Fair Market Value Impact of Sunshine Act for R&D and ... · Fair Market Value Impact of Sunshine Act ... TRANSPARENCY AND AGGREGATE SPEND FOR ... market value.” “General market

Fair Market Value Impact of Sunshine Act for R&D and Clinical OperationsMark A. DeWyngaert, PhD Huron Consulting GroupFebruary 20, 2013

FIFTH ANNUAL SUMMIT ON DISCLOSURE, TRANSPARENCY AND AGGREGATE SPEND FOR DRUG, DEVICE AND BIOTECH COMPANIES

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Overview of Impact on Clinical Research Payments from Sunshine Requirements Overview of Impact on Clinical Research Payments from Sunshine 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 activitiesThe 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)


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Overview of Impact on Clinical Research Payment from Sunshine Requirements Overview of Impact on Clinical Research Payment from Sunshine 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


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Why is FMV Important to Sunshine? Why 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


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Why is FMV Important to Sunshine? Why 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.


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Fair Market Value Definitions Fair Market Value Definitions Federal regulators have historically provided little guidance on the way FMV compensation should be calculated (and they are prohibited from providing any opinions regarding FMV). However, some Guidance under stark Law and the IRS rules include:

IRS Definition: The price at which property or the right to use property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy, sell or transfer property or the right to use property, and both having reasonable knowledge of relevant facts (IRS Rev. Rul. 59-60).


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Fair Market Value Definitions Fair 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).


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Potential Multiple FMV Analyses Needed Based on the Following Sunshine Reporting Requirements Potential Multiple FMV Analyses Needed Based on the Following Sunshine Reporting Requirements

EntertainmentFoodTravelEducationConsulting feesCompensation for services other than consultingHonorariaGiftsFunding for research (including Clinical Trials)Charitable contributionRoyalty or license

Current or prospective ownership or investment interestDirect compensation for serving as faculty or speaker for IMEGrantPayments or other transfer of value by an applicable manufacturer to an individual or organization at the request of a physician or teaching hospitalAny other transfer of value identified by HHS


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Definition of Research Definition 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.”


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Challenges to What Sponsors are Paying for Clinical Research Challenges to What Sponsors are Paying for Clinical ResearchMany sponsors use commercial databases of procedural costs to establish what they 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 supply metrics and documentation.


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How to Defend What Is Paid for ResearchHow 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 consistent assumptions

Consider also preparing a Coverage Analysis. A clinical trial coverage analysis identifies and analyzes who the appropriate payer (i.e. the Sponsor, Medicare or other third party payor) is for each item and service required by a clinical trial as stated in the protocol and schedule of events.

Apply a uniform approach to determining costs for other budget items such as overhead and administrative costs

Consider utilizing internal calculators to show systematic and consistent approach Establish criteria and document that there are legitimate reasons for paying some

sites differentlyEstablish, monitor, and enforce compliance program, educate Medical Affairs

Clinical Operations and R&D personnel on importance of FMV


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When Entering Into Consulting or Research ArrangementsWhen Entering Into Consulting or Research ArrangementsImportant Considerations

Does the arrangement have a potential to interfere with appropriate clinical decision-making?

Does the arrangement have a potential to increase costs to federal health care programs or beneficiaries?

Does the arrangement have a potential to increase the risk of overutilization or inappropriate utilization?

Does the arrangement base compensation on volume or number of referrals or placement on a formulary?

Does the arrangement raise patient safety or quality of care concerns?Finally, how might an aggressive regulator view these services?


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Implementing an FMV StrategyImplementing an FMV StrategyConsiderations for Implementing an FMV Process in New Areas

Include stakeholders during the analytical process, which will facilitate buy-in and understanding for a new FMV rate structure and process

Those who identify required services and hire VendorsThose who calculate and determine payments to Vendors

FMV payment structures should consider operational and business needsContracting requirementsCommunication 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.)


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Implementing an FMV StrategyImplementing an FMV StrategyConsiderations for Implementing a New FMV Process

Differing compensation arrangements that may exist with individual Vendors across several business units (harmonization)

Differences from historical payment processesVarying degrees of technical skill for end-users, a technology platform should

reflect the skill set of FMV end-usersEfficient support system to address ad hoc questions from and to support

usersTraining staff into impact of their decisions on deal structure and on FMV

process (Compliance)


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Study Budget DevelopmentStudy Budget DevelopmentFair Market Value Considerations for Key Payment Areas in Phase I – IV Trials

