Code Orange - Pharmaceutical Executive


Code Orange

Pharmaceutical Executive

The Bottom Line: Reform is About Profits, not Politics

Building on the survey, how should companies be thinking about HCR as we look toward a decade of implementing steps? Consider the challenge this way: While the 2005 DRA probably multiplied the complexity and financial impact of government program purchasing by five- to tenfold, now comes an entirely new set of regulations—just as manufacturers are wrapping up the last elements to become compliant with the DRA. The new law will change many of the assumptions and rules CMS fixed in place for the DRA, while tossing some new annual taxes into the mix that will basically penalize manufacturers for being on the government formulary.

Couching all this in personal terms, don't be surprised that many of the new law's provisions are open-ended or subject to interpretation. But CFOs and operational managers will still be expected to develop and implement a compliance regime that needs to be effective retroactively —as of January 1, 2010. CMS may not be ready in time, but when it catches up and puts out a few new clarifying regulations, guidance, or final rules—as well as some new catch up calculations for rebates—pharma finance organizations will have to go back and adjust, recalculate, report, and pay what they owe to Uncle Sam. If they don't, the federal Office of Inspector General or a state Attorney General is going to come by for a friendly audit, and probably require them to pay a massive fine, settle, or sign a corporate integrity agreement (CIA). And we apologize in advance if this affects your brand, multiplies your legal bills, and loses you market share in a blisteringly competitive market.

Against this backdrop, what can you do if the questions and responses to this survey are different from yours, or if you feel left behind? In general, there are no magic wands available to manufacturers to ensure regulatory compliance today. Yet, in the coming quarters, shareholders will be evaluating how companies execute on their strategy for dealing with the full range of operational challenges and regulatory risks posed by HCR. Pharm Exec's "c-suite" readers must understand that HCR is the opening salvo in a long process of transforming how healthcare is managed, delivered, and paid for in the US. More cost controls and a re-examination of reimbursement schemes based on European models are likely on the horizon, so operational nimbleness will be essential in minimizing the impact of future P&R mandates.

Even as many respondents to the survey show considerable uncertainty in coping with HCR, a small set of leading companies say they are moving forward. There is hope that CMS and OPA will provide clear direction. While there will still be variations in individual response, don't let this stop you from educating financial and operational management and using a task force mentality to assess, model, and align. Assess data quality, engage different parts of the organization, and think about using HCR to create a long-term road map for compliance for the next round of mandates.

In addition, companies should focus on assessing impact based on exposure to the affected programs, and work with external and internal counsel and IT to identify and address emerging risks. Much like the DRA, HCR gives the industry an opportunity to work through PhRMA and other venues to build common, industry-wide approaches to HCR compliance and to engage in a comprehensive dialogue with the CMS around a shared interest in quality, value and better health outcomes.

Gopkiran Rao is senior director, Life Sciences Industry Marketing, Model N. For more information about Model N, visit


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