DEVELOPING A CULTURE OF

PRICING COMPLIANCE:

Strategies for Avoiding OIG and DOJ

Scrutiny of Drug Pricing Practices

William Davis

Member

Wendy Goldstein

Partner

November 2, 2016

CURRENT ENVIRONMENT HOSTILE

• Kaiser Health Tracking poll August 2016

finds that most Americans feel that drug

costs are unreasonable (72 percent) and that

drug companies put profits before people (74

percent)

• Public favors requiring drug companies to

release information on how they set their

drug prices (86 percent) and allowing

Medicare to negotiate with drug companies

(83 percent), and majorities also say these

strategies would be effective2

HOSTILE ENVIRONMENT (CONT.)

• Reflective in part of the perceived high costs of

prescription drugs and focus on profits, about 4

in 10 (42 percent) Americans have a favorable

view of drug companies, lower than the share

who feel favorably towards banks (58 percent),

and similar to the shares who have positive

views of oil companies (40 percent) and health

insurance companies (44 percent)

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JUDGES ARE PEOPLE TOO

• Judges, juries and government lawyers don't

leave their opinions and biases at home

• The hostility toward drug companies carries

over to government enforcement actions,

sympathy to whistleblowers, etc.

• Firsthand experience with Judges bringing their

personal experience and opinions about

healthcare into their courtroom

4

STRECK BFSV –

PLAINTIFF'S PERSPECTIVE

• Defendants intentionally or recklessly

incorrectly reported bona fide service fees

(BFSV) paid to wholesalers as discounts, not

fees, in violation of applicable regulations

• Incorrect reporting lowered reported AMPs,

thereby improperly reducing Medicaid rebates

paid

• Government declined to intervene, but Relator

continued the case

• Court denied defendants' motions to dismiss5

STRECK BFSV – DEFENSE

PERSPECTIVE

• CMS, OIG and others long have acknowledged

uncertainty in the law concerning the proper

treatment of BFSV

• Inconsistent treatment by manufacturers

• A good faith disagreement concerning the

interpretation of vague statutes and regulations

is not fraud

6

STRECK PRICE

APPRECIATION CREDITS

• Court dismissed claim

• Plaintiff intends to appeal

• Timing of appeal delayed pending conclusion of

BFSV claims

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STRECK DEFENDANTS

MOSTLY SETTLED

• Case proceeded against 4 defendants:

AstraZeneca, Biogen, Cephalon, and Genzyme

• AstraZeneca ($46.5 mm) and Cephalon ($7.5

mm) settled with releases from the government

• Biogen settled without releases from the

government

• Case against Genzyme is ongoing, but stayed

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STRECK LESSONS –

TERMS OF ART

• Be careful using terms familiar to industry

participants, but potentially confusing to

government lawyers and Judges

• In Streck, this problem manifested itself as

characterizing "fees" paid to wholesalers as

"discounts" for AMP and ASP purposes

• Other examples of terms creating litigation risk

are: AWP; WAC; and Usual and Customary

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LESSONS LEARNED –

DOCUMENTATION

• Do you have documentation demonstrating

your reasonable assumptions, such as why

your company characterized service fees as

discounts, fees, or hybrid?

• Do you have a consultant's fair market value

report?

• Do you have an opinion of legal counsel?

• Above documentation is not necessarily legally

required, but should be considered

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LESSONS LEARNED –

PRIVILEGE

• The government and plaintiffs will demand

discovery of your documentation

• You may wish to use your documentation

affirmatively to prove you acted reasonably

• Is your documentation protected from discovery

by attorney-client privilege?

• You may waive privilege and produce the

documentation showing the bases for your

decisions

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LESSONS LEARNED - SETTLEMENTS

• State and Federal government continue to

enact laws encouraging more lawsuits

• The increase of whistleblower lawsuits and

private attorneys general makes it more difficult

to resolve cases

• Whistleblowers and private attorneys general

are motivated principally by money, not the

search for justice

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DAMNED IF YOU DO,

DAMNED IF YOU DON'T

• Many manufacturers originally thought, due

to pressure to capture all discounts in price

reporting, that it was "conservative" to

include service fees in AMP and ASP

• But some programs and potential plaintiffs

are helped by higher AMPs, others harmed

• Higher AMPs may lead to higher AMP-based

FULs, and higher ASPs lead to higher Part B

physician reimbursements, while higher

AMPs also may increase Medicaid rebates

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WHERE ARE WE NOW?

