Government Pricing & Commercial Contracting
“Big Changes Coming”
Tim Nugent
Managing Director
Huron Consulting Group
1
Debjit Ghosh
Director
Huron Consulting Group
John D. Shakow
Counsel
King & Spalding, LLP
Today’s Agenda
1.
2.
3.
4.
5.
6.
2
Investigations, Settlements, and Lawsuits
Changes Enacted by the Deficit Reduction Act
Operational Challenges of the Deficit Reduction Act
Final Physician Fee Schedule Rule (ASP)
Determining Fair Market Value for Service Fees
Compliance Challenges for Medicare Part-D
Section I
Investigations, Settlements, and Lawsuits
3
Pricing Litigation
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4
AWP cases
Medicaid rebate cases
Congressional investigations
False Claims Act prosecutions
Qui Tam actions
(340B cases)
Pricing Litigation: AWP cases
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5
GSK settlement
Plain meaning ruling (November 2, 2007)
Track I case underway
Attempts to remove are failing
Federal intervention in Dey qui tam
Magistrate Bowler decision on Baxter discovery
Pricing Litigation: State False Claims Acts
 DRA § 6031
 Incentive for states to enact false claims act laws that
establish liability to the state for entities that submit
false or fraudulent claims to a state Medicaid program
– Increased percentage recovery if the state law qualifies
– OIG guidelines for evaluating state false claims acts issued
August 21, 2006
– Generally modeled after the Federal False Claims Act
6
Pricing Litigation: State False Claims Acts
 Trickle down incentive: to qualify for the increased
percentage of the recovery, the state law must, among
other things, reward the relator in a way that is “at least
as effective in rewarding and facilitating” federal qui
tam relators
 Treble damages and guaranteed percentages make
state false claims act actions more attractive to relators
7
Pricing Litigation: Medicaid Integrity Program
 DRA § 6034
 Comprehensive Integrity Plan issued in mid-July
 Well funded and staffed fraud investigation unit
charged with addressing “programmatic vulnerabilities”
including “the provision of prescription drugs to
beneficiaries and the underlying costs of those drugs
as reported to the States”
 Division of Fraud Research and Detection
 Enforcement authority?
8
Penalties for Non-Compliance with Price Reporting Laws
 Exclusion from the Medicaid market
 Civil monetary penalties
– Up to $100k for false statements of AMP or best price
– $10k per day for failure to file AMP or best price
– $10k per day for misreported ASP
 Civil False Claims Act (federal and state)
 Submitting false statements is a felony (particularly on
the ASP certification)
9
King Settlement
 November, 2005
 $124 million settlement of a false claims act allegation
 Payments to the Federal Medicaid program, several states, the
Big 4 and PHS covered entities
 Based on the following conduct (performed "knowingly"):
– failing to collect and analyze its pricing information in a manner to
ensure that it would be able to accurately report AMP and BP;
– failing to adequately train its personnel to accurately calculate AMP
and BP;
– failing to provide its employees with appropriate software and other
tools for calculating AMP and BP correctly; and
– including inappropriate customers in its retail class of trade
(resulting in inaccurate AMPs).
10
King Settlement (cont’d.)
