BFSFs and FMV Under the Final Rule February 22, 2016
Today s Speakers Chris Coburn Managing Director Huron Consulting Group ccobourn@huronconsultinggroup.com 312-212-6710 John Shakow Partner King & Spalding jshakow@kslaw.com 202-626-5523 1
Topics General view towards BFSF/FMV, and increased scrutiny Key components of the Final Rule impacting BFSF/FMV 2
Abstract The Final Rule reasserts the importance of Service Fee and FMV evaluation, and reinforces the trend we have seen for increased scrutiny of BFSF determination, and documentation of your approach and rationale 3
The Multi-Part BFSF Test Is the service bona fide? Is the service itemized? Is the service actually performed? Is the service performed on behalf of the manufacturer? Would the manufacturer perform or otherwise contract for the service in the absence of the agreement? Is the service not passed on, in whole or in part, to a client or customer of the service-providing entity? Is the fee FMV for the services rendered? 4
Service Fees and FMV Manufacturers are affirmatively obliged to subject all service and administrative fees paid to AMP and BP eligible entities to the BFSF test and to document their conclusions at the time the agreement pay the fee is made. (with the possible exception of certain fees set out in the AMP definition, which we will discuss below) Note that the law does not make a qualitative judgement about the treatment of service or administrative fees. Al the law requires is that we subject these fees to the BFSF test. Passing the BFSF test does not make the fee legal, any more than failing the BFSF test makes the fee illegal. 5
Is BFSF/FMV a Compliance Driven Function in your organization? Make activities like BFSF reviews Compliance Functions, with involvement and oversight by Compliance and Legal Have policies in place for the process and decision making Take the decision point out of the hands of just the business and GP, ensure a comprehensive and collaborate review on each element of the multi-part test All service agreements and fee structures should be evaluated and documented as to whether they are BFSF Be able to demonstrate an independent and objective review and supporting documentation 6
The Final Rule Consistently References Reasonable Assumptions Can you defend your calculation methodologies and assumptions? Manufacturers must evaluate statutory and regulatory language for gaps and omissions and determine policies, approaches, and methodologies to address those gaps. The rationales should be evaluated independently of the financial impact, reviewed by legal counsel where appropriate, and well documented. Manufactures cannot universally revert to what may be perceived as Conservative, Conservative in one program may be viewed as Aggressive in another Example Treatment of a service fee as an excludable BFSF would drive all price points higher, which could be conservative for AMP with a potential higher URA, but also a higher ASP and higher PHS price, which could be perceived as aggressive ASP AMP URA PHS 7
Increased Focus on the Bona Fide nature of the service A recent Addendum to a Corporate Integrity Agreement notes that to ensure compliance with the Anti- Kickback Statute, pharmaceutical companies should establish and implement: A written review and approval process for all arrangements that includes at least the following a process for specifying the business need or business rationale for each service provided under the FFS arrangement and determining and documenting the fair market value of the remuneration specified in the FFS arrangement; 8
Evolving Approaches and Data Points Pros and Cons of Market Approach vs Cost Approach The industry approaches have evolved Pure Market approach may be skewed based upon type of company and percent of WAC approach Data Points have evolved and improved, cost approach more practical now Bifurcation of fees that exceed FMV a more common practice Important to consider multiple FMV approaches to alight on one (or several) that will produce the most accurate, defensible assessment Use of counsel and consultants such as Huron provide visibility across industry, visibility in to various data points, and an objective/independent view 9
Scrutiny will continue around BFSF treatment ASP, and now AMP Reimbursement metrics Creates a focus on BFSF Treatment 10
Key Aspects of the Final Rule Related to BFSF/FMV 11
Service Fees and FMV CMS continues to refuse to define FMV, that burden is on the manufacturer CMS requires each manufacturer to make FMV determinations (at least for those fees that otherwise pass the qualitative elements of the BFSF test), and to document the approach(es) used How should we interpret adequate documentation? The Final Rule suggested that evidence of rigorous negotiation with the service provider might suffice. CMS explicitly refused to create FMV safe harbors for price reporting and continued to refuse to adopt the OIG s GPO discount safe harbor. 12
