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DEVELOPING A CULTURE OF
PRICING COMPLIANCE:
Strategies for Avoiding OIG and DOJ
Scrutiny of Drug Pricing Practices
William Davis
Member
Wendy Goldstein
Partner
November 2, 2016
CURRENT ENVIRONMENT HOSTILE
• Kaiser Health Tracking poll August 2016
finds that most Americans feel that drug
costs are unreasonable (72 percent) and that
drug companies put profits before people (74
percent)
• Public favors requiring drug companies to
release information on how they set their
drug prices (86 percent) and allowing
Medicare to negotiate with drug companies
(83 percent), and majorities also say these
strategies would be effective2
HOSTILE ENVIRONMENT (CONT.)
• Reflective in part of the perceived high costs of
prescription drugs and focus on profits, about 4
in 10 (42 percent) Americans have a favorable
view of drug companies, lower than the share
who feel favorably towards banks (58 percent),
and similar to the shares who have positive
views of oil companies (40 percent) and health
insurance companies (44 percent)
3
JUDGES ARE PEOPLE TOO
• Judges, juries and government lawyers don't
leave their opinions and biases at home
• The hostility toward drug companies carries
over to government enforcement actions,
sympathy to whistleblowers, etc.
• Firsthand experience with Judges bringing their
personal experience and opinions about
healthcare into their courtroom
4
STRECK BFSV –
PLAINTIFF'S PERSPECTIVE
• Defendants intentionally or recklessly
incorrectly reported bona fide service fees
(BFSV) paid to wholesalers as discounts, not
fees, in violation of applicable regulations
• Incorrect reporting lowered reported AMPs,
thereby improperly reducing Medicaid rebates
paid
• Government declined to intervene, but Relator
continued the case
• Court denied defendants' motions to dismiss5
STRECK BFSV – DEFENSE
PERSPECTIVE
• CMS, OIG and others long have acknowledged
uncertainty in the law concerning the proper
treatment of BFSV
• Inconsistent treatment by manufacturers
• A good faith disagreement concerning the
interpretation of vague statutes and regulations
is not fraud
6
STRECK PRICE
APPRECIATION CREDITS
• Court dismissed claim
• Plaintiff intends to appeal
• Timing of appeal delayed pending conclusion of
BFSV claims
7
STRECK DEFENDANTS
MOSTLY SETTLED
• Case proceeded against 4 defendants:
AstraZeneca, Biogen, Cephalon, and Genzyme
• AstraZeneca ($46.5 mm) and Cephalon ($7.5
mm) settled with releases from the government
• Biogen settled without releases from the
government
• Case against Genzyme is ongoing, but stayed
8
STRECK LESSONS –
TERMS OF ART
• Be careful using terms familiar to industry
participants, but potentially confusing to
government lawyers and Judges
• In Streck, this problem manifested itself as
characterizing "fees" paid to wholesalers as
"discounts" for AMP and ASP purposes
• Other examples of terms creating litigation risk
are: AWP; WAC; and Usual and Customary
9
LESSONS LEARNED –
DOCUMENTATION
• Do you have documentation demonstrating
your reasonable assumptions, such as why
your company characterized service fees as
discounts, fees, or hybrid?
• Do you have a consultant's fair market value
report?
• Do you have an opinion of legal counsel?
• Above documentation is not necessarily legally
required, but should be considered
10
LESSONS LEARNED –
PRIVILEGE
• The government and plaintiffs will demand
discovery of your documentation
• You may wish to use your documentation
affirmatively to prove you acted reasonably
• Is your documentation protected from discovery
by attorney-client privilege?
• You may waive privilege and produce the
documentation showing the bases for your
decisions
11
LESSONS LEARNED - SETTLEMENTS
• State and Federal government continue to
enact laws encouraging more lawsuits
• The increase of whistleblower lawsuits and
private attorneys general makes it more difficult
to resolve cases
• Whistleblowers and private attorneys general
are motivated principally by money, not the
search for justice
12
DAMNED IF YOU DO,
DAMNED IF YOU DON'T
• Many manufacturers originally thought, due
to pressure to capture all discounts in price
reporting, that it was "conservative" to
include service fees in AMP and ASP
• But some programs and potential plaintiffs
are helped by higher AMPs, others harmed
• Higher AMPs may lead to higher AMP-based
FULs, and higher ASPs lead to higher Part B
physician reimbursements, while higher
AMPs also may increase Medicaid rebates
13
WHERE ARE WE NOW?
