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Health Care Compliance Association: Medicare Part D Compliance Conference

Session 101

Price Transparency

December 10, 2007

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Agenda

• Introduction

• Background on Medicare Part D/Price Transparency- Government Expectations

- Plan Sponsor Realities

• Common Pitfalls for Plans and Their PBMs

• Making Transparency/Pricing Part of Compliance/Oversight Programs

• Summary and Questions/Answers

Dorothy DeAngelis, Managing DirectorOffice: 704 927 4480

Cell: 312 927 8753

Email: ddeangelis@huronconsultinggroup.com

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Overview and Introduction

• With the advent of the Medicare Part D program, CMS, OIG, GAO and the

House Committee on Oversight and Government Reform have placed

renewed emphasis on the effective monitoring, auditing and oversight of Medicare health plan contractors.

• CMS affirmatively expects health plans to audit and monitor their Part D

programs (including the activities of first tier and downstream entities such as

PBM’s, manufacturers and pharmacies) to the standards set forth in

regulations, compliance guidance, and ultimately the final Medicare Part D

Fraud, Waste and Abuse guidelines.

• In addition to CMS requirements, the impact of DRA and other enforcement

activities on Part D entities should be closely watched.

• Failure to monitor compliance risks will subject Part D participants (including

contractors and other downstream entities) to heightened scrutiny under

federal and state law, including potential whistleblower claims, criminal and civil penalties and corporate integrity agreements.

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What is Price Transparency?

Manufacturer Rebates, Pricing Decisions, and Transparency

• One of the main differences between the Part D program and commercial programs’

drug coverage is the level of transparency that is required by CMS. This transparency is

especially different for the pharmaceutical manufacturer rebates and pricing decisions

made by PBMs.

• The CMS 2007 Call Letter stated that a plan must report 100% of the remuneration it

receives including any PBM price concessions. Further, this included reporting 100%

of the manufacturer rebates paid for Part D drugs including the portion of such rebates

retained by the PBM as part of the price concession for the PBM’s services.

• Additionally, how a PBM makes drug pricing decisions, especially the use of pricing

compendia and methodology is important.

• Health plans must insist that their PBM provide the level of detail

necessary to audit rebate and discount transactions and drug

pricing decisions as depicted on the next two slides.

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Member Pharmacy

Health Plan PBMInvoice Payment

Pre

miu

mPays applicable cost share

Cla

ims P

aym

en

t

Flow of money

Contractual Relationship

Financial and Contractual Relationships

Tra

nsm

its C

laim

CMS

Transmits Invoice

Submits

Bid

/PDE

Risk A

djuste

d

payment

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= Product Movement

= Contract Relationship

Key

Mail Order Pharmacy

Independent Pharmacy

Retail Chain Pharmacy

Ne

two

rkP

ha

rmac

y

PBM

Health Plan Sponsor

Pay Contracted Rates/Admin Fee

Sometimes

Share Rebate

Enrollment

Contract

Monthly

Premium

Manufacturer

Provide

Utilization

DataPay Rebate

Patient/Member

PBM:Volume Discounts/Pharm Formulary

Dispensing Fee

Contracted Rates

Reimbursement

DIR

EC

T

Rebates

Copay or Co-Insurance

(Retail & Mail Order)

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Part D: Pricing Disclosure Requirements

• Part D requires disclosure of pricing information to CMS and plan beneficiaries.

• Sponsors must provide beneficiaries with access to negotiated prices that are free of all price concessions (i.e., direct and indirect subsidies, rebates, remunerations and any other price concessions plans obtained from pharmacies and manufacturers).

• Sponsors must ensure that contracting pharmacies inform enrollees of the differential between the price of the dispensed drug and the lowest priced generic drug at the point of sale (or at time of delivery for mail order).

• Sponsors also must provide ongoing reports of all rebates and administrative fees to CMS. Congress is reviewing this data for the first full year of operation under Part D.

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Pharma Enforcement Trends

• Any conduct that could be viewed as manipulating the pricing or utilization of drugs in a way that increases costs to government programs creates risk

• Who are the targets?– Manufacturers– Health plans– PBM’s – Pharmacies– Physicians– Nursing homes and institutional providers

• Where is the federal money?– Medicare Part B– Medicaid Drug Rebate Program– 340B Grant Program– NIH Research Grants– Federal Employee Health Benefits Program

• Enforcer’s expectations: Medicare Part D brings more government money into the prescription drug industry, and fraud is sure to follow

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Pharma Enforcement Trends

• Who are the enforcers?– U.S. Department of Justice– HHS Office of Inspector General– U.S. Attorneys’ Offices– CMS audit and safeguard contractors– State Medicaid agencies– Medicaid Integrity Program contractors

• What are the risk areas?– Price reporting

• Average Wholesale Price• “Best price” reporting for Medicaid drug rebates• Failure to report discounts, rebates, concessions

