Thinking Ahead! Assure That Next Generation Contracts Don’t Give You New Compliance Headaches

---Terri Bernacchi, PharmD, MBA,  President, Cambria Health Advisory Professionals, and FOUNDER, SME Systems &  CIS Strategic Consultant, Audit and Risk Assurance

No one can argue that the US health care system is changing at an epic pace.  Not surprisingly, these changes also impact contracts between pharmaceutical manufacturers and their various trading partners.  The evolving environment around contracts requires that a manufacturer must be willing to do more than just issue the familiar discount, rebate, or coupon to reduce the “listed” price of the product in exchange for its purchase.

New kinds of contracts (sometimes labeled as “Outcomes” or “Value-Based”) promise to change the basis for exchange from a simple “discount off of list price” to a “value to the purchaser” in exchange for its price, discounted or not.  Contract language always attempts to define difficult terms between the parties.  The parties themselves are undergoing unprecedented changes in terms of how they select and use pharmaceutical and device products; it is possible that the number of contracts will expand as the manufacturer tries to reach more local or regional customers with a next generation contract. 

Contracting with New Customer Types for Different Reasons.  Brand, bio-similar, and generic products will certainly continue to be contracted with traditional risk-holding parties for pricing discounts:  Medicaid, Medicare Part D, Commercial, Distributors or GPOs.  However, in addition to standard deals with those parties, next generation contracts may involve the exchange of more than price discounts for purchases.  These new contracts will provide payments for time and materials spent in proving value, exchanging data or evidence, and analyzing anonymized patient feedback.  These contracts may involve providers or Accountable Care Organizations, Hospital systems, or other provider entities.  They may also involve health plans and other payers providing a fee in exchange for working toward a shared goal of adherence or positive health outcomes, rather than just a price discount.

Price Transparency Factors Driving Prescriber Behavior Changes.  A key change driver that executives must fully grasp is what is going on at the physician level as the system moves away from “fee for service” care where the physician is unaware of the component costs associated with drugs or devices and into the “accountable care” arena where product cost has real consequences to the practice of medicine and possibly to the physician’s own compensation. 

More than ever, hospitals and health plans are using data to examine the cost effectiveness profiles of individual physicians to confirm that doctors included in their risk-based contracting arrangements are providing good member outcomes while holding down costs.  This means that manufacturers are going to have to convince an increasingly skeptical physician of the VALUE of their product.

“During a recent panel discussion on analytics and accountable care organizations, Darren Shulte, MD, MPP, president of Apixio, stated that cost transparency can have a powerful effect on practice patterns. By showing physicians how their costs stack up against their colleagues, Shulte said, they have a chance to see how the choices they make for a patient affect the total cost of care.”  (See:  http://www.healthcarefinancenews.com/blog/using-cost-transparency-change-physician-practice-patterns  )  

Defining Squishier Terms in Contracts.  A manufacturer’s current and next generation contracts will need to consider “price” but also the definition of “value” or “outcome”.  Further, the definitions of these terms and the impact of the contract will need to be rational to the prescriber.  This will continue to be particularly challenging and will probably vary by contract, based upon the context of the product options, the disease states, and the parties.  These contracts themselves must also address how success metrics will be calculated, what data is necessary to prove the metric is accurate, and how the data itself will be gathered and disseminated.   Thinking ahead now about how to define the terms, measure the results and verify or “audit” the results is critical to achieving a successful contract outcome.  

Never sign a contract that you don’t know exactly how you would be able to audit the terms or payments!

Be Pragmatic.  There are a number of practical concerns you should address before you jump into these next generation contracts.  You may want to pose a few key questions to your legal, managed markets, and trading partner teams. Among these:   

•  Can you define the terms you and your contracting partner are aiming for under your contract?  Or is the definition overly “squishy”?  How do you tighten the definitions?

•  Can you agree on the metrics that will define the relative success or failure of your objectives?

•  Can you quantify the “return on the contract” for your organization?  For your trading partner’s?

•  What is the monetary value based on?  A percentage of “list” price?  A “Fair Market Value” for services or data or something else?

•  Are you confident that your Contract Operations team can actually administer the new agreement, either in the contract management system or outside of it? 

•  How will you audit and confirm compliance, so that you are not just paying blindly and trusting without verifying?

•  How will regulators view these payments?  Do they contribute to or trigger a government pricing rule for the product?  If so, how?  Do they need to be reported as part of the Sunshine Act?   

•  Are the parties compliant with HIPAA and other data security or privacy rules? 

The time to plan is now, before you find yourself behind the competition in next generation contracting; however, the time to anticipate compliance and regulatory challenges is also now or maybe even yesterday.   

