, and billed for doctor administration when patients were self-administering the drugs. This doctor estimated that he fraudulently billed Medicare for approximately $350,000, but the Government estimates the fraudulent amount to be closer to $660,955. This doctor is currently awaiting his sentence. [6]

On February 24, 2009, a man in Florida was sentenced to 28 years in prison as a result of healthcare related fraud and money laundering. This man submitted $5.4 million dollars in claims for durable medical equipment over the course of two years. Medicare paid approximately $1.3 million of the claims. The investigation revealed that the medical equipment was never prescribed, or provided, to any patients.[7]

These are only a few examples of the elaborate schemes providers, suppliers, manufactures, and individuals have concocted to defraud Medicare. President Obama is certainly on point with highlighting blatant Medicare fraud as an enormous waste of taxpayers’ money that must be stopped immediately. I look forward to learning more about his plan!

Sources:
[1] http://medicareupdate.typepad.com/medicare_update/2009/02/medicarereform.html
[2] http://www.hhs.gov/medicarefraud/
[3] http://www.usdoj.gov/opa/pr/2009/February/09-crm-122.html
[4] http://www.usdoj.gov/usao/txn/PressRel09/sanders_hcf_sen_pr.html
[5] http://www.usdoj.gov/usao/kyw/press_releases/PR/20090209-01.html
[6] http://www.usdoj.gov/usao/cac/pressroom/pr2009/018.html
[7] http://www.usdoj.gov/usao/fls/PressReleases/090225-01.html

Pharmaceutical Companies Change Sales and Marketing Strategy

By: Justin Wutti, CIS Senior Associate
justinwutti@cis-partners.com

For years, the model for sales and marketing in the pharmaceutical industry has been a mass-market approach. Employing a huge sales force and spending millions of dollars on samples and television advertising has long been the norm in the industry. However, this approach seems to have run its course.

According to a report published by PricewaterhouseCoopers LLP, pharmaceutical companies will completely revamp their sales and marketing strategies over the next 10 years. The new target-market approach is believed to create revenue growth and value for patients (1). “Pharmaceutical companies will need to package products and health services in a way that adds value, demonstrating that their medicines really work, that they provide value for the money and potentially reduce healthcare costs by being better than alternative forms of intervention," said Anthony Farino, PricewaterhouseCoopers' U.S. pharmaceutical and life sciences advisory services leader (1). Large sales forces will transform into smaller groups of smarter, more effective sales representatives. Companies will be forced to hire people who can negotiate with powerful healthcare payers. In reference to the shrinking sales forces, Joe Palo, an advisor to PwC Pharmaceutical and Life Sciences Advisory Practice says, “It’s not going to go to zero, you are going to have blockbuster products and sales forces going into primary care, but there will be less” (2).

There is much evidence that the current large sales force approach simply isn’t working anymore. For example, 1 out of 5 doctors now refuses to see sales representatives, and return visits to doctors have declined (2). Additionally, the number of sales representatives has been growing 3 times faster than the number of physicians. Because of the increased number of specialty products being sold, pharmaceutical companies will also recruit people with a clinical background, such as nurses and pharmacists. Many companies are investing in genomics, proteomics, and metabolomics for specialty therapies (2).

All of these changes will force payers, providers, and physicians to work more closely in order to figure out what is best for the patient, which will become increasingly important as the healthcare system changes to focus more and more on patients’ health and well-being.

SOURCES:
(1) http://www.msnbc.msn.com/id/29386637/
(2) http://www.mmm-online.com/Pharma-sales-forces-will-shrink-clinical-skills-in-demand/article/127857/

Medicare Part D Drug Benefit: A Strong Candidate for Government Reform

By: Clarissa Crain, CIS Senior Compliance Specialist
clarissacrain@cis-partners.com

On January 1, 2006, the Medicare Part D Program was launched in order to provide Medicare eligible patients with access to prescription drugs. The intent of the program was to lower prescription drug costs witnessed by Medicare patients, and thereby ensure that patients in need had access to necessary drugs.[i] However, a little over three (3) years after its launch, the Medicare Part D program is under intense pressure to change.