ENVIRONMENT TIMELINE
April 2015
WSJ article discussing Valeant’s
strategy to buy drugs
and immediately
increase prices
significantly
July 2015
Valeant CFO questioned by
Senate’s Homeland Security &
Governmental Affairs
Permanent Subcommittee
on Investigations
regarding price increases
Valeant receives letter from
Senator McCaskill, Ranking
Member, Senate
Homeland Security &
Governmental Affairs
Permanent Subcommittee
on Investigations,
requesting information
regarding Valeant’s drug price increases
September 2015
May 2015
House Govt. Reform and Oversight
Committee Ranking Member
Cummings sends
Chairman Chaffetz a
letter requesting
that the Committee
hold a hearing in
which Valeant and Turing CEOs
testify
August 2015
Valeant and Hospira receive
letters from Rep. Cummings
and Sen. Sanders
requesting information
regarding Valeant’s drug
pricing practices
Turing receives
letter from Rep.
Cummings and Sen. Sanders
requesting information
regarding Turing’s drug
pricing practices
August 2015
July 2014
Gilead receives
letter from Senators
Wyden and Grassley, Senate
Committee on Finance, requesting documents related to Sovaldi, priced at
$1,000/pill ($84,000/ course of
treatment)
Legend
Dept. of Justice inquiry
Office of Inspector General
Industry news
Legislation
Media attention Congressional inquiry
Attorney General FDA action
ENVIRONMENT TIMELINELegend
Dept. of Justice inquiry
Office of Inspector General
Industry news
Legislation
Media attention Congressional inquiry
Attorney General FDA actionSeptember 2015
September 2015
Valeant receives
second letter from Senator
McCaskill, again
requesting information
due to Valeant’s “failure to respond
substantively” to the August
15, 2015 letter
18 members of the House Committee
on Oversight and Gov’t.
Reform send letter to the Committee Chairman, requesting
that he subpoena
documents that Valeant refused to
turn over to in response
to the August 2015 letter
October 2015
October 2015
Valeant announces receipt of
subpoenas from DOJ and U.S.
Attorneys’ Offices in NY,
Massachusetts, Pennsylvania
related to pricing, patient
assistance, distribution of its products, and related
areas of interest
Merck and Eli Lilly each announce receipt of CIDs from
the DOJ and U.S.
Attorneys’ Office in E.D. of PA related
to drug pricing,
contracting and
Medicaid reporting practices
November 2015
November 2015
November 2015
Senate Committee on Aging issues
letters to Valeant, Turing,
Retrophin, Rodelis
Therapeutics regarding
Committee’s “comprehensive
investigation” into the pricing
of off-patent drugs.
Document response due December 2,
2015
Democratic members of the House Committee
on Oversight and
Government Reform form
the Affordable
Drug Pricing Task Force
Chairman Chaffetz agrees to
hold hearings in early 2016. Valeant and Turing are anticipated
targets
OIG issues FY2016 Work Plan, which
includes a new review related
to specialty drug pricing and Medicaid
reimbursement
ENVIRONMENT TIMELINELegend
Dept. of Justice inquiry
Office of Inspector General
Industry news
Legislation
Media attention Congressional inquiry
Attorney General FDA actionDecember 2015
December 2015
December 2015
November 2015
Democratic members of House Ways and Means Committee
send letter to Chairman
Brady requesting an “immediate
hearing” into prescription drug costs
Initial hearings by
Senate Committee
on Aging held
Senators Wyden and
Grassley, Senate
Committee on Finance,
release a 144-page
report and Gilead
documents produced to
the Committee
as part of its 18-month
investigation
House Committee on Oversight and Government
Reform sent a letter to Acting Commissioner
of the FDA, requesting
responses to 15 questions related to the Abbreviated
New Drug Application
(ANDA) process and its impact on drug
pricing
December 2015
January 2016
Five Democratic
senators send letter to CMS
requesting information related to
rising prescription
drug costs and requesting
responses to 7 questions
House Committee on Oversight and
Government Reform sends letter to former
Turing CEO Martin Shkreli, requesting
documents related to drug, Daraprim, in his control or possession
from January 1, 2015 –December 31, 2015,
and documents produced/ to be
produced to 2015 requests from any
governmental entity
ENVIRONMENT TIMELINELegend
Dept. of Justice inquiry
Office of Inspector General
Industry news
Legislation
Media attention Congressional inquiry
Attorney General FDA actionJanuary 2016
February 2016
February 2016
March 2016
House Committee on Oversight and Government
Reform issues subpoena to
former Turing CEO Martin
Shkreli to testify before the
Committee at the upcoming
hearing. Letter also sent to Mr. Shkreli’s counsel
advising that failure to appear/ comply with the subpoena may
expose Mr. Shkreli to
criminal liability
House Committee on Oversight and
Government Reform holds a
hearing on February 4, 2016
titled, “Developments in the Prescription
Drug Market: Oversight.”
