Fair Market Value Impact of Sunshine Act for R&D and Clinical Operations

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This session was presented at the 5th Annual Summit on Dislcosure, Transparency and Aggregate Spend for Drug, Device and Biotech Companies, February 20, 2013.

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Fair Market Value Impact of Sunshine Act for R&D and Clinical Operations

  1. 1. Fair Market ValueImpact of Sunshine Actfor R&D and ClinicalOperationsMark A. DeWyngaert, PhDHuron Consulting GroupFebruary 20, 2013
  2. 2. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESOverview of Impact on Clinical Research Payments fromSunshine Requirements Legislation passed by Vermont and Massachusetts currently requires the reporting of payments to healthcare professionals (“HCPs”) and organizations (“HCOs”) related to R&D and clinical activities The federal government will require collection of clinical trial and research related data starting August 1, 2013 as part of the formerly titled Physician Payment Sunshine Act and now called the National Physician Payment Transparency Program: Open Payments (Section 6002 of the Patient and Protection Affordability Care Act (PPACA)). “Research” payments defined by the federal government is “systematic investigation designed to develop or contribute to generalizable knowledge relating broadly to public health, including behavioral and social sciences research. This term encompasses basic and applied research and product development." (Public Health Service Act definition of research in 42 CFR 50.603) 1
  3. 3. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESOverview of Impact on Clinical Research Payment fromSunshine Requirements The definition of Research payments includes pre-clinical research, FDA Phases I-IV research and investigator-initiated investigations. A payment can be defined as “research” if it is “subject to a written agreement or contract or a research protocol” (p. 9482 /Federal Register/Vol.78 No. 27/ Friday February 8, 2013/ Rules and Regulations)) Research Payments must be reported to covered recipients, teaching hospital or non teaching hospitals or clinics Requirement to report the name of the individual or entity (regardless of if it is a covered recipient who receives payment for research services and the PI(s). Payments that are made by CROs or SMOs or any other third party on behalf of the company must also be included in reported payments by the manufacturer down to the same level of detail they report payments made directly by the company 2
  4. 4. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESWhy is FMV Important to Sunshine? FMV Where Did it Come From? 2003 Office of Inspector General (OIG) Compliance Program Guidance for Pharmaceutical Manufacturers (U.S. Dept. HHS) OIG reports emphasized that payments for research services should be FMV for legitimate, reasonable, and necessary services. However, “FMV” is NOT clearly defined Goal and intent was to reduce the apparent conflict of interest Similar guidelines are supported by the PhRMA Code and Advamed Code 3
  5. 5. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESWhy is FMV Important to Sunshine? Disclosure and Transparency will provide all Government Regulatory bodies and other stakeholders rapid information availability for queries and interpretation of data. Stakeholders will include: Industry Sponsors Sites Subjects/patients Other agencies, and Media FMV is key to the explanation of payments and contractual relationships with HCPs and HCOs (Healthcare Organizations) An effective Transparency program should include a consistent and valid methodology to determine the FMV of HCP and Research payment arrangements. 4
  6. 6. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESFair Market Value DefinitionsFederal regulators have historically provided little guidance on the way FMVcompensation should be calculated (and they are prohibited from providing anyopinions regarding FMV). However, some Guidance under stark Law and the IRSrules include: IRS Definition: The price at which property or the right to use property would changehands between a willing buyer and a willing seller, neither being under any compulsion tobuy, sell or transfer property or the right to use property, and both having reasonableknowledge of relevant facts (IRS Rev. Rul. 59-60). 5
  7. 7. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESFair Market Value Definitions CMS Definition:-- The value in arms length transactions, consistent with the “general market value.” “General market value” means the price of an asset or service resulting from bona fide bargaining between well informed parties who are not otherwise in a position to generate business for each other, on the date of acquisition of the asset or at the time of the services agreement. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals. 42. C.F.R. § 411.351 Commercial Reasonableness=an arrangement that would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty, even if there were no potential business referrals between the parties. 69 FED. REG. 16093 (MARCH 26, 2004). 6
  8. 8. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESPotential Multiple FMV Analyses Needed Based on theFollowing Sunshine Reporting Requirements Entertainment Current or prospective ownership or Food investment interest Travel Direct compensation for serving as Education faculty or speaker for IME Consulting fees Grant Compensation for services other than Payments or other transfer of value by an consulting applicable manufacturer to an individual or organization at the request of a Honoraria physician or teaching hospital Gifts Any other transfer of value identified by Funding for research (including Clinical HHS Trials) Charitable contribution Royalty or license 7