Millions of elderly Americans gained access to needed drugs through Medicare Part D; however, lawmakers claim that this access is coming at a cost above that which the taxpayers should incur. This claim is illustrated by considering the case of Medicaid-Medicare Dual Eligibles.

Dual Eligibles are defined as individuals entitled to Medicare coverage, as well as some level of Medicaid assistance.[ii] Prior to the 2006 implementation of the Medicare Modernization Act (2003), Dual Eligibles received pharmacy benefits through state Medicaid programs. However, upon the launch of Medicare Part D prescription drug coverage program, these patients were transferred to Medicare Part D for their pharmacy benefits.

Today there are approximately 6 to 8 million individuals that fall within the category of Dual Eligibles, representing 40% of the nation’s Medicaid spending and 25% of the nation’s Medicare spending. Recent analysis shows that spending on Dual Eligible pharmacy benefits has increased a dramatic 30% since the enacting of the 2003 MMA. This is largely attributed to the higher drug costs witnessed by the Medicare Part D program, as opposed to the Medicaid Drug Reimbursement Program (MDRP). Because Medicare Part D benefits are not administered through the federal government, they do not witness the same ‘best prices’ provided through MDRP.[iii]

Lawmakers, such as Chairman of the House Energy and Commerce Committee Henry Waxman, point to this rapid increase in spending, and question whether Part D plans are getting the best discounts for Dual Eligibles. By referencing research showing that price discounts provided to Part D plans are much less substantial than price rebates through MDRP, Waxman seeks to introduce legislation requiring that Medicare receive the same level of discount witnessed by MDRP. Calling the current model of Dual Eligible coverage an opportunity for pharmaceutical manufacturers to witness “windfall revenues,” Waxman notes that the increase in cost is a direct result of statutory laws written by Congress.

The example of Dual Eligibles allows for a side-by-side comparison to Medicaid coverage; however, it can be deduced that costs witnessed for patients covered only by Medicare Part D are also above the government’s intended rates. As the new administration continues to push towards universal health care coverage, while also battling a recessed economy and budget shortfalls, Medicare Part D and Dual Eligible coverage will not be left unaffected. However, legislative changes in the Medicare Part D program are likely to go beyond changes in Dual Eligible reimbursement/pricing, by focusing on pricing witnessed throughout the Part D program.

When Part D was originally launched it was believed that the competitive, privatized market would drive down costs, yet that intention has not been realized to the extent the government had hoped (see Dual Eligibles example above). Instead, reformers call for a move away from Medicare Part D privatization, allowing the government to negotiate directly with manufacturers on pricing – thereby utilizing the government’s buying power to drive down cost. Other suggestions include a formulary similar to that in place for the VA program, or the utilization of AMP or ASP prices to develop rebate/pricing structures.[iv] Regardless of the avenue through which reform is made, it is coming.

Sources:
[i] Medicare Program-General Information. http://www.cms.hhs.gov/MedicareGenInfo/.
[ii] Overview. Medicare / Medicaid Dual Eligibles. http://www.cms.hhs.gov/DualEligible/01_Overview.asp#TopOfPage.
[iii] Analysis of Dual Eligible Pharmacy Costs Under Medicaid and Medicare Part D. http://www.communityplans.net/Portals/0/ACAP%20-%20Dual%20eligible%20pharmacy%20analysis%20final%20091808.pdf.
[iv]Medicare, Medicare Advantage, and Part D: Likely Policy Changes in 2009 and 2010. http://www.piperreport.com/

FDA Encourages use of Graphics and Tables for Clinical Pharmacology Sections

By: Chris Didizian, CIS Senior Associate
chrisdidizian@cis-partners.com

The Clinical Pharmacology section of labeling for prescription drugs and biological products, one of many that must be included in a drug or biologic’s Full Prescribing Information, should contain “information that is important for safe and effective use of the drug,” states the FDA in 21 CFR 201.57 and its draft guidance. This information should be written for practitioners who may not be well-versed in clinical pharmacology. Before taking a closer look at the actual wording with which the FDA encourages the use of graphics and tables in the Clinical Pharmacology section, note that this is a draft guidance and that even a finalized version reflects suggestions and recommendations, not requirements.