– Sales and marketing activities• Kickbacks to physicians and health plans• Consulting payments and research grants• “Marketing the spread”

– Off-label promotion– Prescription misfills

• Switching• Partial fills• Shorting

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Pharma Enforcement: Impact of Medicare Part D

• Major increase in federal funding for prescription drugs

• Complex administration through private plans and multi-level contracting

• Regulators expect fraud and will look to PDP’s to police data reporting and accuracy

• Part D risk areas– Price reporting by pharmacies, manufacturers, PBM’s, wholesalers

• Push for transparency• Perception that Part D is paying more than private plans, other government programs• Manipulation of average sales price and other new data measures

– Sales and marketing activities by Part D plans and prescribers• Patient steering• Kickbacks• Formulary activities

– Opportunities for false billing• Part D vs. Part B drugs• Secondary payer issues• Discounts, rebates, concessions

– Off-Label Promotion

• Current enforcement activities under Medicare Part B and Medicaid rebate programs

will continue!

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Competitive Cornerstone of the Part D Regulations

• Competition among plan sponsors via “bidding” to CMS for reimbursement as well as competitive negotiations for prescription drug prices are cornerstones of the current Part D Program.

• CMS is expressly prohibited from interfering with these competitive negotiations among private entities.

• Part D provides that these negotiated prices with manufacturers will be excluded from Medicaid “best price” calculations.

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Competitive Cornerstone of the Part D

Regulations Open for Debate

• A GAO report released on 2/9/07 compared the drug prices obtained under Part D by private health plans to those achieved under Medicaid and other government programs.

• Committee Chair Henry Waxman (D-CA) sent letters to the top 12 PDP plans asking for detailed information about prices paid for prescription drugs, including administrative costs, profit and all discounts or price concessions, to determine how these discountsand price concessions were passed on to beneficiaries.

• The primary issue was to determine whether CMS should directly negotiate drug prices under Medicare Part D rather than the plans.

• Economic testimony suggested that this direct government intervention should occur only if the market fails.

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Competitive Cornerstone of the Part D

Regulations Open for Debate (Cont’d)

• The main finding from the Committee on Oversight and Government Reform report (October 2007) was that Part D plans had higher than average administrative costs and low rebates.

• The report stated that rebates only reduced drug spend by 8.1% in 2007 which was much less than the 26% earned by Medicaid or the VA’s 50%.

• The report also stated that Part D was a “significant windfall for pharmaceutical manufacturers.” They noted this windfall was most significant for dual eligibles (Medicare/Medicaid members).

Making Pricing/Transparency Part of a Part D

Compliance Program

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Step 1: Assess Relationships with Contractors and Sub-Contractors

• Based on the typical level of delegation of Medicare Part D responsibilities,

sponsors must oversee third parties to which responsibilities are delegated,

as the plan is ultimately responsible to CMS for the performance of the delegate.

• Plans may require in their contracts with delegates (including PBMs and

manufacturers) more specific oversight language such as:– Specification of delegated responsibilities and reporting responsibilities

– Provisions for revocation or other remedies if the delegate is not meeting

contractual obligations

– Provisions for Part D Sponsor ongoing monitoring and auditing

– Statements that the Contractor or Subcontractor must comply with all applicable

Federal laws, regulations, and CMS instructions

• Plans attest to CMS a level of transparency that must be tested at the first tier delegate and sub-contractor levels.

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Step 2: Use Data Analysis for FWA Detection and Prevention

• The CMS FWA guidance requires that Part D Sponsors use data analysis

tools to assist in the detection and prevention of FWA at the Sponsor and

subcontractor levels.

• According to the FWA guidance, the data analysis should:– Establish baseline data to enable the Sponsor to recognize unusual trends,

changes in drug utilization over time, physician referral or prescription patterns and

plan formulary composition over time;

– Analyze claims data to identify potential errors, inaccurate TrOOP accounting and

provider billing practices;

– Identify over-utilization; and

– Identify problem areas at the subcontractor level (e.g. PBM, pharmacy and

pharmacists).

• The expectation is that the Sponsor will develop the ability to effectively

monitor the administration of its Part D program and the activities of any related subcontractors through the use of data analysis.

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Step 3: Understand PBM FWA Risk Areas

• The FWA guidance provides a listing of potential risk areas or activities that would trigger CMS/MEDIC actions should they be detected. The following represents the risks cited for health plans in their relationships with PBMs pursuant to Part D plan administration:

– Inappropriate drug switching– Unlawful remuneration – Inappropriate formulary decisions– Prescription drug splitting or shorting

–Failure to offer negotiated prices –• This is the recent area of focus by House Committees, what does the

phrase really mean?• While patient is in the “doughnut hole”?• In terms of reporting to CMS and ultimately pass-thru of rebates/price

concessions to beneficiaries? • Will there be a pure accounting test (i.e. reported vs. actual or some

other reasonableness test of the value of the deal)?