  9. 9. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESDefinition of Research Definition of Research has been adopted from the Public Health Service Act (42 CFR 50.603) and now includes research conducted where there is either written agreement OR contract OR research protocol. CMS has clarified the interpretation of 1128G(a)(1)(B) that transfer of value from applicable manufacturer to covered recipient may include intermediaries in a continuous chain of agreements. CMS clarified that “Congress clearly intended that all payments should be included on the public website, even if a product never received FDA approval, licensure or clearance.” CMS defined “research” based on the Public Health Service Act definition of research in 42 CFR 50.603; which defines research as: “a systematic investigation designed to develop or contribute to generalizable knowledge relating broadly to public health, including behavioral and social-sciences research. This term encompasses basic and applied research and product development.” CMS concluded that “this definition includes pre-clinical research and FDA Phases I-IV research, as well as investigator-initiated investigations.” 8
  10. 10. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESChallenges to What Sponsors are Paying forClinical ResearchMany sponsors use commercial databases of procedural costs to establish whatthey believe to be FMV for a study Challenges with this approach: Data does not take into account enrollment success or quality of work performed Data includes the “negotiated” budgets for all sites that signed a Clinical Trial Agreement, regardless of whether the site enrolled a single subject Too narrow a range may discourage participation by higher cost, but high performing sites Time lag in adding information to the database Note- to justify higher payments due to performance be prepared to supplymetrics and documentation. 9
  11. 11. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESHow to Defend What Is Paid for ResearchThe best defense is to follow a consistent policy : Create a defensible, “ground up” analysis for each study using consistentassumptions Consider also preparing a Coverage Analysis. A clinical trial coverage analysisidentifies and analyzes who the appropriate payer (i.e. the Sponsor, Medicare orother third party payor) is for each item and service required by a clinical trial asstated in the protocol and schedule of events. Apply a uniform approach to determining costs for other budget items such asoverhead and administrative costs Consider utilizing internal calculators to show systematic and consistent approach Establish criteria and document that there are legitimate reasons for paying somesites differently Establish, monitor, and enforce compliance program, educate Medical AffairsClinical Operations and R&D personnel on importance of FMV 10
  12. 12. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESWhen Entering Into Consulting or Research ArrangementsImportant Considerations Does the arrangement have a potential to interfere with appropriate clinicaldecision-making? Does the arrangement have a potential to increase costs to federal health careprograms or beneficiaries? Does the arrangement have a potential to increase the risk of overutilization orinappropriate utilization? Does the arrangement base compensation on volume or number of referrals orplacement on a formulary? Does the arrangement raise patient safety or quality of care concerns? Finally, how might an aggressive regulator view these services? 11
  13. 13. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESImplementing an FMV StrategyConsiderations for Implementing an FMV Process in New Areas Include stakeholders during the analytical process, which will facilitate buy-inand understanding for a new FMV rate structure and process Those who identify required services and hire Vendors Those who calculate and determine payments to Vendors FMV payment structures should consider operational and business needs Contracting requirements Communication of assumptions to facilitate any discussions with contracted Vendors and other business partners Preserve as much consistency with current process as much as possible (i.e.,submission of contracts, approval matrix, etc.) 12
  14. 14. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESImplementing an FMV StrategyConsiderations for Implementing a New FMV Process Differing compensation arrangements that may exist with individual Vendorsacross several business units (harmonization) Differences from historical payment processes Varying degrees of technical skill for end-users, a technology platform shouldreflect the skill set of FMV end-users Efficient support system to address ad hoc questions from and to supportusers Training staff into impact of their decisions on deal structure and on FMVprocess (Compliance) 13
  15. 15. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIES Study Budget Development Fair Market Value Considerations for Key Payment Areas in Phase I – IV TrialsCost Type Category Examples FMV Payment Source Considerations • IRB Fees • Pass-Through Costs • IRB Renewal Fees • 3trd Party Pass- Through • IRB Amendment Fees Database Fees • Institution Ethics Committee • Fixed costs Fee • Document and records • Resources and services included in this management category should be detailed by line and • Pharmacy set-up fees used only for the studySite Costs Administrative • Research office set-up fees • 3rd Party Database Costs • Advertising • Patient reimbursement expenses • Overhead; % calculated by • Market Data or • Expenses included in this calculation should institution Cost Data (by not cover items listed separately as Indirect Costs overhead administrative costs component • IRB Preparation • Fees provided for services such as IRBNon- • Site qualification • 3rd Party Database preparation, logistics should be measured Study Start UpProcedure • Site enrollment validation • FMV Schedule for by time spent by staff and principal CostsCosts • Pre-screening activities HCPs investigator (i.e., 5 hours, etc.) 14
  16. 16. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIES Study Budget Development Fair Market Value Considerations for Key Payment Areas in Phase I – IV Trials FMV PaymentCost Type Category Examples Considerations Source • Study Coordinators • Support staff and study coordinators should be Study • Administrative support staff selected by a site and compensated only for Support • Research Coordinators time spent on approved study • FMV Costs Schedule forNon- HCPsProcedure • Clinical investigator(s) contracted to • Third Party • Selection criteria for each principal investigatorCosts conduct study on behalf of manufacturer Database should be well documented Principal Investigator Costs • Enrollment fees • There needs to be consideration of standard of • Per subject visit fees (procedures, etc.) care within the budget and follow-up regarding • Final study fees insurance payment policies with the specific • Costs for additional procedures (e.g., institutionProcedure Direct Study DNA tests, supplemental study • Third PartyCosts Costs procedures, etc). Database • Patient stipends • Adverse event reports 15
