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


Identification and treatment of price concessions It is always important to ask whether a rebate, free good, discount, administrative fee, or promotional activity is a price concession that needs to be factored into the net price. The practice of bundling drugs also implicates this concern. Allegedly improper treatment of off-invoice price concessions has been the basis for many recent lawsuits in the pricing area.

Monitoring for reference pricing Manufacturers must have systems that constantly monitor and flag certain sales. For instance, specially discounted sales may create new Best Prices, and sales to the VA's most favored customers may set new FSS prices. Similarly, sales that were once thought to be nominal may creep up in price (relative to AMP) and have to be included in the calculations. Moreover, manufacturers bear the responsibility of ensuring that approved entities (340B-eligible) receive the PHS pricing. Compliance with this requirement vexes many manufacturers."

Data integrity As the saying goes, "garbage in, garbage out." Manufacturers must have adequate systems in place to correctly capture and manipulate an extraordinary amount of data every quarter, completely and without unnecessary manual overrides. These systems must have adequate controls in place to ensure data integrity, including, but not limited to, real-time data validation procedures. Often, companies have multiple computer systems and databases feeding the calculation. The interfaces between these systems, which often are not designed to work with one another, have to be integrated and seamless.

Written policies and procedure Every company should have a set of internal manuals, policies, and standard operating procedures that set out all steps of the price calculation and reporting process. These manuals are critical to ensuring consistency and accuracy and to managing a transition when personnel changes are made in any area affecting price reporting. They are required of all companies under a Corporate Integrity Agreement (CIA) and could be of great help to the company in the event of an audit or investigation. The manuals should be reviewed and updated regularly to reflect the latest laws, regulations and guidances.

Inter-departmental communication As companies grow, specialization and segmentation can drive seemingly unrelated divisions apart. However, there are very few functions in a pharmaceutical company that are wholly unrelated to government price calculation and reporting. Maintaining adequate communication between all parts of this process is integral to achieving accurate results.

Reducing Your Company's Risk First and foremost, every company that has not undertaken a substantial review of its government price calculation and reporting policies in the last couple of years should consider doing so—using internal or external resources (or both). In addition to the establishment of an entirely new ASP pricing scheme, the rules and guidance for AMP, Best Price, and non-FAMP continue to evolve, making it imperative for companies to periodically reassess their policies, procedures and internal controls. This does not have to be an expensive or lengthy process but it should be sufficiently rigorous for two reasons: to ensure that someone within the organization has taken responsibility for keeping the company and its processes up-to-date, and to identify any areas of potential weakness that merit closer inspection and review. The review should be conducted by or under the auspices of the legal department, and followed up, when necessary, with remedial action.

As part of the compliance review, map the flow of data backward from the final reportable figures to the first moment a wholesale order is placed. Oftentimes, it is in this reverse engineering of the AMP or ASP, chasing back the threads of input that feed into the calculation, that procedural errors are discovered.

If manuals do not exist that document the methodologies employed, create them. If they do exist, update them. Not only will their creation or modification force thoughtful consideration of how the calculations are done, but they will be an invaluable resource in the event of a personnel change, audit, or investigation. Consider whether to disclose to the relevant authority any revisions to your methodology, and if so, how.

Don't be afraid to ask questions. If your organization has a question about the interpretation of a certain statute or regulation, chances are yours is not the only one. CMS and the VA are staffed fairly leanly, and they have certainly not considered every nuance associated with the reportable figures. Therefore, they are very willing to consider manufacturers' requests for guidance. Generally, they tend to be more responsive to requests from business people, but if you are unwilling to make the request directly, have your outside counsel do so on a blinded basis.


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