Risky Business - Pharmaceutical Executive

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Risky Business
Accurate and ethical price reporting is a compulsory, albeit confusing, practice for pharmaceutical manufacturers.


Pharmaceutical Executive





Rules of Calculation The government's rules for calculating each of these figures are complicated and incomplete. The Medicare, Medicaid, and VA statutes set out the basics; regulations interpret the statutes. The Centers for Medicare & Medicaid Services (CMS) and VA guidances, and "Dear Manufacturer" letters address narrow matters of interpretation of the regulations; common industry practice is often a helpful guide. Yet many questions are not codified in any government publication. Guidances are non-binding, but are generally thought to be reliable indicators of the government's position. Unfortunately, even the guidances don't reach all aspects of the calculations. Given the complexity of the pharma sales and distribution system, and the penalties for noncompliance, manufacturers often clamor for more explicit guidance.

Two fundamental principles should guide manufacturers' decision-making process. First, manufacturers should strive to be accurate in all calculations. This principle is reiterated throughout the statutes and regulations governing the calculations. When otherwise left in the dark about a step in the calculation, choose the path that gives your result the eminently defensible benefit of greater accuracy. Second, when in doubt, the safest position to take is one of deference to the government. Make no mistake, the cards are stacked against the manufacturer—that's intentional. Therefore, the cost of attempting to swim upstream through a perceived loophole in the calculation regulations could be extraordinary.

Luckily, there are mechanisms for most of the reportable figures that allow manufacturers to backstop any decisions made in the absence of regulation or guidance. The ASP statute, for instance, requires manufacturers to submit the "reasonable assumptions" they have made in the course of determining the ASP. Submitting these assumptions for consideration does not guarantee that they will be found to be legitimate, but doing so will go a long way toward defeating a charge of intentional fraud. AMP and Best Price can be restated retroactively, giving manufacturers the opportunity to re-file based on new guidance. Moreover, both CMS and the VA encourage communications regarding calculation questions, even if they're often painfully slow about responding to these inquiries.

Trouble Spots Every manufacturer is different. Size, product portfolio, internal structure, utilization of technology, product distribution scheme, and many other factors play into the landscape of government price reporting at any particular company. So while it is impossible to set a prescription for every drug company, many features and mechanisms are common to most pharmaceutical manufacturers.

A persistent difficulty for any pharmaceutical compliance officer is the number of departments, divisions, and individuals within the company that have to work together to produce acceptable ASPs, AMPs, Best Prices, and non-FAMPs. Among others, the pricing and contracting, sales and marketing, accounting/finance, contract management, information technology, and legal departments need to participate in the process. The individual responsible for submitting the figures needs to be confident in the strength of every link in this chain, as an error or misinterpretation by one can fatally undermine the entire calculation. This is especially true for the company official who certifies every quarter that the ASP submission is accurate and complete.

Here are seven specific examples of areas particularly prone to weakness. While by no means exhaustive, the list identifies many potentially troublesome areas that all manufacturers should closely consider when reviewing their government price calculation methodologies:

Classification of customers and transaction types Whether or not a sale to a particular customer is included in a specific calculation is of fundamental importance to every calculation. Each of the four reportable figures has a different set of eligible and ineligible customer classes; correctly classifying each customer according to its type (e.g., retail pharmacy, hospital, mail order) is therefore very important. Likewise, identifying the transaction type (e.g., sale, nominal sale, donation, inter-company transfer), which is distinct from the customer type, is key to accurate price reporting.

Treatment of lagged payments and receipts Improper treatment of out-of-quarter adjustments can have a substantial impact on the reportable figures. Charge-back adjustments, rebate payments, and returns received in one quarter, but that relate to sales in previous quarters, must be accounted for properly in order to ensure accuracy. A lag of even a week can bring sales from one quarter into another, potentially setting a new Best Price. If prices are rising, this can be a very costly error.


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