Code Orange - Pharmaceutical Executive

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Code Orange


Pharmaceutical Executive


Slow on the Uptake?

Many other changes are on the same order of magnitude, but impact the bottom line differently and require advanced financial modeling. We asked if companies were proactively seeking to model the impacts of the relevant Medicaid rebate percentage increase, AMP definition changes, and relevant provisions on revenue, profitability, and cost projections. Surprisingly, less than half of the companies said they have already done this or are in the process of doing so.

Furthermore, only 43 percent of responding companies have begun work on assessing their current COT structures or potential reorganization strategies to enable the new exclusion and inclusion rules for calculating AMP. Some of this "wait for now" attitude may be a result of the fact that the AMP changes are not effective until October 1, 2010. This also seems to be reflected in the relatively low number of companies (47 percent) that say they have already begun to model the impact of AMP changes on Medicaid rebate payments and accrual policies. As recent headlines show, companies with a more aggressive and proactive accounting philosophy are already undertaking significant activities ahead of time based on their product/market position and perceived increase in rebate liability. In many cases, companies simply don't have enough information, and are waiting for guidance from the Center for Medicare and Medicaid Services (CMS) or the Office of Pharmacy Affairs (OPA).

So how do companies go about getting this information? For example when asked: How do you plan to deal with potential PHS refunds resulting from restatements? The most common answers were a) this is an issue, and CMS has not given guidance at this time; b) we don't know yet and c) undetermined. Equally unclear in the survey group's minds is how a PHS refund might influence their initial best price (BP) calculations—60 percent said they have not yet analyzed the issue, while 15 percent will be more conservative in initial BP (lower BP reported), and 15 percent will make no change in the initial BP calculations.

Few Clear Signals from CMS

Likewise, how helpful is CMS going to be in helping companies navigate the changes? It is still too early to say, with a strong majority of manufacturers stating they haven't contacted CMS for clarification or discussion. One indicator is CMS issued first guidance on the implementation of HCR Medicaid rebate provisions in the form of a letter to state Medicaid directors on April 23.

Written mostly as a recital of the provisions, it provided no concrete explanation of the changes while noting that CMS would issue additional guidance to manufacturers and other stakeholders concerning the process that will be used to identify clotting factors, drugs with pediatric indications, and new formulations. Curiously, the letter also left out the changes to the AMP definition—one of the more important elements of the new law in terms of shaping company P&R strategies.

Finally, the survey establishes that there is still considerable uncertainty surrounding even the most basic provisions of the HCR law. Pharma companies clearly see the need to play catch-up. Given the impact on systems and processes, it is not surprising that only half the companies responding to the survey said they are confident about vendor or IT support for the changes that need to be made. Specifically, the survey asked if companies see HCR being an impetus for IT or process improvement investment in the commercial or regulatory compliance areas in 2011 and beyond. Only 18 percent said no, while a full 82 percent said that they anticipate new internal investments in areas tied to pricing, contracting, and revenue management being driven by reform, leading to either complete overhaul of systems or incremental upgrades.


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