Section II. Clinical Pharmacology Section, Part F. Use of Pharmacokinetic, Dose-Response, and/or PK/PD Graphs and Tables, contains a small but important piece of information:

Graphs and/or tables depicting Pharmacokinetic (PK) attributes, exposure- or
dose-response relationships, and/or PK/PD [Pharmacodynamics] relationships can
be helpful in simplifying and/or clarifying the labeling and their use is
encouraged. When graphs or tables are used, variability measures should be
included.

The above is the entire section lifted directly from the guidance. The use of graphs and tables should give labels for new drugs quite a facelift, while also educating practitioners to make more informed decisions, based on statistics. Manufacturers already have this information in their promotional materials, so transferring it to their Package Inserts should not be costly. However, manufacturers must be sure to represent this data accurately, and not to manipulate the numbers through their graphs and tables.

For more information, see the draft guidance in its entirety. If you have specific questions, contact information for the appropriate CBER/CDER representatives is provided on page 1 of the guidance.

Merck and Schering-Plough Announce Merger

By: Dana Zelig, CIS Senior Associate and PCB Editor
danazelig@cis-partners.com

On Monday, March 9, 2009, Merck & Co., Inc. announced a merger with fellow pharmaceutical manufacturer Schering-Plough Corporation. The tagline for the proposed merger, as posted on Merck’s website, provides the following explanation of the deal’s anticipated outcome:

COMBINED COMPANY POSITIONED FOR SUSTAINABLE GROWTH THROUGH SCIENTIFIC INNOVATION
AND A STRONGER, MORE DIVERSIFIED PRODUCT PORTFOLIO[1]

Merck and Schering-Plough announced that their respective Boards of Directors had unanimously approved Merck’s purchase of Schering-Plough, in a cash and stock transaction totaling $41.1 billion. As reported by the Associated Press (AP), “Shares of the two companies traded furiously after the announcement, with Schering's shares skyrocketing and Merck's dropping, typical for a company doing a big acquisition.”[2] The deal is structured as a “reverse merger,” meaning that Schering-Plough will be “acquired” by Merck, but will continue as the surviving public corporation. The combined company will operate under Merck’s name, and be led by Richard T. Clark, Merck’s current Chairman, President, and CEO. In his press release, Clark said:

We are creating a strong, global healthcare leader built for sustainable growth
and success. The combined company will benefit from a formidable research
and development pipeline, a significantly broader portfolio of medicines and an
expanded presence in key international markets, particularly in high-growth
emerging markets. The efficiencies we gain will allow us to invest in
strategic opportunities, while creating meaningful value for shareholders.[3]

Merck, already a leading manufacturer of pills and vaccines, will utilize Schering-Plough’s success with biologics to increase market share and allow it to compete in our changing industry. According to the AP, the merger “will also give Merck one of the world's biggest animal health businesses and a sizable consumer health division that includes products such as allergy pill Claritin, Dr. Scholl's foot products and the Coppertone sun-care line.”[4]

According to the press release distributed by the two companies, the “Strategic Benefits of the Transaction” include:

• Complementary Product Portfolios and Pipelines Focused on Key Therapeutic Areas, including cardiovascular, infectious disease, neuroscience, oncology, and women’s health
• Robust R&D to Deliver Innovative Medicines for Patients
• Stronger Commercial Organization
• Expanded Global Presence with Geographically Diverse Revenue Base, and
• Increased Manufacturing Capabilities

The “Financial Benefits of the Transaction” include:

• Strong Financial Profile
• Commitment to Maintain Merck Dividend
• Substantial Cost Savings
• Accretive to Earnings
• Ability to Optimize Investments for Maximum Benefit[5]

For more information on the details or proposed benefits of the merger, see the full press release at Merck.com or Schering-Plough.com.

