Creating a Global FMV Process


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This session, "Creating a Global FMV Process" was presented at the 10th Annual Pharmaceutical Compliance Congress, hosted by CBI

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Creating a Global FMV Process

  1. 1. Lessons Learned From Implementation January 29, 2013Colleen M. RobertsVP, Associate GC and CCO Rosemary E. Weghorst Director
  2. 2. Table of ContentsThe Current Environment – FMV in a Global Context 2Important Factors to Consider When Implementing Global FMV 9Global FMV Process: Barriers to Implementation and Lessons Learned 15Questions 19 1
  3. 3. The Current EnvironmentFMV in a Global Context
  4. 4. Global FMVThe Business Case for FMV• Regulators are focused on bribery and • Impact on Business undue influence – Exclusion from Public Contracts• Anti-Corruption Legislation – Reputational Damage – FCPA – Damage to Market Valuations – UK Anti-Bribery Act – Loss Strategic Business Opportunities – French “Sunshine Act”• Increased Enforcement Efforts – Corporate Risk – Individual Risk 3
  5. 5. Fair Market Value References to FMV in Regulations Source: Country Reference to FMVEFPIA HCP Code Europe The compensation for the services is reasonable and reflects the fair market value of the services provided.IFPMA Code of International The compensation for the services must be reasonable and reflect the fair market value of the services provided.Practice Article 49: The remuneration for the services is reasonably in line with the fair market value of the services provided.Code of Deontology Belgium Consultancy contracts made may not be used as justification for remunerating patient organizationsRDPAC Code of Section 7.4 Fees for Services: The compensation for the services must be reasonable and reflect the fair market value of the ChinaPractice 2012 services provided. Section 36 – Use of Consultants: The compensation payable for the services is reasonable, reflecting the fair market price ofPIF Code of Ethics Finland such services. Section 18: Contractual Collaboration with Healthcare Professionals: The remuneration must be exclusively monetary andFSA Code of must be proportionate to the service rendered. When judging the appropriateness of the intended remuneration, the GermanyConduct physician’s fee schedule may serve as a reference guide. To take into account the physician’s time expended, appropriate hourly rates may also be arranged.Code of Ethics for Article 13 – Use and Remuneration of Services: The compensation for the services is reasonable and reflects the fair marketPharmaceutical Hungary value of the services provided. Payment is only made against invoice and performed by bank transfer. In this regard, tokenCommunication consultancy arrangements should not be used to justify compensating Healthcare Professionals.(MAGYOSZ)OPPI Code of 7.4 Engagement of Services from Healthcare Professionals: The compensation for the services must be reasonable andPharmaceutical India reflect the fair market value of the services provided.Practices 2012 4
  6. 6. Fair Market Value References to FMV in Regulations Source: Country Reference to FMV 17. Use of Consultants: The compensation for the services must be reasonable and reflect the fair marketIPHA Code of Marketing Practices for Ireland value of the services provided. In this regard, token consultancy arrangements must not be used to justifythe Pharmaceutical Industry compensating healthcare professionals.Code of Professional Conduct 4.6 Relations between Pharmaceutical Companies and Patient Associations: The compensation for the ItalyFarmindustria Services must be reasonable and not exceed the fair market value of the Services provided. 7.3 The Use of Health Professionals as Consultants: The compensation for the services is reasonable andRules Governing Drug Information Norway reflects the fair market value of the services provided. In this regard, token consultancy arrangements should not be used to justify compensating healthcare professionals.Code of Practice for the Marketing of 10.5.2 Disguised Promotion: Remuneration provided must be reasonable and of fair market value to the work South AfricaPrescription Medicines in South Africa performed.Code of Conduct of the 47.2.7 Contracted Services: The compensation for the services is reasonable and does not exceed the fair SwitzerlandPharmaceutical Industry market value of the services provided. 7.4 Fees for Services: The compensation for the services must be reasonable and reflect the fair marketIRPMA Code of Practice 2012 Taiwan value of the services provided. Article 16 – Interactions with Consultants: the compensation for the services is reasonable and reflects the fairAFID Code of Good Promotional Turkey market value of the services provided. In this regard, token consultancy arrangements should not be used toPractice justify compensating healthcare professionals. Clause 20 – The Use of Consultants: The compensation for the services must be reasonable and reflect theABPI Code of Practice for the UK fair market value of the services provided. In this regard, token consultancy arrangements must not be usedPharmaceutical Industry to justify compensating health professionals and appropriate administrative staff. 5
  7. 7. Fair Market ValueThe Changing Legal Landscape• US Sunshine Act (2013) – Requires all HCP payments to be disclosed – Data publically available• Anti-Kickback Statute (1987) – Increasing fines and criminal charges from the OIG for perceived bribery of HCPs• Foreign Corrupt Practices Act (FCPA) (1977) – Bribery of foreign officials to “gain unfair commercial advantage” – HCPs who work in countries with public health systems considered foreign officials/government employees• UK Bribery Act (2010) – Applies to UK citizens – Companies that do business in the UK can be held liable• French Sunshine Act (FSA) (2012) – Companies much disclose any contracts with HCP’s in R&D and consultancy agreements• Other country specific rules and guidance – Trade associations with their own rules surrounding the engagement of HCPs – Australia, Belgium, Netherlands, Japan, Slovakia, etc. 6