 The "false records" are alleged to have been the
calculations themselves, included in the quarterly
CMS submissions
 King's failure to have adequate systems and training
-- not that they set out to mislead or defraud -- that
was enough to trigger an FCA investigation and
settlement
 Attendant invasive CIA
11
Other Significant Pricing Settlements
 GlaxoSmithKline (September, 2005)
– $150 million
– AWP, AMP and ASP
 Schering Plough (July, 2004)
– $345 million
– Best price
 AstraZeneca (June, 2003)
– $355 million
– AWP and best price
 Bayer (April, 2003)
– $250 million
– Concealed discounts
 TAP (September, 2001)
– $875 million
– AWP and best price
12
Corporate Integrity Agreements
 Most settlements have attendant CIAs
 Invasive
– Independent Review Organizations
– Government Audits
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13
Long-lasting
Limit sales and marketing opportunities
Expensive
Potentially experimental
Section II
Changes Enacted by the Deficit Reduction Act
14
Overview of the Deficit Reduction Act 2005
15
Deficit Reduction Act of 2005
Federal Upper Limits
 Federal FULs on multiple source drugs to fall from 150%
of lowest AWP to 250% of AMP (January 2007)
 FULs set for any drug with one other therapeutically
equivalent drug (down from two)
16
Deficit Reduction Act of 2005
Retail Survey Prices and State Reports
 CMS to engage a private vendor to determine nationwide
average retail prices for Medicaid drugs on a monthly
basis
 CMS is required to give this data to the states
 States must submit a report annually detailing Medicaid
payment rates and dispensing fees; CMS must compare
the national retail sales price data with the data reported
by each state program (January 2007)
17
Deficit Reduction Act of 2005
Nominal sales, best price and ASP
 Excludable nominal sales are only those made to:
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–
–
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340B covered entities
intermediate care facilities for the mentally retarded
state owned or operated nursing facilities
other safety net providers (as determined by HHS)
 Nominal sales information to be reported to CMS (January
2007)
 Applicable to ASP in that it mirrors best price definition
18
Deficit Reduction Act of 2005
Authorized generics, AMP and best price
 Best price for all single source and innovator multiple
source drugs inclusive of the best price at which the
associated authorized generic is sold (January 2007)
 Same for AMP
19
Deficit Reduction Act of 2005
Physician administered drugs
 States to collect and submit to CMS utilization and NDC
data on PA single source drugs (January 2006) and the
twenty most dispensed PA multiple source drugs (January
2008)
 This is an attempt to permit the states to collect Medicaid
rebates on PA drugs, which are currently being tracked by
HCPCS J-code
20
Deficit Reduction Act of 2005
340B eligibility
 Upon enactment, certain qualified children’s hospitals will
be eligible to receive 340B covered entity pricing
21
Deficit Reduction Act of 2005
State False Claims Act Laws and Other Fraud &
Abuse Provisions
 Powerful incentives for states to enact their own statutes
based on the Federal False Claims Act
 May require entities (including pharmaceutical
manufacturers) to revise and update their compliance
training programs (January 2007)
22
Deficit Reduction Act of 2005
Rejected provisions
 Increased rebate percentages for both single source and
multiple source drugs
 Federal oversight of dispensing fees
 Extension of rebates to Medicaid MCOs
 Limited ability to subject certain antipsychotic or
antidepressant single source drugs to prior authorization
23
Issues
 Operational Compliance
 Monitor and Participate
 Pricing Transparency
 Aggregation of AMP and BP and Third Party
Authorized Generics
 False Claims Act Expansions - Litigation Threat
 False Claims Act Expansions - Employee Education
 Medicaid Integrity Program
24
Operational Compliance
 Need for robust systems and resources
– Frequency of reporting
– Potential changes to AMP methods resulting from
rulemaking
– Ability to differentiate among different methodological
rule sets (e.g., prompt pay in ASP v. AMP)
– Possible need for update class of trade designations
(e.g., ICF/MR nominal)
25
Monitor and Participate
 Need to monitor AMP reforms, consider financial
impact, and participate actively in the regulatory
process
– Exclusion of prompt pay and potentially other COT
discounts will increase AMP
– Mechanism to avoid “apples and oranges” issues
associated with Base AMP
– Medicare ASP comments may have spillover effects
on Medicaid
26
Pricing Transparency
 Transparency and use of AMP data in reimbursement
may raise pricing and compliance challenges
– Pharmacies now have a financial interest in AMP calculations
– Need to balance rebate benefits of lower AMPs against
pharmacy product access issues
– Potential pressure for fee-based arrangements in lieu of
discounts
– Improper AMP calculations may raise new false claims theories if
used in pharmacy payment rates (directly or upper limits)
– Potential compliance effect on manufacturer AMP calculation
“look-back” procedures
27
Aggregation of AMP and BP and Third Party
Authorized Generics
 DRA § 6003
 AMPs and BPs are to be aggregated across all products
“sold under a new drug application”
 Relatively simple for a vertically integrated operation
 But where authorized generics are licensed to third party
manufacturers, this aggregation poses significant
challenges
28
Aggregation of AMP and BP and Third Party
Authorized Generics
 Potential implementation strategies:
– share core transaction data, calculate independently, compare
and reconcile?