Sources:
[1] Merck and Schering-Plough to Merge
http://www.merck.com/newsroom/press_releases/corporate/2009_0309.html
[2] Merck Buying Schering-Plough in a $41.1B Deal
http://biz.yahoo.com/ap/090309/merck_schering_plough.html
[3] Merck and Schering-Plough to Merge
http://www.merck.com/newsroom/press_releases/corporate/2009_0309.html
[4] Merck Buying Schering-Plough in a $41.1B Deal
http://biz.yahoo.com/ap/090309/merck_schering_plough.html
[5] Merck and Schering-Plough to Merge
http://www.merck.com/newsroom/press_releases/corporate/2009_0309.html

Strategic and Operational Risk Factors Involved in the Review and Approval of Promotional Materials

By: Joe Calarco, CIS Senior Manager
joecalarco@cis-partners.com

Anyone who spends most of their time in R&D lives for the euphoria a company experiences upon receiving FDA approval of a product; everyone in the company feels a sense of accomplishment. However, what many in R&D do not witness is the effort it takes to coordinate an effective and compliant promotional campaign for the product.

From the time the product became a viable candidate for FDA submission, the company’s Marketing representatives have been developing a strategy to effectively market the product. This strategy likely includes discussions on how to comply with the federal regulations involving promotions overseen by the FDA’s Division of Drug Marketing, Advertising and Communications (DDMAC). The following is the mission of DDMAC:

To protect the public health by assuring prescription drug information is
truthful, balanced and accurately communicated. This is accomplished through a
comprehensive surveillance, enforcement and education program, and by fostering
better communication of labeling and promotional information to both healthcare
professionals and consumers. [1]

Based on the number of DDMAC related warning letters issued over the last 12 months, [2] it would seem compliance regarding promotional materials is taken very seriously.

There are two high-level risk factors your organization needs to consider prior to implementing any marketing campaign. The first involves evaluating strategic risk. What factors are shaping the current regulatory environment? What is your corporate culture’s tolerance for risk? Some companies are more risk averse regarding industry regulations. On a more micro-level, how strong does your medical staff feel your empirical data is? Is your product best in class? Does it treat an underserved population? Does the product have potential to be addictive or to have extensive off-label use? (This question is critical, because companies can be cited for the promotion of off-label uses.) These are all good questions to address, because the answers will go a long way to framing your promotional campaign.

The second type of risk to consider when designing your promotional campaign is operational risk. There are many people involved in executing a promotional campaign, who must coordinate multiple activities. Are roles and responsibilities clearly defined, especially among your Medical, Legal, and Regulatory (MLR) reviewers? Are your MLR reviewers aligned with your risk strategy? From a pure operations perspective, who is shepherding promotional items through the development process from development to DDMAC 2253 form submission.[3] Finally, does your organization have the vendor relationship-management skill to effectively work with the host of vendors your organization will utilize to produce promotional materials?

What is at stake often cannot be quantified because it is hard to put a price on potential regulatory actions. However, at the very least, regulatory actions in the form of a warning letter will likely force your company to remove some of the promotional material in question from the market place. Lost time marketing your product may also have a negative impact on sales and market share.

Given the limited time that a product may enjoy patent protection, any delay in marketing can cost a significant amount. If your strategy is well devised and properly implemented, you can minimize the risk you take in promoting your product. Most leaders are willing to accept agreed-upon strategic risks. On the other hand, operational excellence in any process is a baseline expectation. Regulatory action due to poor operational compliance is likely not going to sit well with company leadership.