  See Link at CIS: 
 

http://cis-partners.com/cis-compliance-blog/thinking-ahead-assure-that-next-generation-contracts-dont-give-you-new-compliance-headaches/

How Will Pharma Bring Value to the Evolving ACO?

---Terri Bernacchi, PharmD, MBA,  President, Cambria Health Advisory Professionals, and FOUNDER, SME Systems (this blog also posted on www.smehealthsystems.com)

This is the inaugural post for SME Systems and I will be linking it to others that I post on the web; the issue (especially given my background as a pharmacist with experience in both the clinical and business world in the US) is clear to me:  how will branded pharma and device companies continue to bring value under a retooled US Health Care system? 

The critical changes are removing the traditional parties (doctor and patient) from the buffered world where “someone else will pay for this”.  Risks are being spread, insurance rates are going up and providers are being penalized for what is perceived as “over spending”. 

The new Accountable Care Organization (because it is taking on transferred risk) is unlikely to allow “business as usual” with the pharmaceutical sales machines that have been so successful in the past. 

So how does one INNOVATE and then MARKET in such a different environment? 

In a word, I believe, you can only do these things if you shift your own perspective and become willing to prove value in different ways.  That may be the key mission of SME Systems:  proving Safety as part of compliance and VALUE as part of Medical Effectiveness. 

Tim Norton published a brilliant commentary about the fact that now about 70% of the market is government backed, the meaning of competition, the success of the Medicare Part D program and HHS’ recent attempt to break what worked in that program, too.  HHS has backed off on their most recent plans but the threat to the bounties of a competitive marketplace are clear.   (See the link:  http://blog.pharmexec.com/2014/03/12/close-call-for-american-rx-marketers-on-medicare-part-d/ )

Since I cannot say it better than he did, I hope you read this for yourself.   Here is the most critical part of his commentary and his clarion call to be alert: 

“I believe it’s clear that as the U.S. progresses farther and farther down the road of expansive public healthcare, U.S. pharmaceutical companies are going to face many battles with public entities that will attempt to close their free market channels.

Hopefully, this recent “close call” with Part D is not a foreshadowing of what’s to come. But frankly, as the inevitable cost pressures develop in all these public programs, I would not be surprised to see more of the same, and soon.

In any case, the wise American Rx marketer would do well to fully understand and appreciate the developing mindset of all the new public programs now coming online…A mindset that is definitely not free enterprise oriented.”

Terri is the Founder of SME Health Systems and Cambria Health Advisory Professionals.  She is a Senior Partner at Valiant Health, LLC.  The thoughts put forth on these postings are not necessarily reflective of the views of her employers, clients nor other colleagues. Terri has had a varied career in health related settings including: 9 years in a clinical hospital pharmacy setting, 3 years as a pharmaceutical sales rep serving government, wholesaler, managed markets and traditional physician sales, 3 years working for the executive team of an integrated health system working with physician practices, 4 years as the director of pharmacy for a large BCBS plan, 12 years of experience as founder and primary servant of a health technology company which was sold to IMS Health in late 2007.  She has both a BS and a PharmD in Pharmacy and an MBA. 

Having It Both Ways: State Sanctioned Medical Marijuana vs. FDA Oversight?

---Terri Bernacchi, PharmD, MBA,  President, Cambria Health Advisory Professionals

As someone who got a BS in Pharmacy in 1979, an MBA in 1990 and a PharmD in 2008, I have seen a few things change over 35+ years in regards to the manufacture, regulation and marketing of drugs in the United States.  Some things are now rather “topsy-turvy” compared with the reality of my early professional years.

I’ve worked as a hospital and retail pharmacist, for a major pharmaceutical manufacturer, a large health plan and a hospital system.  Last, I owned a business forcing me to apply theory to practice:  I had to make payroll.  These experiences left me with a certain “steeped in reality” perspective that goes beyond things I read in textbooks or heard from my professors.  Life, as it unfolded, has also progressed my political leanings from naïve liberal to conservative to almost libertarian as I witnessed and felt the result of regulatory misadventures and their unforeseen consequences on the “little people”.  Bureaucracies may mean well but they are never "efficient". 