– designate a responsible manufacturer and adopt?
– calculate independently, compare, combine and report?
– others
 Calculation remains the legal responsibility of each
labeler
29
Aggregation of AMP and BP and Third Party
Authorized Generics
 Legal and contractual concerns:
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–
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–
–
30
Indemnification
Confidentiality
Differing methodologies and SOPs
Antitrust
Obligations to provide data in a timely way
Third party reconciliation
Audit rights
Costs
False Claims Act Expansions - Litigation Threat
 DRA § 6031
 Incentive for states to enact false claims act laws that
establish liability to the state for entities that submit false
or fraudulent claims to a state Medicaid program
– Increased percentage recovery if the state law qualifies
– OIG guidelines for evaluating state false claims acts issued
August 21, 2006
– Generally modeled after the Federal False Claims Act
31
False Claims Act Expansions - Litigation Threat
 Trickle down incentive: to qualify for the increased
percentage of the recovery, the state law must, among
other things, reward the relator in a way that is “at least
as effective in rewarding and facilitating” federal qui tam
relators
 Treble damages and guaranteed percentages make
state false claims act actions more attractive to relators
32
False Claims Act Expansions - Employee
Education
 DRA § 6032
 Any entity that receives or pays $5 million annually to
Medicaid must have written policies regarding
– federal and state false claims acts
– detection and prevention of waste fraud and abuse
– whistleblower rights (in the employee handbook)
 These policies must extend beyond just management
and employees to contractors and agents
33
False Claims Act Expansions - Employee
Education
 No guidance yet issued: questions of scope and depth
of required educational initiatives
 The DRA makes these previously voluntary compliance
policies mandatory
 Manufacturers must establish these policies as a
precondition of participation in Medicaid (by January 1,
2007)
 Monitoring for compliance
34
Medicaid Integrity Program
 DRA § 6034
 Comprehensive Integrity Plan issued in mid-July
 Well funded and staffed fraud investigation unit charged
with addressing “programmatic vulnerabilities” including
“the provision of prescription drugs to beneficiaries and
the underlying costs of those drugs as reported to the
States”
 Division of Fraud Research and Detection
 Enforcement authority?
35
Section III
Operational Challenges of the Deficit Reduction Act
36
Overview of the Deficit Reduction Act 2005
Internal Functional Areas Impacted

Government Price Reporting Department
- Calculating AMP and BP
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Contracting Department
- Effect on Authorized Generics
- Narrow definition of Nominal Prices
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Financial Accounting Department
- Effects on Government and Commercial Rebate Accruals
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Information Technology
- Effects on implementing changes on core transaction systems
- Effects on implementing changes on government price reporting system

Compliance & Internal Audit Functions
- Monitoring and Auditing policies, procedures, controls and practices
37
Overview of Deficit Reduction Act 2005 –
Operational Challenges
Prompt Pay Discounts to Wholesalers for drugs distributed to the
retail pharmacy class of trade are excluded from the AMP
calculation. In addition, manufacturers will be required to submit
data regarding the customary prompt pay discount extended to
wholesalers.
 Open Questions to CMS
-
Definition of a wholesaler
How will the Base AMP be adjusted, if at all
What data reporting is CMS going to require regarding prompt pay discounts
Will this require a certification similar to ASP?
 Operational Readiness
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38
Assess data systems requirements to gather, apply and report these amounts
Assess the impact this will have Medicaid rebates
Assess the ability to re-file the Base AMP
Overview of Deficit Reduction Act 2005 –
Operational Challenges, cont’d
The DRA narrows the definition of ineligible nominal price
transactions by limiting ineligibility to certain entity types to be
excluded from the Best Price Calculation. In addition, DRA requires
manufacturers to report these nominal prices.