In closing, promoting an approved product, one that your company believes brings value to society and profitability to the company, should be one of the more enjoyable times in a product’s life cycle. If compliance with regulations regarding promotional materials is a significant concern, talk to a CIS representative about ways to improve your promotional strategy, or enhance your development process.

Sources:
[1] FDA (2008, April 9). Citing electronic sources retrieved March 8, 2009 from http://www.fda.gov/cder/ddmac/
[2] FDA (2009, February 27). Citing electronic sources retrieved March 8, 2009 from http://www.accessdata.fda.gov/scripts/wlcfm/subject.cfm?FL=D
[3] FDA (2007, October). Citing electronic sources retrieved March 8, 2009 from
http://www.fda.gov/opacom/morechoices/fdaforms/FDA-2253.pdf

Obama's 2010 Budget Unveiled: The Health Reform Reserve Fund

By: Chrissy Spicer, Senior Manager

Many have claimed that the economy cannot be fixed without addressing the cost and access to healthcare. At a macro level, it is clear that spending on health will continue to be a large portion and necessary component of the Gross Domestic Product (GDP); however, due to the exponential increases in health costs coming during a recessed economy, more and more families will be forced to face the ramifications of the high costs of healthcare or delay the attention of much needed healthcare. In a recent statement, President Barack Obama said “because of crushing health care costs and the fact that they drag down our economy, bankrupt our families and represent the fastest-growing part of our budget, we must make it a priority to give every single American quality, affordable health care [1]” On Thursday, Obama has exercised this commitment through the recent development and launching of his budget related to healthcare reform. The following provides a macro evaluation of the costs related to healthcare and the resulting outline of the fiscal 2010 budget related to healthcare reform.

In 2009, the National Healthcare Expenditures (NHE) in the United States is projected to increase 5.5 percent while Gross Domestic Product (GDP) is anticipated to decrease 0.2 percent [2]. According to a news release by Center for Medicare and Medicaid Services (CMS), “over the period 2008 – 2018, average annual health spending growth (6.2 percent) is anticipated to outpace average annual growth in the overall economy (4.1 percent). By 2018, national health spending is expected to reach $4.4 trillion and comprise just over one-fifth (20.3 percent) of GDP [3].” Additionally, Obama’s budget indicates “after adjusting for inflation, family health insurance premiums have risen 58 percent since the year 2000, while wages have increased only 3 percent. Nearly 46 million Americans have no health insurance [4].”

The truth behind the numbers has most in agreement that there is a desperate need for healthcare reform in America. Who pays and how the expansion for health insurance comes to fruition becomes the next series of questions that Obama has outlined in his budget. Overall, Obama’s plan includes a $634 billion payment over 10 years as a reserve fund to fuel healthcare reform that would be derived from multiple sources including: increasing taxes to the wealthy, decreasing Medicare and Medicaid Payments to insurance companies, and decrease payments to drug makers and hospitals.

According to a summary provided by Ropes & Gray LLP, the details that impact the healthcare industry the most are summarized below [5]:

Financing the Health Reform Reserve FundAbout half of the president’s $633.8 billion health care reserve fund is financed by reducing federal Medicaid and Medicare spending by $316 billion over 10 years. $19.5 billion that is directly related to an increase of Medicaid rebated from 15.1% to 22.1%. These Medicaid and Medicare savings fall into three broad categories:

1. Aligning incentives toward quality ($20.5 billion):
· Reduce Medicare payments to hospitals with high readmission rates ($8.4 billion)
· Link a portion of Medicare inpatient payments to hospital performance on quality measures (pay for performance) ($12 billion)


