Survey Reveals Manufacturer Concerns

Last month, Model N ran the first industry-wide survey to assess how pharma companies are thinking about the strategic and operational implications of the new reform. The 2010 Healthcare Reform Threat Assessment survey launched as an online, invitation-only survey to more than 300 companies with revenues above $100 million a year, and with products in any or all of the traditional categories including branded, generic, specialty, or biological.

One key finding is that the survey companies believe, by a whopping margin of 87 percent, that the HCR bill enacted in March will have a greater or equal impact on future commercial strategies than the last big piece of federal health legislation, the 2005 Deficit Reduction Act (DRA), which introduced a drug benefit to the Medicare population. In fact, the DRA marked a turning point; five years later, industry is still evaluating what ended up being a multi-year package of clarifications, interim regulations, interim final rules, and additional guidelines.

Operational

» Need to analyze and completely re-categorize current class-of-trade (COT) definitions and assignments due to defining provisions that affect the calculation of government reported prices

» Major modifications to policy and procedure documents for Average Manufacturer Price (AMP) and other prices

» Calculation methodology definitions including smoothing and revised definition of retail

» Technical implementation of new definitions and implementation of the new Medicaid rebate calculations

» Increased strategic pricing and contracting considerations to mitigate effects on government pricing; increased Medicaid rebate processing activities with additional MCO utilization

Financial/Corporate

» Tax treatment implications and potential for non-operating loss (NOL) resulting from the new tax regime

» Costs and infrastructure for new control programs and accountability management

» New payments mandated via required discounts on branded drugs for Part D donut-hole gap coverage

» Increased Medicaid rebates, up to 50 percent higher in some cases (larger rebate percentage and increased volume due to managed Medicaid inclusion), increased longevity, and more data and related costs to manage

Internal Alignment is Missing

Given this list, there are good reasons to move quickly and decisively. However, the survey showed that much more focus is required: Only 41 percent of the survey group said there was "clear accountability and ownership" of the response to HCR within their own company.

In fact, two-thirds of respondents stated that ownership went no higher than director, with functional ownership most typically lying in the contracting or government pricing arena and a third stating that manager-level representatives are charged with the initial response. Given the potential impacts of HCR on revenue planning and regulatory compliance, CFOs also need to become involved, especially in light of the heavy fines levied in recent years for government pricing violations. The good news is that companies that are responding are doing so quickly in order to address the most relevant issues first.

Next, we asked if companies have looked into the following key areas:

» How the increase in the base rebate formula is going to affect rebates —91 percent said yes.

» Ability to go back and restate/calculate the URAs before Q1 2010 with the old formula—not one company stated an inability to handle this requirement.

One area where companies also seemed to agree was the perceived challenge of a HCR provision that makes Medicaid Managed Care utilization now available for Medicaid Rebates.

The challenge is more than just the increase in dollar outlay. With 62 percent of respondents saying they see a challenge with this new model, and some 14 percent saying they were not sure; to clarify, we examined the write-in responses from survey respondents. The following top areas of concern were identified:

» Data management, including the ability to identify managed Medicaid care claims correctly in commercial submission to prevent rebate double dipping

» Accruals and financial forecasting and adjustment

» Price controls

» Billing origin and increase in reporting and data submission formats