ENVIRONMENT TIMELINE

April 2015

WSJ article discussing Valeant’s

strategy to buy drugs

and immediately

increase prices

significantly

July 2015

Valeant CFO questioned by

Senate’s Homeland Security &

Governmental Affairs

Permanent Subcommittee

on Investigations

regarding price increases

Valeant receives letter from

Senator McCaskill, Ranking

Member, Senate

Homeland Security &

Governmental Affairs

Permanent Subcommittee

on Investigations,

requesting information

regarding Valeant’s drug price increases

September 2015

May 2015

House Govt. Reform and Oversight

Committee Ranking Member

Cummings sends

Chairman Chaffetz a

letter requesting

that the Committee

hold a hearing in

which Valeant and Turing CEOs

testify

August 2015

Valeant and Hospira receive

letters from Rep. Cummings

and Sen. Sanders

requesting information

regarding Valeant’s drug

pricing practices

Turing receives

letter from Rep.

Cummings and Sen. Sanders

requesting information

regarding Turing’s drug

pricing practices

August 2015

July 2014

Gilead receives

letter from Senators

Wyden and Grassley, Senate

Committee on Finance, requesting documents related to Sovaldi, priced at

$1,000/pill ($84,000/ course of

treatment)

Legend

Dept. of Justice inquiry

Office of Inspector General

Industry news

Legislation

Media attention Congressional inquiry

Attorney General FDA action

ENVIRONMENT TIMELINELegend

Dept. of Justice inquiry

Office of Inspector General

Industry news

Legislation

Media attention Congressional inquiry

Attorney General FDA actionSeptember 2015

September 2015

Valeant receives

second letter from Senator

McCaskill, again

requesting information

due to Valeant’s “failure to respond

substantively” to the August

15, 2015 letter

18 members of the House Committee

on Oversight and Gov’t.

Reform send letter to the Committee Chairman, requesting

that he subpoena

documents that Valeant refused to

turn over to in response

to the August 2015 letter

October 2015

October 2015

Valeant announces receipt of

subpoenas from DOJ and U.S.

Attorneys’ Offices in NY,

Massachusetts, Pennsylvania

related to pricing, patient

assistance, distribution of its products, and related

areas of interest

Merck and Eli Lilly each announce receipt of CIDs from

the DOJ and U.S.

Attorneys’ Office in E.D. of PA related

to drug pricing,

contracting and

Medicaid reporting practices

November 2015

November 2015

November 2015

Senate Committee on Aging issues

letters to Valeant, Turing,

Retrophin, Rodelis

Therapeutics regarding

Committee’s “comprehensive

investigation” into the pricing

of off-patent drugs.

Document response due December 2,

2015

Democratic members of the House Committee

on Oversight and

Government Reform form

the Affordable

Drug Pricing Task Force

Chairman Chaffetz agrees to

hold hearings in early 2016. Valeant and Turing are anticipated

targets

OIG issues FY2016 Work Plan, which

includes a new review related

to specialty drug pricing and Medicaid

reimbursement

ENVIRONMENT TIMELINELegend

Dept. of Justice inquiry

Office of Inspector General

Industry news

Legislation

Media attention Congressional inquiry

Attorney General FDA actionDecember 2015

December 2015

December 2015

November 2015

Democratic members of House Ways and Means Committee

send letter to Chairman

Brady requesting an “immediate

hearing” into prescription drug costs

Initial hearings by

Senate Committee

on Aging held

Senators Wyden and

Grassley, Senate

Committee on Finance,

release a 144-page

report and Gilead

documents produced to

the Committee

as part of its 18-month

investigation

House Committee on Oversight and Government

Reform sent a letter to Acting Commissioner

of the FDA, requesting

responses to 15 questions related to the Abbreviated

New Drug Application

(ANDA) process and its impact on drug

pricing

December 2015

January 2016

Five Democratic

senators send letter to CMS

requesting information related to

rising prescription

drug costs and requesting

responses to 7 questions

House Committee on Oversight and

Government Reform sends letter to former

Turing CEO Martin Shkreli, requesting

documents related to drug, Daraprim, in his control or possession

from January 1, 2015 –December 31, 2015,

and documents produced/ to be

produced to 2015 requests from any

governmental entity

ENVIRONMENT TIMELINELegend

Dept. of Justice inquiry

Office of Inspector General

Industry news

Legislation

Media attention Congressional inquiry

Attorney General FDA actionJanuary 2016

February 2016

February 2016

March 2016

House Committee on Oversight and Government

Reform issues subpoena to

former Turing CEO Martin

Shkreli to testify before the

Committee at the upcoming

hearing. Letter also sent to Mr. Shkreli’s counsel

advising that failure to appear/ comply with the subpoena may

expose Mr. Shkreli to

criminal liability

House Committee on Oversight and

Government Reform holds a

hearing on February 4, 2016

titled, “Developments in the Prescription

Drug Market: Oversight.”