  8. 8. FCPA Investigation ImpactThe Pharmaceutical Industry Under ScrutinyTable 1 Recent JudgmentsYear Industry Issue Countries Fine / Settlement Improper payments to foreign government officials to Russia, China, Brazil,2012 Drug Manufacturer - Major $29 million win business Poland Bulgaria, China, Illegal payments to foreign officials to obtain regulatory Croatia, Czech2012 Drug Manufacturer - Major $45 million approvals, sales, and increased prescriptions Republic, Italy, Kazakhstan, Russia Paid routine bribes to officials to obtain lucrative sale2012 Medical Device Company Mexico $5.2 million contract with government hospitals Bribed public doctors for nearly a decade to win Argentina, Brazil,2012 Medical Device Company $22 million business China US and German subsidiaries bribed public doctors in2012 Medical Device Company Greece $22 million Greece for more than a decade to win business Bribing public doctors in several European countries to Greece, Poland,2011 Drug Manufacturer – Major win contracts and paid kickbacks to Iraq to illegally $70 million Romania, Iraq obtain business Paid kickbacks in connection with sale of humanitarian2009 Drug Manufacturer – Major Iraq > $10 million goods to Iraq under the UN Oil for Food Program 7
  9. 9. Codes of National Industry AssociationsDisclosure RequirementsAustralia – Medicines Australia Code of Conduct, effective January 11, 2013:The new Code of Conduct will require Medicines Australia member companies to report in aggregate amounts:• All payments made to HCPs for advisory boards and consultancy arrangements• All sponsorships of HCPs to attend medical conference and educational events• All payments made to speakers at educational events• All sponsorships of all individual consumer organizations for each financial year, including the value of non- monetary support.Japan – Japan Pharmaceutical Manufacturers Association (“JPMA”):• Establish a transparency policy to govern activities in accordance with transparency guidelines.• Disclose payments to medical institutions and healthcare professionals by uploading data on their websites.• Five categories of payments to be disclosed: – Research and development-related costs – Grants/donations – Honoraria (speaking, writing, and consulting) – Information exchange costs (i.e., speaker programs) – Meals and hospitalities provided to healthcare professionals• Companies obtain the consent of healthcare professionals in order to disclose the aforementioned information. If healthcare professionals refuse to provide consent, companies must stop working with them. 8
  10. 10. Codes of National Industry AssociationsDisclosure RequirementsNetherlands – Code of Pharmaceutical Advertising (CGR)• Under the Dutch code, companies must disclose two different types of financial relationships with healthcare professionals: – Service agreements (consulting, advisory, speaker; non-speaker research) – Sponsorship agreements of meetings between a company and associations of professionals/institutions that directly or indirectly improve healthcare to patients or promote medical scienceSlovakia – Code of Ethics of the Pharmaceutical Industry in Slovakia (Feb 2012), companies mustdisclose:• Value of advertising and marketing expenses and non-monetary benefits provided directly or indirectly to healthcare professionals. The Ministry must then publish a report of that information on its website.United Kingdom – Association of the British Pharmaceutical Industry (“ABPI”) – Companies mustdisclose:• Provision of medical goods and services in the form of donations, grants, and benefits in-kind to certain institutions, organizations, or associations• Meetings, hospitality, and sponsorship• The use of consultants• Relationships with patient organizations• Total amount paid in a calendar year in respect of all recipients and the total number of recipients• The total number of attendances at meetings sponsored in the year must also be given.• Registration fees for UK health professionals and administrative staff when paid by overseas affiliates, head offices in the UK, and UK-based European offices 9
  11. 11. Codes of National Industry AssociationsDisclosure RequirementsFrance – French Sunshine Act, December 29, 2011:• Pharmaceutical companies must disclose the existence of agreements with and all in-kind benefits or in- cash benefits that are provided directly or indirectly to: – Healthcare professionals, health facilities, and students for relevant occupations – Associations of healthcare professionals and associations of students for relevant occupations – User associations of the health system (public or private), foundations, learned societies, and consulting companies or organizations in the health sector – Legal entities contributing to the initial training of healthcare professionals – Publishing companies: press, radio, television, and on-line media – Editors of prescription and dispensing software• Agreements Types – a broad range that includes: – Research and development contracts – Consultancy agreements – Invitations to healthcare professionals to attend scientific or medical events• The French Sunshine Act includes various criminal sanctions, including monetary fines, for violations. Furthermore, companies may be prohibited from continuing to manufacture products if they violate the law. 10
  12. 12. Important Factors to Consider WhenImplementing Global Fair Market Value