For example, when I went to Pharmacy School in 1979, I learned the following in my Jurisprudence courses about the bureaucracy we know as the Federal Food & Drug Administration: 
 

• The FDA is there to protect the citizenry from fake, dangerous or adulterated food and drugs.  The creation of the FDA was precipitated as part of the 1906 Food & Drug Act after snake oil salesman sold their secret tonics to treat everything from fatigue to menopause to heart diseases or cancer. These tonics often contained dangerous drugs like morphine, cocaine, or potentially toxic substances like arsenic or digitalis in variable doses.  Food contamination and handling was as important as the drug purity and was brought to light in Upton Sinclair's novel, The Jungle. 
• Drugs marketed in the late 1970s were typically either “over the counter” or legend (available by prescription only).  All of them, with the exception of a "grandfathered" few, were under the direct scrutiny of the FDA.  Some products, like heroin or LSD, were so highly regulated that they could not be legally manufactured or sold in the United States at all; these were deemed to offer little medical value relative to the detrimental effects.  Others, like food supplements and “natural” products were pretty much unregulated---much like they are today.  You can find these products sold with wild and unsubstantiated claims on the internet, in the back of tabloid magazines, or in the “nutritional supplement” aisles of health and drug stores.   
• We learned the history of thalidomide and the need to test drugs for effects on the developing fetus.  Indeed, Dr. Frances Kelsey was something close to a saint for her work in preventing the US FDA’s approval of the sedative thalidomide.  England experienced thousands of limb malformations from the drug’s use in pregnant women; the US largely avoided this disaster thanks to Dr. Kelsey.   
• The FDA was presented to us students, singularly, as a heroic regulator, necessary to a safe and effective drug supply, advocating for the patient at every turn.  The rules of the FDA, we were told, are applied to all 50 states; as it is a Federal agency, its rules trumps those of the states.  Certainly, the Controlled Substances Act (enforced by the Drug Enforcement Agency) applies as well to each of the states.
• I thought, briefly, that it might be great to work for the FDA or the CDC.  They are clearly doing interesting and important work. I tend to believe that there is a role for some governmental oversight of things that are sold for ingestion of the people.
• While its mission is presented in noble and lofty terms about protecting the public and speeding innovations (see http://www.fda.gov/aboutfda/whatwedo/), the FDA has often been criticized (sometimes to the point of vilification) for delays in the approval of drugs that are openly available in other countries.  Over the course of the past century, the agency itself has grown and the mission has been expanded.
  
  It is certainly more expensive to bring a drug to market than it was in 1960, but back then the government was not responsible for paying for it.  Now, under Medicare, Medicaid, federal employee insurance, and the ACA, the Government is a key payer.  The FDA has a 2014 budget in excess of $4 billion and employs more than 9,300 federal employees.  The costs of the FDA are significant, whatever the value it brings.
In today's environment, Pharma and device companies must work through an onerous product approval and regulatory process that adds millions (often hundreds of millions) of dollars to the cost of developing a new drug or device.  Not surprisingly, these costs are added to the cost of insurance coverage and are ultimately born by the consumer and the taxpayer.  In addition, the federal government is applying ever more user fees, taxes, and discounts to the pharmaceutical and device manufacturers which pass along these costs as well.  Disproportionate cost shifting to the private sector remains the primary impact of all of the financial burden.

For my part, I wonder about the effectiveness of FDA security measures protecting the US public from the importation of inferior or even counterfeit drugs.  The FDA cannot be everywhere and there is a lot of money chasing prescription drugs which breeds bad guys seeking to rip somebody off.

So, after all these years, I am left somewhat bemused as I look at what is happening now regarding marijuana!!

Where is the FDA and DEA on these issues? There are a couple of points that are particularly peculiar: 

Apparent Reversal of Focus Away from Pot and Towards Sugar.  For the past couple of years, state, local, and federal regulatory initiatives around smoking cigarettes, drinking soda pop or eating foods we might otherwise choose are becoming more burdensome at the very time that the FDA and DEA seem to be “giving up” on their efforts to control the sale and distribution of marijuana, ignoring relaxation of rules at the state level.  So, we are tightening the rules on cigarettes and soda pop and loosening the rules on what has always been called, the “gateway” drug. 

For example, in 2014, it is now more time-consuming to buy pseudoephedrine at the pharmacy than it is for someone to score some pot, completely free of criminal consequences.  We seem to be promoting the use of marijuana and restricting the use of decongestants; we won’t mess too much with tobacco (because of the tax revenues), so we are now taxing / restricting sugar consumption. Duh.

Certainly, the costs (police, prisons, court dockets, and medical costs) of enforcing pot laws to any state versus the revenues associated with taxing its use make the financial benefit of legalizing pot apparent to everyone.  These new measures save costs and increase revenue.  Duh, again.

However, the recent federal response, it seems, is to pick and choose which laws to ignore and which ones to enforce.  This seems like “lawlessness” to me. But this attitude would be surprising coming from the DEA or FDA, as I have known them.  I could be wrong; perhaps I missed their press releases to the contrary.

Safety Concerns Seem to Be Arbitrary.  When one inquires about the justification for the War on Drugs, the basis for rules around manufacture and distribution, and the inspections of pharmaceutical factories, “public safety” is always the key reason for the regulations.  We all know the safety concerns around cigarettes, alcohol consumption, and maternal drug use.  But are we ready to ignore the dangers of marijuana on children, pregnant women and drivers?  What about potential drug or disease interactions?