Cost Type Category Examples FMV Payment Source Considerations

Site Costs

Pass- Through Fees

• IRB Fees• IRB Renewal Fees• IRB Amendment Fees• Institution Ethics Committee

Fee

• 3trd Party Database

• Fixed costs

• Pass-Through Costs

Administrative Costs

• Document and records management

• Pharmacy set-up fees• Research office set-up fees• Advertising• Patient reimbursement

expenses

• 3rd Party Database

• Resources and services included in this category should be detailed by line and used only for the study

Indirect Costs

• Overhead; % calculated by institution

• Market Data or Cost Data (by overhead component

• Expenses included in this calculation should not cover items listed separately as administrative costs

Non- Procedure Costs

Study Start Up Costs

• IRB Preparation• Site qualification• Site enrollment validation• Pre-screening activities

• 3rd Party Database • FMV Schedule for

HCPs

• Fees provided for services such as IRB preparation, logistics should be measured by time spent by staff and principal investigator (i.e., 5 hours, etc.)


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Study Budget DevelopmentStudy Budget DevelopmentFair Market Value Considerations for Key Payment Areas in Phase I – IV Trials

Cost Type Category Examples FMV Payment Source Considerations

Non- Procedure Costs

Study Support Costs

• Study Coordinators• Administrative support staff• Research Coordinators

• FMV Schedule for HCPs

• Third Party Database

• Support staff and study coordinators should be selected by a site and compensated only for time spent on approved study

Principal Investigator Costs

• Clinical investigator(s) contracted to conduct study on behalf of manufacturer

• Selection criteria for each principal investigator should be well documented

Procedure Costs

Direct Study Costs

• Enrollment fees• Per subject visit fees (procedures, etc.)• Final study fees• Costs for additional procedures (e.g.,

DNA tests, supplemental study procedures, etc).

• Patient stipends• Adverse event reports

• Third Party Database

• There needs to be consideration of standard of care within the budget and follow-up regarding insurance payment policies with the specific institution


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Study Budget DevelopmentStudy Budget DevelopmentRecommendationsTo mitigate the risk associated with unallocated payments made to a site, Companies may wish to address budgeting for study costs for non-procedural services and study support through a broader analysis. Disaggregating non- procedure study costs is necessary to ensure overall transparency and in determining the appropriate fair market value.

Process StepOverhead ChargesAdministrative FeesStudy Initiation Fees

Standard of Care ProceduresPrincipal Investigator and Study Support Staff Time


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Study Budget DevelopmentStudy Budget DevelopmentAdditional Payment Areas That May Need FMV

Category ExamplesEquipment • Refrigerators

• ComputersAdvertising and Marketing Expenses • Advertising for patient enrollment

Patient Chart Review• Physician going through files prior

to bringing patient in for trial participation

Protocol Amendment Fee • Time spent by a PI or support staff reviewing any changes to a protocol

Storage or Archiving Costs • Long term studies requiring storage for documentation / paper trails

Patient fees or stipends • Stipends to promote patient enrollment at sites


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Third Party Bona Fide Services and FMV


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GPO’s and FMV ValueGPO’s and FMV ValueApplicable 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 physicianImmediate family member of HCP, in the manufacturer or GPO

Manufacturers and GPOs must report:The dollar amount invested by the physicianValue and terms of each such interestAny payment or transfer of value to a physician holding such interest, or payment or transfer to another individual or entity at the physician’s request

GPOs must also report HCP payments at the same level of detail as manufacturers


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BackgroundBackgroundKey Treatment of Bona Fide Service Fees for GP

Appropriate treatment of fees paid is critical also to the accuracy of GP statutory pricing 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 and documentation required in order to demonstrate due diligence in the decision making process:

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


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Assessing Fair Market ValueAssessing Fair Market ValueIdentify 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.

DescriptionAttributes that may drive valueThe primary tangible and intangible assets employed to deliver the service or data set (assumptions)


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Assessing Fair Market ValueAssessing Fair Market ValueThe 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 EfficiencyBargaining power of buyer and seller (e.g., market share)Buyer and seller knowledge of other transaction pricesAccess 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.


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Risk Management Risk 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 analysisDiversity in representation on the Committee helps to ensure that practical considerations are not overlooked

Implement an SOP to detail when and how to apply FMVAn SOP demonstrates an organization’s commitment to any reviewing agencyInclude a formal exceptions processTrain on the SOPAudit against the SOP


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Questions?Questions?

Contact Information

Mark A. DeWyngaert PhD MBAManaging DirectorHuron Consulting Group599 Lexington AveNew York, NY 10022(o) 646-277-8817Email: [email protected]

mailto:[email protected]

Fair Market Value Impact of Sunshine Act for R&D and ... · Fair Market Value Impact of Sunshine Act ... TRANSPARENCY AND AGGREGATE SPEND FOR ... market value.” “General market

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