Pharmaceutical “Rules of Engagement”
The office of the inspector general (OIG) at the Department of Health and Human Services is expected to issue draft compliance guidelines for the pharmaceutical industry any day now. Once finalized, they will have a significant bearing on the relationship between drug companies, PBMs, drugstores, and physicians.
The guidelines will tell drug companies what kind of incentives they can offer PBMs, drugstores, and physicians, without running afoul of the federal law that makes it illegal to defraud Medicare and Medicaid. Medicaid drug benefits are a hot topic these days, with a number of states developing closed formularies for key therapeutic classes based on price and other concessions made by the manufacturers of those drugs.
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The National Association of Chain Drug Stores (NACDS) is one of the groups pushing for tight constraints on the incentives that drug companies can offer PBMs. Larry Kocot, senior vice president for the NACDS, told the OIG, “Some have asserted that pharmacy benefit managers may present misleading information, or that manufacturers may provide inappropriate financial inducements to encourage pharmacists and physicians to switch patients’ medications.” NACDS wants the OIG to endorse some ground rules in this area. For example, OIG compliance guidance could require clear consent from the patient before a PBM could press a physician or pharmacist for a switch; a declaration to the patient from the pharmacist or physician indicating that he (pharmacist/physician) will be compensated based on a successful switch; and a clear “override,” which would allow a pharmacist to ignore a PBM’s instructions to switch from one drug to another favored drug if the pharmacist believed the favored drug was inappropriate.
Despite the importance of the federal advice that is forthcoming from on high regarding drug company-PBM relations, the Pharmaceutical Care Management Association (PCMA), the PBM trade association, did not send comments to the OIG— and neither did any of the individual PBMs. A group of 17 drug manufacturers sent comments and a model compliance guidance document that they hope the OIG will adopt. In a section of “Incentives to Increase Market Share of Sales Volume,” the model language says: “The OIG recognizes that there are a wide variety of arrangements that can ultimately result in physicians shifting their prescribing practices toward better or more cost-effective products, and we do not mean to equate such arrangements with switch fees.” The language later refers to the VA and DOD, both of which use closed formularies as “legitimate and increasingly common cost-containment” strategies. But whether the OIG adopts that suggested language remains to be seen.
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Manufacturer-PBM relations will come into play in another area of the compliance guidance, too. The OIG guidance will have a lot to say about what kinds of rebates drug companies can offer and states can demand. The Medicaid law essentially forces a company to provide a state with a rebate on any drug for which Medicaid provides reimbursment, or else the state cannot offer the drug. A second law, section 340B of the Public Health Service Act, limits the prices of outpatient drugs sold to 12 different health care providers— those providing care for the poor in hospitals and health clinics, for the most part. Then there is a third set of rebates that must be paid to Department of Veterans Affairs and Department of Defense hospitals under the Federal Supply Schedule.
The drug companies need accountants to perform these rebate calculations; it is not always obvious how an equation designed to calculate the average manufacturer’s price (AMP) for a drug should be set up. The Medicaid law tells a drug manufacturer to make “reasonable assumptions.” One question that has come up is to what extent a drug company should figure into an AMP calculation the price that it charges to PBMs. So any guidance that emerges from the OIG might affect the financial relationship between drug companies and PBMS.
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HHS is currently giving waivers to state Medicaid programs so they can expand outpatient drug programs. And President Bush proposed in February that low-income seniors receive some outpatient drug benefits for the first time—benefits that would be provided by PBMs. Those moves elevate the importance of the pharmaceutical “rules of engagement” forthcoming from the OIG.