Both marijuana and tobacco, when smoked, deposit the same junk into the lungs.  The combustion of organic materials contains more than just the active ingredients; the smoke contains tars, detrimental carbon monoxide, and carcinogens, and potential molds or insecticides.  It also contains inconsistent amounts of the active ingredients. The FDA I am familiar with would want to assure a consistent product for the safety of the public, right?  Wrong?

If pregnant women should avoid alcohol and tobacco products, shouldn’t they also avoid pot?  Where is the labeling requirement to assure that they are informed of this?  Do labeling warnings even work as a deterrent?

Product Integrity.  The FDA expends tremendous effort and countless millions to assure that “Good Manufacturing Practices” (GMP) are used by certified manufacturers to keep the drug supply safe.  Not the least of the reasons for applying GMPs to these factories is to assure that dosages of active ingredients and formulations are consistent from one lot to the next and from one manufacturer to the next.   Where is the assurance about the variability of an organic product that is not lot-tested or subject to GMP?  How do we know that a given batch of pot does not contain molds or other toxins? Who oversees the production processes to protect the public?

What will happen when someone using medical marijuana has a bad outcome?  Will it be reported? Will the person be able to sue the producer, the supplier, or the state that permitted it? These are the same kind of lawsuits brought by plaintiffs to pharmaceutical companies every day. 

Is it ONLY about money? I am concluding that some of this is just hypocritical and is being permitted in order to permit the states to fill their coffers with marijuana-related tax money. Don’t get me wrong: I am not saying that we should infringe on the right of someone to do whatever he or she wants to do with his or her own life. That includes, I think, using marijuana, even growing their own, even buying an unregulated product.  I'm not even against the state collecting taxes to cover the new challenges this drug use will bring them.  

However, I think that if you are going to enforce rules for drug or device products, you should have a policy that is rational for all products.  Manufacturers should be held accountable for the integrity and purity of a drug or device product; even pot manufacturers.  Buyers should be aware that there are down-sides that are often not evident and they are using at their own risk.  But does the mission of the FDA stop at State Pot Distributors? Will legalized Cocaine or Heroin be next?  If not, why not?

State versus Federal Scoff Laws.   Both marijuana and tobacco fall under various local, state or federal laws governing their production and sale (including taxes and age limitations), but the 2014 rules for Colorado are particularly interesting because it is still against FEDERAL law but permissible (at a private residence with the permission  of the home owner as long as no one else can smell it.)  The patchwork of laws and regulations are likely to grow in number, creating confusion for the user and the authorities alike, especially near state borders. See the latest on Colorado rules for a recent example:   http://www.denverpost.com/marijuana/ci_24823785/colorado-marijuana-guide-64-answers-commonly-asked-questions

Is there a rational compromise?  As an embryonic libertarian, I would say the answer to this depends on whether or not you believe there should even be an FDA. As I stated earlier, I think I can make the case for an efficient "small government" agency to oversee the safety and purity of marketed products.

Should there be a role for the government (funded by taxpayers) to regulate the sale and production of various drugs, including marijuana, in order to protect the people?  Or should people be free to ingest/inject/apply anything that is sold on the street? 

The next question is whether or not the regulation and enforcement should be at a local, state, or federal level.  That opens up a HUGE discussion, well beyond the scope of this post. 

In the meantime, you can smoke Pot if you want to, and I think I am even up to defending your right to smoke it and be unmolested by the government.  However, I don't know how it will impact your "employability". For example, if I have to make payroll, I would rather employ the attentive worker whose brain is free of cannabinoids than the worker who engages, even occasionally, in the use of pot if it objectively reduces work performance.  THC is a chemical that alters the conscious brain and has been shown to be detrimental over time.  As an employer, I need the maximal output of that brain.  So in a purely libertarian world, it would be my choice to discriminate against pot users.

Will Colorado apply laws that could infringe upon the right of the employer to say “no” to potheads?  We are living in INTERESTING times.  Can’t wait to see what happens next!

Terri is a Senior Partner at Valiant Health, LLC, and founder of Cambria Health Advisory Professionals.  The thoughts put forth on these postings are not necessarily reflective of the views of her employers, clients nor other Valiant Health colleagues. Terri has had a varied career in health related settings including: 9 years in a clinical hospital pharmacy setting, 3 years as a pharmaceutical sales rep serving government, wholesaler, managed markets and traditional physician sales, 3 years working for the executive team of an integrated health system working with physician practices, 4 years as the director of pharmacy for a large BCBS plan, 12 years of experience as founder and primary servant of a health technology company which was sold to IMS Health in late 2007.  She has both a BS and a PharmD in Pharmacy and an MBA