 Entity types where defined as:
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A covered entity described in section 340B(a)(4) of the Public Health Service
An intermediate care facility for the mentally retarded
A State-owned or operated nursing facility
Other entities determined by the Secretary as a safety net provider
 Operational Readiness
-
39
Assess current nominal price contractual arrangements
Assess the current class of trade schema
Assess the impact this will have Medicaid rebates
Which functional area will track, manage, monitor and report nominal pricing
Overview of Deficit Reduction Act 2005 –
Operational Challenges, cont’d
The DRA expands Children’s Hospitals participation in Section 340B
drug discount program beginning February 8, 2006.
 Operational Readiness
- If these entities are not added to HRSA’s 340B list of participating entities,
manufacturers will have to establish a process (both business and systems)
to:
o
o
o
Identify the appropriate facility within an entity
Assess the pricing being offered to such facilities
Determine the appropriate inclusion/exclusion from each of the calculations
- Assess and monitor SOPs and controls to ensure that 340B membership
eligibility is being maintained
40
Overview of Deficit Reduction Act 2005 –
Operational Challenges, cont’d
The DRA amends the definition of AMP and Best Price to include all
drugs that are sold under a new drug application approved under
section 505(c) of the Federal Food, Drug and Cosmetic Act.
Therefore, authorized generic product pricing data will be included
in the branded product AMP and Best Price.
 Open questions to CMS
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-
What information is required to be reported to each entity without
violating anti-trust laws
How will these amounts be included in the AMP and Best Price
calculations
Are transfer prices and/or commercial sales prices included
Royalty, license and revenue sharing payments
 Operational Readiness
41
Begin reviewing contractual arrangements and begin discussing the
process to manage and receive data from/to each entity
System capabilities for transferring data
Controls in place to ensure accuracy and completeness of the data
being provided
Assess the impact Authorized Generic pricing data may have on
Medicaid Rebates
Overview of Deficit Reduction Act 2005 –
Operational Challenges, cont’d
The DRA amends the Medicaid rebate statute to increase the reporting
frequency of AMP and Best Price from quarterly to include a monthly
reporting requirement. CMS will be providing this information on a website
accessible to the public.

Open questions to CMS
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
Operational Readiness
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42
What methodology is required to calculate monthly AMP and BP
What are the AMP and BP calculation restatement or smoothing requirements
Will the Medicaid rebates still be based on the quarterly AMP and BP calculations
Will this require certification similar to ASP
What processes and/or systems would need to be updated or modified
What additional resources (both manual effort and automated systems) are
required
Can the appropriate data elements be gathered and applied on a monthly basis
What controls are in place to ensure the data is accurate and complete
What updates to the current policies, procedures, systems and controls need to
implemented
What will the process be for training (all levels of management and operations)
and how will the process be monitored on a go forward basis
What level of variability would be expected from a monthly amount and what
implications may that have on Medicaid rebates
Overview of Deficit Reduction Act 2005 –
Operational Challenges, cont’d
The provisions of the DRA require any entity that receives or makes at least $5
million in annual Medicaid payments needs to perform the following:
 Manufacturers must establish written policies for all employees (including
management), and of any contactor or agent, that provides detailed information
about the False Claims Act, any State laws pertaining to civil or criminal penalties
for false claims and statements, and whistle blower protections under such laws.
 Detailed provisions regarding the manufacturer’s policies and procedures for
detecting and preventing fraud, waste, and abuse must be included as part of such
written policies,
 The employee handbook for the manufacturer must include in a specific discussion
of the laws described above, the rights of employees to be protected as
whistleblowers, and the manufacturer's policies and procedures for detecting and
preventing fraud, waste, and abuse.
 These requirements take effect on January 1, 2007.