Individuals called to testify at the hearing were former Turing
CEO Martin Shkreli, who
invoked his Fifth Amendment
Right; Turing CCO Nancy Retzlaff;Valeant Interim
CEO Howard Schiller; FDA’s CDER Director
Janet Woodcock; and PCMA CEO Mark Merritt
Humana agrees to pay Florida
Office of Insurance Regulation
$500k for failing to cooperate
with investigation
into drug pricing policies that
allegedly discourage HIV-positive patients
from choosing Humana
March 2016
March 2016
6 Democratic senators and 6 representatives petition NIH to
hold public hearing on overriding
Xtandi’s patent and lowering
the drug’s price
House Appropriations
Committee Chairman says
insurance companies
should cover more expensive
opioid drugs developed with
features that deter abuse
FDA says it will prioritize
review of new generic drug applicants to compete with
drugs currently made by only one company
ENVIRONMENT TIMELINELegend
Dept. of Justice inquiry
Office of Inspector General
Industry news
Legislation
Media attention Congressional inquiry
Attorney General FDA actionMarch2016
March2016
April2016
April2016
Rep. Elijah Cummings, House
Committee on Oversight and Government
Reform Committee, sends
Valeant letter stating that
Valeant’s refusal to provide requested documents is an obstruction of a congressional
inquiry into the company’s drug
prices and its relationship with
Philidor Rx
Senate Special Aging Committee holds
hearing on April 27, 2016 titled, “Valeant
Pharmaceuticals’ Business Model: the
Repercussions for Patients and the
Health Care System.” Individuals called to
testify at the hearing were patient with Wilson Disease, Berna Heyman;
Professor Frederick K. Askari; St. Vincent CCO Richard Fogel; Valeant Director Bill
Ackman; Valeant CEO J. Michael
Pearson; and Former Valeant Interim CEO
Howard Schiller
Anthem sues Express Scripts for breach of PBM services
contract alleging
Express Scripts charged
inflated prices and refused to
negotiate a new contract in good faith,
which led to an overpayment
of $15b by Anthem
NY AG subpoenas insurance
companies, seeking
information on pts denied
Hep-C drugs
April2016
April2016
April2016
IMS Institute for Healthcare Informatics
releases research showing the total
U.S. spending on drugs increased
8.5% in 2015
“The Campaign for Sustainable Rx Pricing,” a coalition of
major insurers, hospitals, and unions, holds
event in Washington D.C.
to advocate addressing drug
costs through increased
transparency, competition and
comparative drug
effectiveness research
KaloBios Pharmaceuticals announces that it will limit drug price increases to the rate of
inflation or the CPI
CMS issued proposed rule for comment, to test Medicare Part B payment methodologies for 5 years. Includes different HCP and pt. incentives designed to drive effective prescribing and reward positive pt. outcomes
ENVIRONMENT TIMELINELegend
Dept. of Justice inquiry
Office of Inspector General
Industry news
Legislation
Media attention Congressional inquiry
Attorney General FDA actionJune2016
Vermont passes
legislation requiring
justification for price
increases of up to 15 drugs
from designated
drug manufacturers
August2016
September2016
September2016
U.S. Senator Amy Klobuchar
asks FTC to investigate
Mylan NV re“dramatic”
(400% increase over 7 years) in cost of EpiPen and urges the
Senate Judiciary
Committee to hold a hearing
on the price increase
West Virginia Attorney
General Patrick Morrisey
subpoenas Mylan for
information about the price increase in the
EpiPen
Three U.S. senators asked
Attorney General L. Lynch
whether U.S. DoJ is
investigating possible FCA
violations by Mylan re
underpayment of Medicaid rebates for
EpiPen
October2016
Mylan Inc. agreed to a $465
million settlement with
U.S. DoJ and other agencies re classification of
EpiPen Auto-Injector and
EpiPen Jr Auto-Injector under
MDRP John McCain (R-AZ) and Tammy Baldwin (D-WI)
propose legislation requiring
submission of price increases > 10% at least 30
days before effective date,
as well as other information
Taro disclosed DoJ antitrust subpoena re:
pricing of generic drugs,among other
items
Letters from Congress re
opioid crisis tomnfrs re pricing,
among other issues
POLITICAL FOCUS
• Presidential candidates also jumping on the drug pricing bandwagon.Dem. Candidate HillaryClinton’s plan to lower drug prices includes:
• “Eliminate corporate write-offs for direct-to-consumer advertising”
• “Establish a mandatory FDA pre-clearance procedure for these [DTC] ads fundedthrough user-fees paid for by pharmaceutical manufacturers”
• “Require health insurance plans to place a monthly limit of $250 on covered out-of-pocket prescription drug costs for individuals”
• Lower “the biologic exclusivity period from 12 to 7 years”
• “Require drug manufacturers to provide rebates for low-income Medicare enrollees”
• “Allow Medicare to negotiate drug and biologic prices”
• Presidential candidate Rep. Donald Trump supports importation anddirect price negotiation
STATES AS INCUBATORS
• Proposed state legislation introduced (CA, MA, NY, NC, OR, PA)would require pharmaceutical manufacturers to submit reports tothe state outlining the total cost of drug production, includingmarketing costs
• Vermont – June 2016 legislation
• The recently repealed California legislation would require “… eachmanufacturer of a prescription drug made available in [CA], that has a[WAC] of $10,000 or more annually or per course of treatment to file areport, no later than May 1 of each year, with the Office of Statewide HealthPlanning and Development on the costs for each qualifying drug…. the[Office] issues a report annually and posts on the [Web]. … Confidentialityprovisions taken into consideration.”
