Specialty Pharmacies. Ensuring Compliant Relationships. April 2017

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1 Specialty Pharmacies Ensuring Compliant Relationships April 2017

2 Agenda I. Current climate II. Regulatory Overview III. Types of SPP relationships IV. Data purchase arrangements V. Fee for service arrangements VI. SPPs as Hub VII. Final Recommendations 2

3 Current climate Manufacturers should be mindful of the risks involved in contracting with specialty pharmacy providers ( SPPs ), including enforcement activity by government regulators and unfavorable press. These are some recent developments: Recent Regulatory Activity Manufacturer paid $24.9MM to settle FCA claims connected with allegations that the company paid performance based rebates to long term care pharmacies to steer Medicare and Medicaid beneficiaries to manufacturer s drug Manufacturer paid $390MM to settle US charges that it paid SPPs illegal kickbacks in exchange for inducing patients to refill medications US prosecutors have opened a criminal investigation into a drug manufacturer over whether it hid from insurers its relationship with an SPP that helped boost its drug sales HHS OIG Chief Counsel Gregory E. Demske Reliable information is essential for patients taking drugs on a long term basis, and money should not distort the advice that patients receive about drugs with serious side effects. OIG will continue to investigate kickback arrangements between pharmaceutical manufacturers and specialty pharmacies. November 20,

4 What are Specialty Drugs? No difference under the law Unless restricted by manufacturer or payer, specialty medications can largely be dispensed from any distribution channel Specialty drugs are typically those involving limited distribution, for example due to: Being aimed at rare diseases; Having a high cost; Having significant side effect profiles or complex dosing requirements; and/or Requiring special storage (e.g. refrigeration) and/or handling Because of their unique features, specialty drugs may require different arrangements and services than other drugs 4

5 Government Scrutiny Natural Tension Patient Care vs. Commercial On one hand, Patient Care is a key objective Increase access for medically necessary prescribed products through improved understanding of payor requirements Provide important educational information to patients regarding significant side effect profiles and/or complex dosing requirements Address special storage and handling needs On the other hand, even these objectives have a commercial purpose: Make it easier for physicians to prescribe products Better compete with other therapeutic alternatives Increase sales by lowering rates of non fill or non adherence 5

6 Anti-Kickback Law Anti Kickback Law, 42 U.S.C. 1320a 7b(b) Basic Prohibition: Unlawful to pay (or offer) or accept remuneration in exchange for: referring Medicare/Medicaid program patients or other federal health care program patients or business purchasing or ordering covered items arranging for others to make such referrals/purchases/orders recommending that others make such referrals/purchases/orders Purchase Drugs / Make Dispensing Decisions Manufacturer SPP Service Fees or Discounts 6

7 Personal Services Contracts: Safe Harbor Overview Because of the inherent tension, safe harbor protection is important Personal Services and Management Contracts (42 C.F.R (d)) generally requires: Written agreement that covers all services If services will be on a part time basis, agreement must specify exactly the schedule of intervals, their precise length and the exact charge for the intervals Term of agreement must be for at least one year Aggregate compensation must be set in advance Compensation must be consistent with fair market value and not be determined in a manner that takes into account the volume or value of referrals or business otherwise generated Aggregate services contracted for must not exceed those reasonably necessary to accomplish the commercially reasonable business purpose of the services 7

8 Bona Fide Service Fees (BFSF) BFSF Test is slightly different from the safe harbor Bona fide service fees mean fees paid by a manufacturer to an entity, that represent fair market value of a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement, and that are not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug. 42 C.F.R

9 Types of SPP relationships Manufacturers typically enter into one (or more) of three main types of SPP arrangements. Data Purchase SPP provides regular reporting related to product shipments, inventory, and/or script level activity Fee for Service SPP performs services for manufacturer over and above SPP s core set of services SPP as Hub SPP serves as main point of contact for patients, payers, and HCPs related to patient support programs on behalf of manufacturer 9

10 Data purchase arrangements Evaluation of Arrangement Evaluation of SPP Risk FMV can be difficult to measure Business/commercial need must be evaluated and monitored SPP unable to provide complete and accurate data due to system limitations Response Formal process and controls to assess business need and FMV before contracting and at regular intervals thereafter Due diligence of SPP prior to contracting Re evaluate need and FMV Contracting Audit/Monitoring Data provision terms and conditions not adequately defined in contract can hinder contract enforcement and alignment on expectations Lack of routine audit and monitoring procedures Confusion around who is responsible (compliance, business, internal audit, IT) Formal process to evaluate arrangements should include relevant IT and business personnel Clearly defined roles and processes around evaluation of incoming data Mechanism for withholding payment and dispute resolution Established SPP audit program 10

11 Fee for service arrangements Risk Response Evaluation of Arrangement Core vs enhanced services vary across different SPPs Nuances in varying services can be challenging for establishing FMV Business need must be evaluated and monitored Core vs enhanced service mapping exercise should be conducted across SPPs Formal process to assess business need and FMV before contracting and at regular intervals thereafter Evaluation of SPP SPP lacks adequate infrastructure to provide services and report program data Insufficient quality and compliance oversight at SPP Due diligence of SPP prior to contracting Conduct readiness assessment Contracting Audit clause may not adequately cover sufficient rights Lack of clarity re: ownership and administration of business rules and SOPs Audit rights should address both financial and operational items Manufacturer should have right to review and approve SPP SOPs Audit/Monitoring SPP s interactions with external parties not compliant with manufacturer expectations Manufacturer and SPP should hold regular call calibration meetings Established SPP audit program 11

12 SPPs as Hub Evaluation of Arrangement Evaluation of SPP Contracting Monitoring Risk Duplicative services between Hub and other SPPs Business need must be evaluated and monitored for all services and programs contemplated SPP lacks adequate infrastructure to provide services and report program data Insufficient quality and compliance oversight at SPP Audit clause may not adequately cover sufficient rights Lack of clarity re: ownership and administration of business rules and SOPs SPP s interactions with external parties not compliant with manufacturer expectations SPP misinterprets business rules Response Formal process to assess business need and FMV before contracting and at regular intervals thereafter Due diligence of SPP prior to contracting Conduct readiness assessment SPP should have formal process/systems to identify gov t vs commercial patients Audit rights should address both financial and operational items Manufacturer should have right to review and approve SPP SOPs Manufacturer should have rights to listen to recorded calls Manufacturer and SPP should hold regular call calibration meetings SPP should be audited shortly after launch 12

13 Final Recommendations Ensure that any financial arrangement with an SPP is truly needed All arrangements must be commercially reasonable The selection of the SPP should be based on need and qualification Any compensation must be consistent with FMV, ideally as determined by a qualified third party The SPP contract must address all services and detail all rights Once in place, the arrangement must be carefully monitored for: Continued need Adequate service performance Compliance with contractual and legal obligations Remediation steps must be taken, if issues are identified 13

14 Contact John Richardson KPMG Managing Director, Compliance Risk Management Evan Bartell KPMG Director, Compliance Risk Management Seth Lundy King & Spalding LLP Partner kpmg.com/socialmedia The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.