43
Deficit Reduction Act 2005 – Next Steps
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Most manufacturers have done some level of review to assess the impact of DRA
Some have commissioned studies or internal projects to study the financial impact
A typical DRA Impact Assessment should assess the following:
-

44
Policy and Procedures – Developing and/or updating the current guidelines and processes,
as well as requirements of DRA
Data – How is the data currently being gathered, assessed and applied and how is the data
and/or feeds going to have to change
Systems – Current data management and government price reporting systems and what will
need to be changed to address DRA
Customer and Contracting Strategy – What new pricing and contracting strategies of
products and customer segments needs to be changed to address the changes of DRA
Training and Monitoring - What level of training at all levels of management and operations is
being performed, as well as what controls have been put in place and how are they being
monitored throughout this process and going forward
The DRA Impact Assessment should provide a complete understanding of the current
government price reporting environment, changes required to assess and meet the
DRA requirements and a detailed timeline of implementation throughout the
organization
Section IV
Final Physician Fee Schedule Rule (ASP)
45
Overview of CMS Final Ruling
 Key highlights to the Final Ruling include:
- Published and distributed on November 3, 2006
- Additional changes and clarification to the ASP calculation
- Addresses Deficit Reduction Act of 2005 (“DRA”) effect on the
Medicare Average Selling Price (“ASP”) calculation
- Majority of the changes are effective for the quarter beginning
January 1, 2007
46
Summary of ASP Clarification and Changes
 Determining and applying fees not considered to be
Price Concessions
 Application of excluding non-eligible sales on a lagged
basis
 Determining and applying nominal sales
 Other price concession issues
47
Determining and Applying Fees Not Considered
Price Concessions
 Currently Manufacturers must consider:
-
Volume Discounts;
Prompt Pay Discounts;
Cash Discounts;
Free Goods that are contingent on any purchase requirement;
Chargebacks; and
Rebates (other than rebates under the Medicaid drug rebate program)
 Clarification on the application of Service and Administrative Fees:
-
48
Fee paid must be for a “bona fide”, itemized service that is actually performed on
behalf of the manufacturer;
The manufacturer would otherwise perform or contract for the service in the
absence of the service arrangement;
Fee represents fair market value;
Fee is not passed on in whole or in part to a client or customer of any entity.
Determining and Applying Fees Not Considered
Price Concessions
 Points for consideration:
- Application of the above definition is first quarter of 2007;
- Encompass any reasonably necessary or useful services of value to the
manufacturer that are associated with the efficient distribution of drugs;
- CMS would not establish a list of “bona fide services”;
- CMS did not mandate the methodology for determining fair market
value, manufacturers must determine a reasonable method;
- If a manufacturer determines that a fee meets the requirements of a
bona fide service (excluding “Not Passes On”), the presumption can be
made (absence any evidence or notice to the contrary) that the fee paid
is not passed on;
- Contrary to DRA provisions, prompt pay discounts extended to
wholesalers will not be excluded from ASP reporting.
49
Application of Excluding Non-Eligible Sales on a
Lagged Basis
 Certain chargebacks, rebates and other transactions are not eligible
for ASP calculation, however are lagged in nature, such as:
-
VA transactions;
340B transactions;
Eligible SPAP transactions;
Other ASP ineligible entities.
 A 12 month rolling average ratio methodology based on units must
be calculated to more accurately estimate and exclude these sales
from the ASP calculation, such as:
-
Sum of the lagged exempted sales units for the most recent 12-month period;
Sum sales units after non-lagged exempt sales have been subtracted from total sales units
for the same period.
A. A / B = rolling average percentage estimate for lagged exempt sales
B. C * Sales (both $ and units) after non-lagged exempt sales have been subtracted for the
current quarter
50
Determining and Applying Nominal Sales
 Currently ASP requires sales considered to be nominal to be
excluded from the ASP calculation
– A price less than 10% of the AMP in the same quarter for which AMP is
computed.