2. Promoting efficiency and accountability ($287 billion):
· Reduce overpayments to Medicare Advantage plans by establishing a competitive bidding system ($175 billion)
· Bundle Medicare payments for hospital inpatient services and certain post-acute services in the 30-day period after discharge ($17.8 billion)
· Increase the minimum Medicaid prescription drug rebate from 15.1 to 22.1 percent of the Average Manufacturer Price, allow states to collect rebates from Medicaid managed care plans, and apply rebates to new drug formulations ($19.5 billion)
· Establish a pathway for FDA approval of generic biologics ($9.2 billion)
· Restructure Medicare home health care payments ($37 billion)
· Use radiology benefit managers to ensure appropriate Medicare payments for imaging services
· Expand Medicaid family planning services ($190 million)
· Use the National Correct Coding Initiative edits for Medicaid payments ($620 million)
· Reallocate Medicare and Medicaid Improvement Funds that currently support Quality Improvement Organizations ($24 billion)
· Address conflicts of interest in physician-owned specialty hospitals (negligible savings)

3. Encouraging shared responsibility ($8 billion):
· Extend means testing for certain high-income Medicare beneficiaries to Part D drug coverage premiums ($8 billion)

Now more than ever, pharmaceutical manufacturers should begin to strategically evaluate their relationship with the government as a customer and gain a full understanding and planning of how the proposed changes may impact current operations.

Sources:
To view the 2010 Fiscal Year Budget: http://www.whitehouse.gov/omb/assets/fy2010_new_era/A_New_Era_of_Responsibility2.pdf
[1] http://bulletin.aarp.org/yourhealth/policy/articles/obama_s_health_reform.html
[2] February 24, 2009, CMS Medicare News
[3] February 24, 2009, CMS Medicare News
[4] http://bulletin.aarp.org/yourhealth/policy/articles/obama_s_health_reform.html
[5] http://www.ropesgray.com/frameworkforhealthreform/

Articles of the Week!

Courtesy of Amy Lotman, CIS Senior Manager
amylotman@cis-partners.com


HBA names J&J's Gorsky Honorable Mentor
http://www.mmm-online.com/HBA-names-JJs-Gorsky-Honorable-Mentor/article/127921/?DCMP=EMC-MMM_Newsbrief

Obama offering drug industry R&D "olive branch"
http://www.in-pharmatechnologist.com/Industry-Drivers/Obama-offering-drug-industry-R-D-olive-branch/?c=uMn0b%2BuA8EnDO2OE87EIFA%3D%3D&utm_source=newsletter_weekly&utm_medium=email&utm_campaign=Newsletter%2BWeekly

FDA Sends Letter to GlaxoSmithKline Over Avodart Ad
http://pharmalive.com/news/index.cfm?articleID=608132&categoryid=43&newsletter=1

Small Drug Firms Thriving
http://www.therapeuticsdaily.com/news/article.cfm?contentValue=1890862&contentType=sentryarticle&channelID=33

On Young Doctors and Long Workdays
http://www.nytimes.com/2009/03/03/health/03chen.html?_r=1&ref=health

Enjoy!

Sebelius to Accept Secretary of HHS Nomination

By: Chris Didizian, CIS Senior Associate
chrisdidizian@cis-partners.com

Throughout the past few weeks, the media has consistently fed us phrases like, “a step in the right direction” or “positive change on the horizon…” when referring to healthcare reform. While I adamantly contend the notion that healthcare reform is, in fact, positive, the most recent newsfeed highlighting Kansas Governor Kathleen Sebelius as the next HHS Secretary is certainly worth some discussion because it is a significant cabinet position.

On Monday, March 2nd President Obama nominated Mrs. Sebelius to replace Tom Daschle, who withdrew from nomination when his failure to pay over 100k in taxes was discovered. Championed as a candidate more than capable to carry out health care reform, Sebelius lacks the necessary, personal connections and relationships that Tom Daschle was well known for.[1] As a result, she may face some challenges. Despite the anticipated struggle, Sebelius has demonstrated success in promoting health care provisions as written in the stimulus bill, in leading health care meetings with Obama and Biden in attendance, and in expanding her state’s Children’s Health Insurance Program.[2] This experience should serve her well as she will be bombarded with issues relating not only to health reform but also recent issues facing Medicare and food safety.