BFSFs and Enumerated Fees The Medicaid statute lists distribution service fees, inventory management fees, product stocking allowances and fees associated with administrative services agreements and patient care programs in the BFSF provision of the AMP definition At issue is whether these fees are always BFSFs or if they must pass the multi-part regulatory BFSF test like all other service fees 13
BFSFs and Enumerated Fees (cont d) In several passages of the preamble, CMS could have addressed this question definitively, and it did not: [W]e believe that the examples provided in the [ACA] (including stocking allowances) are bona fide service fees and sufficient to provide manufacturers with a general sense of the types of such fees. Furthermore, fees, including but not limited to, distribution service fees, inventory management fees, product stocking allowances, fees associated with administrative service agreement and patient care programs (such as medication compliance programs and patient education programs) and other fees paid to GPOs that meet the definition of bona fide service fees as defined in this final rule, are excluded from the calculation of AMP and best price. Leaves open the possibility that these service arrangements could be automatically characterized as BFSFs and excluded (however, the more reasonable approach will likely be to apply the BFSF test to these fees) 14
Pass Through Pass Through Assumption Manufacturers may assume that there is not a pass through if they do not have notice or evidence of a pass through. So, what level of due diligence is appropriate? Perils of putting the question to service providers Back-end sharing of profits/extension of discounts may not constitute pass through. Manufacturers must make reasonable assumptions based on limited visibility. 15
Price Appreciation Credits The Final Rule makes plain that CMS understands price appreciation credits to be price adjustments, essentially negative lagged price concessions. BFSF and price appreciation payments may be netted for transactional convenience but the streams must be incorporated into pricing independently. 16
Expansion to the Territories Extending Medicaid to the Territories opens a wide array of challenges across the organization, including contracting relationships, pricing, Medicaid Best Price impact, data integrity, as well as the financial impact of extending the Medicaid Rebate. Has your organization evaluated the risks, and the ability to implement this change? The Final Rule extends Medicaid to five Territories: Puerto Rico, US Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands. What are the service and/or administrative fees your company pays to entities in the Territories? FMV analysis of these fees may be different from, and more complicated than, that of your domestic fees. 17
5i AMP and Bona Fide Service Fees CMS wants to standardize the exclusion of BFSFs from all of its price types: Standard AMP, 5i AMP, Best Price and ASP Its reading of the statute, however, only permits the exclusion from AMP (of either type) of BFSFs paid to wholesalers or RCPs It therefore relies on some interpretive sleight-of-hand to exclude from the calculation of 5i AMP BFSFs paid to all the 5i-eligible entities that are not wholesalers or RCPs 18
5i AMP and Bona Fide Service Fees (cont d) [T]he exclusion of bona fide service fees cannot be expanded to apply to the entities other than wholesalers or retail community pharmacies, for purposes of the calculation of AMP for 5i drugs not generally dispensed through retail community pharmacies. However, we believe that the payments provided by manufacturers for such service fees may be excluded from AMP with regard to such 5i drugs, because such fees do not represent type of payments from, or discounts or rebates provided to, the [5i AMP eligible] entities. Therefore, such fees should not be included in the determination of [5i AMP]. 81 Fed Reg at 5247. 19
References Supporting Documents Huron Supporting Documents: 1. Final Rule Reading Guide http://www.huronconsultinggroup.com/insights/analysis/life_sciences/mdrp-final-rule-reading-guide 2. Huron Analysis and Initial Client Alert http://www.huronconsultinggroup.com/~/media/insights-media-content/pdf/lifesciences/final%20rule%20full%20analysis.pdf King & Spalding Supporting Documents: 1. Alert: http://www.kslaw.com/imageserver/kspublic/library/publication/ca012516b.pdf 2. Federal Register TOC: http://www.kslaw.com/imageserver/kspublic/library/publication/ca012516btoc2.pdf 3. Redlined Final Regulations: http://www.kslaw.com/imageserver/kspublic/library/publication/ca012516bmdrpregulationsredline.pdf 20
Innovative Life Science Strategies and Risk Mitigation. It s in our DNA. Thank You. Please contact us if you have any additional questions regarding this presentation. Chris Coburn Huron Consulting Group Managing Director 312-212-6710 ccobourn@huronconsultinggroup.com John Shakow King & Spalding Partner 202-626-5523 jshakow@kslaw.com