 Effective January 1, 2007, DRA revised to limit this definition to
nominal prices made to the following:
- Covered entities as described in section 340B(a) (4) of the Public Health
Services Act;
- Intermediate care facilities for the mentally retarded (ICFs/MR);
- State-owned or operated nursing facilities;
- Any other facility or entity that the Secretary determines is a safety net
provider.
 Effective January 1, 2007, ASP definition of nominal pricing will
mirror the DRA definition, therefore a single method for identifying
nominal sales for both ASP and AMP will be in effect.
51
Other Price Concession Issues
 Lagged Price Concession for NDCs with less than 12 months of
Sales
-
If less than 12 months of data is available than the 12 month rolling average will
be based on the lesser period, except when the products NDC has been redesignated.
 Re-designated NDCs
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Use of sales and price concession data for both the prior and re-designated NDCs
to estimate lagged price concessions applicable to the re-designated NDC.
 Bundled Price Concessions
-
-
52
Given the potentially wide range of bundling arrangements that might exist and
the information they currently have around such arrangements, methodology for
applying bundled arrangements was provided at this time.
MedPac is studying this issue in the upcoming year and this position may change.
Other Price Concession Issues
 Other ASP Reporting Issues
- Further clarification around drugs covered by Medicare Part B, as well
as resources to assist in identifying NDCs requiring ASP reporting
- Manufacturer’s are not required to report ASP data for an NDC
beginning the reporting period after the expiration date of the last lot
sold occurs
- Wholesalers that relabel or repackage NDCs and pharmacies must
report ASP data to the extent they qualify as a manufacturer for
Medicaid drug rebate purposes
- Returns should not be included in the ASP calculation
- Units of drugs sold to an approved CAP vendor for use under the CAP
are excluded from the ASP calculation
- If a manufacturer has a good cause for resubmitting its quarterly ASP
data, it may do so following the submission instructions available at:
http://questions.cms.hhs.gov/cgi-bin/cmshhs.efg
53
Section V
Determining Fair Market Value for Service Fees
54
Stark II Definition for Fair Market Value
Fair Market Value
This term appears in most of the compensation exceptions. The
definition in the final rule is almost the same as the January 1998
proposal. It defines "fair market value" as the value in an arm's-length
transaction, consistent with the general market value. "General market
value" is defined as the price an asset brings, or the compensation that
would be included in a service agreement, as the result of bona fide
bargaining between well-informed buyers and sellers who are not
otherwise in a position to generate business for the other party on the
date of the acquisition or time of the service agreement. The fair market
price is the price at which other sales have been consummated for
similar assets in a particular market, and for services, the
compensation included in other bona fide service agreements with
comparable terms at the time of the agreement.
55
The Compliance Challenge
 Unlike Medicaid, PHS, and Federal Supply Schedule
Pricing, ASP is a reimbursement mechanism.
 The level of reimbursement may adversely affect
physician choice for a product.
 In particular, the treatment of service fees may be a
critical factor in the determination of ASP.
56
Example w/o Service Fees
 WAC/List Price = $100.00
 Only discount (constructive or otherwise) is prompt pay
at 2% or $2.00
 Average Sales Price = $98.00
 Reimbursement at 106% of ASP = $103.88
 Assume product is sold by wholesaler/distributor at list or
$100.00
 Net difference to provider at purchase price of $100.00 =
$3.88
57
Example w/ Service Fees Treated as Discount






WAC/List Price = $100.00
Only discount (constructive or otherwise) is prompt pay at 2% WAC or $2.00
Average Sales Price = $98.00
Reimbursement at 106% of ASP = $103.88
Assume product is sold by wholesaler/distributor at list or $100.00
Net difference to provider at purchase price of $100.00 = $3.88
Service fees paid to wholesalers/distributors = 1.5% of WAC or $1.50
If treated as a discount ASP = $96.50 (reduced from $98.00)
Reimbursement at 106% of ASP = $102.29
Net difference to provider at purchase price of $100.00 = $2.29
58
CMS Final Guidance - Treatment of Service Fees
 Clarification on the application of Service and Administrative Fees:
- Fee paid must be for a “bona fide”, itemized service that is actually
performed on behalf of the manufacturer;
- The manufacturer would otherwise perform or contract for the service in
the absence of the service arrangement;
- Fee represents fair market value;
- Fee is not passed on in whole or in part to a client or customer of any
entity.