  13. 13. Components that Drive the Valuation Process Key Market FactorsOverall Socio-Economic Environment Healthcare Professional Compensation• Business environment and competitive • Variability in pay across specialties pressures • Variability in pay for qualifications/stature• GDP and Purchasing Price Parity • Normalizing against annual hours worked• Variability in pay and hours per country• Inflation – frequency/speed of market changes in compensation Nature of Activities/Services• Unique market challenges – local country • Typical structure of agreements and practices componentsHealthcare Systems • Variability in pay for event type• Country’s healthcare system – public vs. private • Travel time – location of event• Average healthcare spend• Physician density within each country• National and international healthcare regulations 12
  14. 14. Socio-Economic FactorsPPP Comparison of General Practitioner’s PayCompensation values vary widely by country even when normalized with PPP, due tothe different socio-economic factors in each country. General Practitioner’s Pay, in U.S. $1,000 P.P.P’s AVERAGE Mexico Hungary Czech Republic Belgium Portugal Sweden Source: OECD Health Data Finland Australia France Canada Denmark Switzerland Netherlands U.K. United States $0 $50 $100 $150 $200 U.S. $1,000 P.P.P’s 13
  15. 15. Socio-Economic FactorsAnnual Hours Worked Per WorkerOECD (Organisation for Economic Co-operation and Development) data shows thatcountries exhibit variability in annual hours worked. This will affect the fair market valueof each physician’s hourly rate based on their home country. Country Annual Hours Country Annual Hours Country Annual Hours Australia 1693 Greece 2032 New Zealand 1762 Austria 1600 Hungary 1980 Norway 1426 Belgium 1577 Iceland 1732 Poland 1937 Canada 1702 Ireland 1543 Portugal 1711 Chile 2047 Israel 1890 Slovak Republic 1793Czech Republic 1774 Italy 1774 Slovenia 1662 Denmark 1522 Japan 1728 Spain 1690 Estonia 1924 Korea 2090 Sweden 1644 Finland 1684 Luxemburg 1601 Turkey 1877 France 1476 Mexico 2250 United Kingdom 1625 Germany 1413 Netherlands 1379 United States 1787 Source: 14
  16. 16. Considerations When ImplementingKey Internal FactorsCulture Communication• Country expectations Proactive discussions• Language differences Understanding of drivers• Deference to authority• Collaborative ability Opportunity for feedback/buy-in Incorporating appropriate stakeholdersBusiness Structure• Centralized vs. de-centralized compliance HCP Structures• Payment source Current payment structure• Regional/Country structure• International committees/Task forces Cross-border relationships and activities• Cross-border relationships and activities Expectations related to travel and compensationHistory• Previous attempts at centralized process• Decision-making authority• Relationships with key influencers 15
  17. 17. The Current Status of Company FMVLevels of FMV Framework SophisticationStage Description • No particular strategy, approach, or trackingNo System mechanisms • Group similar activitiesRate Card • Payments based on historical payments for similar transactions • Inventory and group transactions • FMV analysis, models, and toolsFMV Process • Validate with external data, where available • Payments tracked and monitored • Multi-national need for governance at global, regional, country, and company levelsGlobal FMV Framework • Standardized processes and methods • Oversight, testing, and monitoring 16
  18. 18. Global FMV ProcessBarriers to Implementation and Lessons Learned
  19. 19. International FMV ChallengesCreating a Plan Up Front Understand drivers of FMV – Law/Regulations (Stark II, Anti-kickback, Sunshine, FCPA) – International Disclosure Requirements (UK, France, Slovakia) – National/International Codes of Conduct Understand the impact of internal structure and historical issues – Past payment history and arrangements – Decision-making structure Incorporate key stakeholders up front – Communicate needs and requirements of FMV – Make stakeholders and influencers part of the process – Consider functional teams that cross regions/countries/departments 18
  20. 20. International FMV ChallengesDriving the Process Know data sources and methodology – Utilize objective third-party payment data – Consider components that affect FMV service rates: Rate structure: hourly rate, activity rate, day rate, multi-day rate Payment for travel time: none, partial, capped Parameters for travel time: mileages, borders, time spent Number of HCP “Tiers”/KOL parameters Exception process/exception rates Create an ongoing communication plan during process – Ensure appropriate countries/regions are incorporated – Ensure appropriate levels-of-effort are incorporated for HCP services – Ensure appropriate specialties and HCP tiers are incorporated – Review payment amounts and structures (e.g., multi-day and multi-activity rates) – Determine level of standardization within the organization 19
  21. 21. Implementing an FMV StrategyRolling Out Tools and Ongoing Support Determine tools for users Rate Cards Calculators (FMV, KOL) Process Documents Training Materials Determine procedural documents FMV Methodology/Background FMV Policy/Procedures Exceptions Process/Methodology Determine ongoing support Additional Specialties Additional Counties Frequency of Updates Sources for Questions and Information 20
  22. 22. Questions?
  23. 23. For Further Information Today’s PresentersColleen M. Roberts Rosemary E. WeghorstVP, Associate General Counsel Director& Chief Compliance OfficerFresenius Kabi USA, LLC Huron Life Sciences1501 East Woodfield Road, Suite 300 East Six Concourse Parkway, Suite 1550Schaumburg, Illinois 60173 Atlanta, GA 30328T: 847-706-2090 T: 678-672-6011C: 773-620-2984 C: 22