WHERE DOES INDUSTRY GO FROM HERE?
• Companies lowering prices? Smaller increases?
• How do companies handle pricing at launch?
• Value-based purchasing/ “risk-sharing” arrangements
• Outcome of congressional inquiries
• Outcome of DoJ investigations
• State AG payor investigations
• Federal and state legislation
• Election
RAMIFICATIONS FOR COMPLIANCE
• Policies, procedures, training, auditing and monitoring activities must beupdated to address legal/regulatory developments in pricing andenvironment
• Directors, officers, management
• Key departments and committees
• Government Pricing (GP) Department
• Final AMP Rule Implementation
• Pricing Committee
• Pricing proposals, rebate structures, risk-based contracting/ value-based proposals
• Return policies
• Reimbursement Support Department
• Government Affairs
RAMIFICATIONS FOR COMPLIANCE
• Key Activities for training, monitoring, auditing
• Reimbursement Support
• Trade /Distribution channels
• Patient assistance programs
• Copay mitigation programs
• Patient compliance, adherence and persistency programs
• Sampling programs
• Documentation
PRACTICAL COMPLIANCE CONSIDERATIONS
• Key Compliance Principles
1. “Integrity of data used by state and federal governments to establishpayment amounts” OIG Compliance Guidance
• GP Function - King Pharmaceuticals Settlement (2005)
• Manufacturer certifications in GP
• Medicare ASP (quarterly) - CEO, CFO, or Authorizing Official certifies that “thereported Average Sales Prices were calculated accurately and that all informationand statements made in this submission are true, complete, and current to the bestof my knowledge and belief and are made in good faith. I understand that theinformation contained in this submission may be used for Medicare reimbursementpurposes.”
• Medicaid Drug Rebate Reports (monthly and quarterly, thru DDR) -
• CEO, CFO, individual with equivalent authority or direct delegate
PRACTICAL COMPLIANCE CONSIDERATIONS
2. Provide truthful, accurate and complete information to customers
• Examples - formulary dossier, discount and rebate communications withstate P&Ts, VA/FSS, Medicaid Managed care, Part D plans
• Adhere to policies and procedures addressing off-label discussions andoutcomes/cost-effectiveness claims
3. Accurately characterize price concessions
• If it is looks like a discount then call it, and account for it, as a discount
• Case law; BMS (2007); Schering (2006); TAP (2001)
• Alleged kickbacks resulted in BP violations
4. Refrain from billing and coding discussions with customers
5. Engage third party, independent parties to conduct FMV analysis onBona Fide Service Fees
• Privilege considerations
PRACTICAL COMPLIANCE CONSIDERATIONS
6. Accurate paper
• Good paper will not “fix” bad intent or practice
• US ex rel. Westmoreland v. Amgen (2012): “Parties to a GPOarrangement cannot obtain safe harbor protection with a GPOcontract that complies with the written agreement requirement of asafe harbor and appears, on paper, to meet all of the other safeharbor requirements, but that does not reflect the actualarrangement between the parties.”
PRACTICAL COMPLIANCE CONSIDERATIONS
7. Focus on Beneficiary Inducements
• Co-payment Coupons
• “Bridge the Gap” programs
• Patient Assistance Programs
• Usual and Customary Billing
• ACA may create new government sympathy for payors,
who contend that patient assistant programs increase their
costs
29