 “Bona fide” service fees paid at “fair market value” can be excluded
from the calculation of ASP.
59
Typical Types of Fees This May Affect

Typical customer classes that may be affected:
–
–
–
–
–

Various fee types:
–
–
–
–
–
–
–
–
60
Wholesalers
Distributors
Specialty Pharmacies
MCO’s & PBM’s
GPO’s
Inventory management
Service level delivery
Chargeback processing
Data fees
Customer solicitation and management
Product and patient support
Shipping and handling (pick, pack, ship, etc.)
Brand protection activities
The Standards Being Imposed
 “Bona Fide Service Fees”
– A determination must be made by the manufacturer with regard
to the specific itemized service being “bona fide” based on the
latest guidance.
– The guidance provides a basic minimum standard for
“determination”.
– Specifically, it states the following - “…itemized service actually
performed by an entity on behalf of the manufacturer…”.
 “Fair Market Value”
– CMS is also providing a basic minimum standard for FMV.
– Based on the above referenced quote, FMV is being referenced
as “at the same rate had these services been performed by other
entities”.
61
Valuation Basics – Service Agreements


In applying the cost approach to services, a “cost build-up” approach is
often utilized. Under the cost build-up approach, actual or expected costs
incurred are analyzed and an assumed profit level is estimated to derive an
indication of the fair market value of the services.
In applying the market approach we are looking for agreements involving
the sale of similar services. This market data is adjusted for significant
differences. Based on types of services provided, data provided, pricing for
services can greatly impact value and lead to appropriate adjustments.
–
–
–

62
Services provided by outside companies – Outsourcing functions (e.g., sales force training,
contract enrollment and administration, call center support, data fees);
Services performed in similar settings or environments; and
Our industry knowledge from other projects of a similar nature.
In applying the income approach to services, analyses of various rates of
return provide corroboration for estimated fair market values.
Section VI
Compliance Challenges for Medicare Part-D
63
CMS Issued Comprehensive FWA Guidance for
Part-D Plan Sponsors
 Earlier this year, CMS issued comprehensive Fraud,
Waste and Abuse (“FWA”) guidance to Medicare Part-D
Plan Sponsors.
– Prescription Drug Benefit Manual Chapter 9
 Section 60 outlines the implementation guidelines for
detecting, correcting, and preventing FWA.
– CMS provides examples of risks to Part-D Plan Sponsors,
Pharmacies, Prescribers, Wholesalers, Pharmaceutical
Manufacturers, and Medicare Beneficiaries.
64
Section 70.1.6 – Pharmaceutical Manufacturer
Fraud, Waste and Abuse
 Lack of integrity of data to establish payment and/or
determine reimbursement…
 Kickbacks, inducements, and other illegal remuneration
– Inappropriate marketing and/or promotion of products
reimbursable by federal health care programs
– Improper inducements: inappropriate discounts, inappropriate
product support services, inappropriate educational grants,
inappropriate research funding, or other inappropriate
remuneration
 Formulary and formulary support activities
– Inappropriate relationships with formulary committee members,
payments to PBM’s, and formulary placement payments…
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Section 70.1.6 – Pharmaceutical Manufacturer
Fraud, Waste and Abuse
 Inappropriate relationships with physicians:
– “Switching” arrangements
– Incentives to physicians to prescribe medically unnecessary
drugs
– Consulting and advisory payments, payments for detaling,
business courtesies and other gratuities, and educational and
research funding
– Improper entertainment or incentives offered by sales agents
 Illegal off-label promotion: Illegal promotion of off-label
drug usage through marketing, financial incentives, or
other promotion campaigns.
 Illegal usage of free samples
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Questions?
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