Individuals called to testify at the hearing were former Turing

CEO Martin Shkreli, who

invoked his Fifth Amendment

Right; Turing CCO Nancy Retzlaff;Valeant Interim

CEO Howard Schiller; FDA’s CDER Director

Janet Woodcock; and PCMA CEO Mark Merritt

Humana agrees to pay Florida

Office of Insurance Regulation

$500k for failing to cooperate

with investigation

into drug pricing policies that

allegedly discourage HIV-positive patients

from choosing Humana

March 2016

March 2016

6 Democratic senators and 6 representatives petition NIH to

hold public hearing on overriding

Xtandi’s patent and lowering

the drug’s price

House Appropriations

Committee Chairman says

insurance companies

should cover more expensive

opioid drugs developed with

features that deter abuse

FDA says it will prioritize

review of new generic drug applicants to compete with

drugs currently made by only one company

ENVIRONMENT TIMELINELegend

Dept. of Justice inquiry

Office of Inspector General

Industry news

Legislation

Media attention Congressional inquiry

Attorney General FDA actionMarch2016

March2016

April2016

April2016

Rep. Elijah Cummings, House

Committee on Oversight and Government

Reform Committee, sends

Valeant letter stating that

Valeant’s refusal to provide requested documents is an obstruction of a congressional

inquiry into the company’s drug

prices and its relationship with

Philidor Rx

Senate Special Aging Committee holds

hearing on April 27, 2016 titled, “Valeant

Pharmaceuticals’ Business Model: the

Repercussions for Patients and the

Health Care System.” Individuals called to

testify at the hearing were patient with Wilson Disease, Berna Heyman;

Professor Frederick K. Askari; St. Vincent CCO Richard Fogel; Valeant Director Bill

Ackman; Valeant CEO J. Michael

Pearson; and Former Valeant Interim CEO

Howard Schiller

Anthem sues Express Scripts for breach of PBM services

contract alleging

Express Scripts charged

inflated prices and refused to

negotiate a new contract in good faith,

which led to an overpayment

of $15b by Anthem

NY AG subpoenas insurance

companies, seeking

information on pts denied

Hep-C drugs

April2016

April2016

April2016

IMS Institute for Healthcare Informatics

releases research showing the total

U.S. spending on drugs increased

8.5% in 2015

“The Campaign for Sustainable Rx Pricing,” a coalition of

major insurers, hospitals, and unions, holds

event in Washington D.C.

to advocate addressing drug

costs through increased

transparency, competition and

comparative drug

effectiveness research

KaloBios Pharmaceuticals announces that it will limit drug price increases to the rate of

inflation or the CPI

CMS issued proposed rule for comment, to test Medicare Part B payment methodologies for 5 years. Includes different HCP and pt. incentives designed to drive effective prescribing and reward positive pt. outcomes

ENVIRONMENT TIMELINELegend

Dept. of Justice inquiry

Office of Inspector General

Industry news

Legislation

Media attention Congressional inquiry

Attorney General FDA actionJune2016

Vermont passes

legislation requiring

justification for price

increases of up to 15 drugs

from designated

drug manufacturers

August2016

September2016

September2016

U.S. Senator Amy Klobuchar

asks FTC to investigate

Mylan NV re“dramatic”

(400% increase over 7 years) in cost of EpiPen and urges the

Senate Judiciary

Committee to hold a hearing

on the price increase

West Virginia Attorney

General Patrick Morrisey

subpoenas Mylan for

information about the price increase in the

EpiPen

Three U.S. senators asked

Attorney General L. Lynch

whether U.S. DoJ is

investigating possible FCA

violations by Mylan re

underpayment of Medicaid rebates for

EpiPen

October2016

Mylan Inc. agreed to a $465

million settlement with

U.S. DoJ and other agencies re classification of

EpiPen Auto-Injector and

EpiPen Jr Auto-Injector under

MDRP John McCain (R-AZ) and Tammy Baldwin (D-WI)

propose legislation requiring

submission of price increases > 10% at least 30

days before effective date,

as well as other information

Taro disclosed DoJ antitrust subpoena re:

pricing of generic drugs,among other

items

Letters from Congress re

opioid crisis tomnfrs re pricing,

among other issues

POLITICAL FOCUS

• Presidential candidates also jumping on the drug pricing bandwagon.Dem. Candidate HillaryClinton’s plan to lower drug prices includes:

• “Eliminate corporate write-offs for direct-to-consumer advertising”

• “Establish a mandatory FDA pre-clearance procedure for these [DTC] ads fundedthrough user-fees paid for by pharmaceutical manufacturers”

• “Require health insurance plans to place a monthly limit of $250 on covered out-of-pocket prescription drug costs for individuals”

• Lower “the biologic exclusivity period from 12 to 7 years”

• “Require drug manufacturers to provide rebates for low-income Medicare enrollees”

• “Allow Medicare to negotiate drug and biologic prices”

• Presidential candidate Rep. Donald Trump supports importation anddirect price negotiation

STATES AS INCUBATORS

• Proposed state legislation introduced (CA, MA, NY, NC, OR, PA)would require pharmaceutical manufacturers to submit reports tothe state outlining the total cost of drug production, includingmarketing costs

• Vermont – June 2016 legislation

• The recently repealed California legislation would require “… eachmanufacturer of a prescription drug made available in [CA], that has a[WAC] of $10,000 or more annually or per course of treatment to file areport, no later than May 1 of each year, with the Office of Statewide HealthPlanning and Development on the costs for each qualifying drug…. the[Office] issues a report annually and posts on the [Web]. … Confidentialityprovisions taken into consideration.”

WHERE DOES INDUSTRY GO FROM HERE?

• Companies lowering prices? Smaller increases?

• How do companies handle pricing at launch?

• Value-based purchasing/ “risk-sharing” arrangements

• Outcome of congressional inquiries

• Outcome of DoJ investigations

• State AG payor investigations

• Federal and state legislation

• Election

RAMIFICATIONS FOR COMPLIANCE

• Policies, procedures, training, auditing and monitoring activities must beupdated to address legal/regulatory developments in pricing andenvironment

• Directors, officers, management

• Key departments and committees

• Government Pricing (GP) Department

• Final AMP Rule Implementation

• Pricing Committee

• Pricing proposals, rebate structures, risk-based contracting/ value-based proposals

• Return policies

• Reimbursement Support Department

• Government Affairs

RAMIFICATIONS FOR COMPLIANCE

• Key Activities for training, monitoring, auditing

• Reimbursement Support

• Trade /Distribution channels

• Patient assistance programs

• Copay mitigation programs

• Patient compliance, adherence and persistency programs

• Sampling programs

• Documentation

PRACTICAL COMPLIANCE CONSIDERATIONS

• Key Compliance Principles

1. “Integrity of data used by state and federal governments to establishpayment amounts” OIG Compliance Guidance

• GP Function - King Pharmaceuticals Settlement (2005)

• Manufacturer certifications in GP

• Medicare ASP (quarterly) - CEO, CFO, or Authorizing Official certifies that “thereported Average Sales Prices were calculated accurately and that all informationand statements made in this submission are true, complete, and current to the bestof my knowledge and belief and are made in good faith. I understand that theinformation contained in this submission may be used for Medicare reimbursementpurposes.”

• Medicaid Drug Rebate Reports (monthly and quarterly, thru DDR) -

• CEO, CFO, individual with equivalent authority or direct delegate

PRACTICAL COMPLIANCE CONSIDERATIONS

2. Provide truthful, accurate and complete information to customers

• Examples - formulary dossier, discount and rebate communications withstate P&Ts, VA/FSS, Medicaid Managed care, Part D plans

• Adhere to policies and procedures addressing off-label discussions andoutcomes/cost-effectiveness claims

3. Accurately characterize price concessions

• If it is looks like a discount then call it, and account for it, as a discount

• Case law; BMS (2007); Schering (2006); TAP (2001)

• Alleged kickbacks resulted in BP violations

4. Refrain from billing and coding discussions with customers

5. Engage third party, independent parties to conduct FMV analysis onBona Fide Service Fees

• Privilege considerations

PRACTICAL COMPLIANCE CONSIDERATIONS

6. Accurate paper

• Good paper will not “fix” bad intent or practice

• US ex rel. Westmoreland v. Amgen (2012): “Parties to a GPOarrangement cannot obtain safe harbor protection with a GPOcontract that complies with the written agreement requirement of asafe harbor and appears, on paper, to meet all of the other safeharbor requirements, but that does not reflect the actualarrangement between the parties.”

PRACTICAL COMPLIANCE CONSIDERATIONS

7. Focus on Beneficiary Inducements

• Co-payment Coupons

• “Bridge the Gap” programs

• Patient Assistance Programs

• Usual and Customary Billing

• ACA may create new government sympathy for payors,

who contend that patient assistant programs increase their

costs

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