  17. 17. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESStudy Budget DevelopmentRecommendationsTo mitigate the risk associated with unallocated payments made to a site,Companies may wish to address budgeting for study costs for non-proceduralservices and study support through a broader analysis. Disaggregating non-procedure study costs is necessary to ensure overall transparency and indetermining the appropriate fair market value. Process Step Overhead Charges Administrative Fees Study Initiation Fees Standard of Care Procedures Principal Investigator and Study Support Staff Time 16
  18. 18. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESStudy Budget DevelopmentAdditional Payment Areas That May Need FMV Category Examples Equipment • Refrigerators • Computers Advertising and Marketing Expenses • Advertising for patient enrollment • Physician going through files prior Patient Chart Review to bringing patient in for trial participation • Time spent by a PI or support staff Protocol Amendment Fee reviewing any changes to a protocol • Long term studies requiring storage Storage or Archiving Costs for documentation / paper trails • Stipends to promote patient Patient fees or stipends enrollment at sites 17
  19. 19. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESThird Party Bona FideServices and FMV 18
  20. 20. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESGPO’s and FMV Value Applicable manufacturers and group purchasing organizations (GPOs) must also report to CMS ownership and investment interests (other than in publicly- traded securities or mutual funds) held by: A physician Immediate family member of HCP, in the manufacturer or GPO Manufacturers and GPOs must report: The dollar amount invested by the physician Value and terms of each such interest Any payment or transfer of value to a physician holding such interest, or payment or transfer to another individual or entity at the physician’s requestGPOs must also report HCP payments at the same level of detail as manufacturers 19
  21. 21. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESBackgroundKey Treatment of Bona Fide Service Fees for GP Appropriate treatment of fees paid is critical also to the accuracy of GP statutorypricing calculations, and integrity of price reporting: Service fees need to be evaluated to ensure that they meet CMS’s definition of bona fide service fees Yet, there is minimal guidance to provide clarification, especially in what would constitute FMV In the 2012 Proposed Rule, CMS declared specifically that it will NOT define FMV, and it requires manufacturers to make reasonable assumptions and document their rationale One of the most important aspects of BFSF and FMV evaluation is the rationale anddocumentation required in order to demonstrate due diligence in the decision makingprocess: In this dynamic regulatory environment, and given the evolving guidance, it is critical to have a clear record of the rationale for your determinations The scrutiny on BFSF’s has increased dramatically, as they are determinations that must be made by the manufacturer, and can have a dramatic impact on reported government prices Manufacturers cannot make determinations based upon what is “conservative or aggressive” as the impact of calling a payment a “Bona Fide Fee for Service” and exempt from calculations can be conservative in one program and aggressive in another 20
  22. 22. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESAssessing Fair Market Value Identify potential fee-for-service arrangements through interviews and a comprehensive review or sampling of contracts. Review the fee-for-service arrangements for potentially bona fide services. Every bona fide service or data set should be clearly defined. Description Attributes that may drive value The primary tangible and intangible assets employed to deliver the service or data set (assumptions) 21
  23. 23. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESAssessing Fair Market Value The manufacturer must determine at what level the FMV assessment will be determined: Activity (e.g., call, educational insert, letter) Service (e.g., activity times volume for the contract) Contract (e.g., fair market value for all services in a contract) Attributes of the market to be considered may include: Pricing Efficiency Bargaining power of buyer and seller (e.g., market share) Buyer and seller knowledge of other transaction prices Access to unique assets (e.g., customer relationships) A solid understanding of the markets in which services are bought and sold will allow for a more accurate assessment of the profit to be placed on the service or data set. 22
  24. 24. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESRisk Management Risk management under the Sunshine Act: Implement tracking and reporting systems, with regular compliance audits and monitoring. Implement compliance training for affected personnel. Undertake legal review of payment data prior to submission to CMS. Document assumptions regarding the characterization of various payments and the requirement to report them, and submit to CMS. Consider adding an FMV review to the Contracting Committee analysis Diversity in representation on the Committee helps to ensure that practical considerations are not overlooked Implement an SOP to detail when and how to apply FMV An SOP demonstrates an organization’s commitment to any reviewing agency Include a formal exceptions process Train on the SOP Audit against the SOP 23
  25. 25. FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIESQuestions?Contact InformationMark A. DeWyngaert PhD MBAManaging DirectorHuron Consulting Group599 Lexington AveNew York, NY 10022(o) 646-277-8817Email: mdewyngaert@huronconsultinggroup.com 24

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