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PBM Part D Risk Areas

Attestations

• CMS requires Part D sponsors to make certain attestations related to aspects of the Part D program. These attestations include Prescription Drug Event (PDE) data and TrOOP. Most of the data that make up these attestations will come from the PBM.

• The accuracy of these attestations is vital to the continuing compliance of the health plan with CMS requirements.

• Health plans should be prepared to audit and validate that the information and data generated and reported by the PBM for these attestations is accurate.

• The health plan’s right to audit and validate this data should be included in the PBM agreement.

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PBM Part D Risk Areas (cont.)

Claims Pricing and Processing and PDE Reconciliation

• A PBM’s methodology for the processing and pricing of Part D drugs is especially important since it is the essential element of PDE data and the basis for program reimbursement.

• Health plans must have mechanism(s) by which they can audit the PBM’s claims processing to ensure compliance. These mechanisms can include the following:

– Electronic reviews which are performed to “re-price” the Plan Sponsor’s claims history and ensure that the PBM is applying the correct drug unit pricing and other formulas per the PBM contract; and,

– Detailed testing audits of a random sample of claims that are performed to ensure proper handling of mail versus retail claims, eligibility, duplicate flagging, dispensing fees, formulary compliance, fraudulent claims, etc.

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Step 4: Incorporate Different Types of PBM Audits

Claims Processing

• Electronic reviews are performed to “re-price” the Plan Sponsor’s claims history and ensure that the PBM is applying the correct drug unit pricing and other formulas per the PBM contract and Part D requirements; and,

• Detailed testing audits of a random sample of claims are performed to ensure proper handling of mail versus retail claims, eligibility, COB, duplicate flagging, dispensing fees, formulary compliance, fraudulent claims, etc.

Formulary Rebates

• Measure the ability of a PBM to obtain and recover rebate amounts from manufacturers and pass the appropriate portion back to the Plan Sponsor in accordance with terms reported to CMS.

Other - Administrative or Clinical

• Measure the extent to which the PBM has complied with any performance guarantees included as part of the contract, such as ID card and mail service production turnaround time, dispensing accuracy, customer service response time, etc.

Government Call to Action for Part D Plans

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CMS Call To Action from Other Agencies is Clear

• Late in 2006, the Office of Inspector General (OIG)

issued a report that condemned many Part D

health plans’ compliance and Fraud, Waste and

Abuse programs as faulty and/or incomplete.

• October 2007, OIG report on CMS’ failure to

implement safeguards including those needed to

verify direct/indirect remuneration are accurately

reported by sponsors.

• October 2007 GAO report on bid/payment audits

limited utility in recovery efforts.

• October 2007 House Oversight/Reform Committee

report on Medicare Drug Plans’ high expenses and

low rebates.

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2008 OIG Work Plan – Pricing Focus

OIG will review whether plans’ passed on all price concessions (including those discounts at the pharmacy point of sale, direct or indirect subsidies, rebates and other price concessions and direct and indirect remuneration). This review will also examine CMS’ oversight of plans disclosure and pass-through of these price concessions.

Part D Negotiated Prices and Price Concessions

OIG will compare prices achieved under the part D program to those under Medicaid for a sample of drugs.

Comparing Drug Prices: Medicare Part D to

Medicaid

Bid Submission by Part D Sponsors

OIG will review CMS’ methodology for reviewing and approving MA-PD and PDP plan bids. The review will place scrutiny on the adequacy of risk factors used for payment and whether beneficiaries were given access to negotiated prices.

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2008 OIG Work Plan (Cont’d)

OIG will review the price integrity of the Part D drug process on this web-based tool for beneficiaries to make sure they are current, regularly updated and accurate.

Drug Prices on Medicare Prescription Drug Finder

Comparing Drug Prices:

Medicare Part D to Medicare Part B ASP

The OIG will compare drugs that may be covered under Part D or Part B depending upon their usage and the corresponding reimbursement levels of Part D vs. Part B’s Average Sales Price.

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Wrap-Up and Q&A

• The CMS/OIG/GAO call to action is clear, the question is whether your Part D program is transparent, documented, and in a form that can be explained to multiple government auditors.

• Based on late 2007, the new year will be a time of intense scrutiny, study, and likely enforcement actions.

• Plans should work closely with contracted PBMs, manufacturers, and other entities to be prepared for pricing information requests and audits.

• These entities should make sure they have: –Conducted a baseline risk assessment/gap analysis against compliance and FWA

requirements.–Conducted a similar review of the applicable contracted PBM’s compliance and

FWA risk areas.–Carefully review the OIG 2008 Work Plan and incorporate pricing audits

• PBM’s and drug manufacturers should also expect regulatory and enforcement scrutiny of their Part D activities analogous to similar activity under existing government programs such as Medicare Part B and the Medicaid drug rebate program.

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Questions