There are, however, a few ironies of this potential nomination. Sebelius is supposed to be Obama’s best back-up for the role of HHS Secretary, yet back in December she withdrew her name from consideration for any cabinet position.[3] Why now is she being considered? Is there no better candidate to push for health reform? In addition, her family and administration have traditionally been bipartisan. Perhaps the explanation here is that Obama is keeping his promise of creating a bipartisan cabinet, despite many of his recent selections. Finally, unlike Daschle, Mrs. Sebelius will not be in charge of the White House health committee that will be key in drafting health policy. While I understand that the plan for Daschle to occupy both positions was unique, I cannot help but wonder whether the two individuals, one the HHS Secretary – one the chair of the health committee, will be somewhat confrontational and, therefore, less efficient. We will have to wait and see.

Sources:
[1] http://wonkroom.thinkprogress.org/2009/02/19/sebelius-hhs/
[2] Ibid.,
[3] http://www.nytimes.com/2009/02/19/us/politics/19health.html?_r=2&hp

Prescription Drug Advertisements: A Tutorial

By: John Jordan, CIS Associate
johnjordan@cis-partners.com

Prescription (Rx) drug advertisements can provide useful information for consumers, as they work with their health care providers to make wise decisions about treatment. But it is important for pharmaceutical manufacturers to know that there are different types of drug advertisements, which are evaluated differently by the FDA. Some examples of Rx drug advertisements are:

1. Product Claim Ads, which name a drug, the condition it treats, and talk about both its benefits and risks;
2. Reminder Ads, which name a drug, but do not discuss its use; and
3. Help-Seeking Ads, which describe a disease or condition, but do not recommend specific drugs for treatment.

Product Claim Ads are required to provide the name of the drug (brand and generic), at least one FDA-approved use for the drug, and the most significant risks associated with the drug. The benefits and risks of the drug should be provided in equal fashion. For example, the font used for the benefits of taking the drug should not be bigger than the font used for the side effects. Information about the drug in the ad must be from well-designed studies that are FDA approved; any other information is misleading, and is a violation of FDA guidelines.

Reminder Ads assume that the audience already knows what the product is for. These ads give the viewer no knowledge of risks or benefits. Anything in the ad that could be used to remind the viewer what the drug is used for is not allowed. These types of ads cannot be used for certain Rx drugs that are associated with serious health risks. Drugs that can cause serious risks must include special warnings, called “boxed warnings,” in their FDA-approved prescribing information. Because of their seriousness, the risks associated with these drugs must be highlighted in all ads for them.

Help-Seeking Ads describe the symptoms of a disease or condition, and encourage people experiencing those symptoms to ask their doctors about the advertised Rx drug designed to treat them. These ads can include the company’s name, and usually provide a way to contact the company for more information. The FDA does not consider help-seeking ads to be official drug ads, and does not regulate them; however they are still regulated by the Federal Trade Commission (FTC).

The FDA takes action against any manufacturer whose ads violate the laws that regulate prescription drug advertising. The simplest and most common way for the FDA to take action is to send a warning letter to the manufacturer. The letter explains how the ad has violated the law, and generally asks the manufacturer to withdraw the ad. In some cases (like marketing for Yaz) the FDA will ask the drug company to fix the misimpression made by the violating ad, by publishing a corrective ad. The FDA is most likely to take this action when the misimpression poses a serious threat to public health. Sometimes the FDA takes additional enforcement action, which can include taking drug companies to court, bringing criminal charges against them, asking for an injunction (a court-enforced ban of specific activities), and even seizing supplies of the drug being advertised.

For more information on the various types of Rx drug advertisements, please see “What You Should Know about Prescription Drug Advertisements” on the FDA’s website:
http://www.fda.gov/cder/ethicad/index.htm
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