Implementing the OIG Final Guidance for Pharma

1. Implementing the OIG Final Guidance for Pharma An audioconference co-sponsored by FDAnews and the Health Care Compliance Association Joseph W. Metro, J.D., Partner, Reed Smith. Anthony Farino, CPA, Assurance and Business Advisory Services Partner, PricewaterhouseCoopers. L. Stephan Vincze, J.D., LL.M., CHC, Ethics & Compliance Officer TAP Pharmaceutical Products Inc. Wednesday, June 4, 2003; 1:00-2:30 p.m. ET

2. Overview of the Presentations • Legal Perspective • Areas for Evaluating Existing Practices – Top Focus Areas • Developing Auditable Standards and Procedures • CPG Risk Areas • Accounting Perspective -- Developing Control Processes • The Final HHS OIG Guidance – Key Points • Overall Compliance Program Considerations • Risk Areas – Specific Control Considerations • Final Thoughts/Questions

3. Overview of the Presentations (cont’d) • Ethics & Compliance Officer Perspective – Putting Theory Into Practice: Communicating with the MTV Generation and Making Compliance Training Interesting, Fun and Effective • Know Your Audience • Have the Right Resources/Team • Use Effective Marketing to “Brand” YOUR Product • Use Relevant Case Studies • Use Multiple Media to Communicate/Train • Dare to Laugh and Poke Fun at Yourself • Create Positive Incentives

4. Legal Perspective – TOP FOCUS AREAS • Contracting • Consulting, Service, and Grant Relationships • Business Courtesies

5. Legal Perspective – Top Focus Areas: Contracting • Relationship between pricing and non-pricing relationships • Bundled pricing • PBM/MCO Relationships • GPO administrative fees • Rebate transparency • Formulary support • “Retreat” on market share rebates

6. Legal Perspective – Top Focus Areas: Consulting, Service, & Grant Relationships • Process separation • Arrangements for promotional services • Specific arrangements • E-detailing • Preceptorships

7. Legal Perspective -- Top Focus Areas: Business Courtesies • PhRMA Code as evidentiary standard rather than compliance “floor” • PhRMA Code v. Advamed Code • State regulation of marketing practices

8. Legal Perspective -- Developing Auditable Compliance Standards • Take inventory of practices • Process controls • Systems and data • Skill sets: financial v. compliance audits

9. Legal Perspective -- CPG Risk Areas • Integrity of data used to establish pricing under government programs • Kickbacks and other illegal remuneration • Drug samples

10. Accounting Perspective -- The Final HHS OIG Guidance – Key Points • Provides a more detailed discussion of risk areas and factors to consider in analyzing sales & marketing activities • Retains focus on sales & marketing activities • PhRMA code compliance should reduce risk of fraud and abuse • Softened language on contractual relationships including dropping of “indirect switching” and negative reference to market share arrangements, BUT heightened focus on contracting/formulary arrangements remains • Retains structural language related to placement of CO

11. Accounting Perspective -- The Final HHS OIG Guidance – Key Points (Cont’d) • Recommends separation of education and research funding from sales & marketing function • Continues to emphasize need to address compliance by third party agents and contractors • Heavy emphasis on price reporting, including AWP and BP, with little additional insight on how to comply • Guidance intended to apply to broader industry including medical device and infant formula manufacturers

12. Accounting Perspective -- Overall Compliance Program Considerations • Manufacturers should quickly ask themselves; • Do existing written policies and procedures reflect the underlying objectives of the OIG’s recommendations in the guidance • Do actual practices conform to company policies and procedures as adapted for the new guidance • Guidance retains focus on policy, procedure and control development in risk areas • Compliance programs should tie directly to risk areas • Training on policies/procedures • Monitoring and auditing • Internal communication processes and procedures for responding

13. Accounting Perspective -- Overall Compliance Program Considerations (cont’d) • Final guidance closely aligns with original draft – companies should not need to start anew in structuring compliance programs • To the extent policies have been patterned on the PhRMA Code the impact in certain key areas should be less significant ( Gifts, Business Courtesies) • Business practices change – compliance program must keep pace • Strong interaction with sales & marketing organizations • New tactics present new risks - particularly given Guidance’s “one purpose” language around kickbacks

14. Accounting Perspective -- Risk Areas: Specific Control Considerations • Anti–Kickback Risk • The OIG’s two pronged test • Focus on arrangements with greatest risk of implicating potential abuse • Potential to interfere with clinical decisions, impact integrity of formulary process, information exchange complete and accurate • Could the practice lead to increased costs to federal health care programs ? • Would the Medicaid rebate program be implicated by the program ? • Evaluation of existing practices and policies is warranted • Learning and education programs which pay physicians for time • Pay for detail programs ( consulting fees with no substantive basis; paperwork arrangements, listening to marketing research) • Training programs and materials should be updated

15. Accounting Perspective -- Risk Areas: Specific Control Considerations (Cont’d) • Integrity of Data Used for Government Payment Risk • Raises the bar on Medicaid Rebate Program compliance • Focuses on AWP reporting processes and controls • Accounting for discounts/ assessing activities as possible discounts is more important than ever • Evaluation of key policies and processes around; • Information fed to government price reporting processes • Assessing sales & marketing activities for discount implications • Define and formalize processes for reporting data used to set AWP

16. Accounting Perspective -- Risk Areas: Specific Control Considerations (Cont’d) • Education and Research Funding Risk • Separate grant-making functions from sales & marketing operations – consider independent approval process • Establish objective criteria for making grants and embed in policy and related control documents • If its educational consider independence from content – this does not mean unrestricted • Scrutinize research related activities • Results transmitted to R&D organization • If it’s science involve the scientists • Establish criteria for assessing need • Establish tight process for post marketing activities • Document arrangements in a contract • Monitor and audit these activities regularly

17. Accounting Perspective -- Risk Areas: Specific Control Considerations (Cont’d) • Customer Contracting Risk • Particular focus on formulary related activities • Managed Care contracting practices and templates should be revisited – traditionally well controlled area • Market share arrangements appear to be acceptable but should be reviewed on context of OIG guidance on formulary activities • Language related to “payments …based on, or otherwise related to the PBM customers purchases” suggests careful assessment of existing contract language is warranted • Understand interplay of formulary requirements in contracting strategies

18. Accounting Perspective -- Risk Areas: Specific Control Considerations (Cont’d) • Consulting and Advisory Payments Risk • Focus on fair market value and presumes bona fide activities with small number of physicians • Policies and procedures considerations • Well defined criteria/ deliverables • Objective process/ policies to support FMV • Written arrangements • Support for value received prior to payment

19. Accounting Perspective -- Risk Areas: Specific Control Considerations (Cont’d) • Agents or Contractors Risk • Third party involvement in sales & marketing activities is growing • Guidance would seem to imply that manufacturer policies should be operative • Due diligence when selecting business partners • Nature of control processes over activities ( CME, speaker arrangements, learning and education programs) • Ongoing reporting requirements to allow monitoring • Ongoing audit procedures to assess effectiveness of relationship and related controls

20. Accounting Perspective – Final Thoughts/Questions • No substitute for written policies and procedures • Detailed, with appropriate examples • Appropriate communication and training venues – time is of the essence • If you believe the HHS OIG Guidance raises the bar then ongoing auditing is even more important – build your program now • The fundamentals of an effective compliance program remain unchanged • The fundamentals of manufacturer/ customer relationships may be changing

21. Ethics & Compliance Officer Perspective – Putting Theory Into Practice • Know Your Audience • Industry Sector • Internal • External

22. Ethics & Compliance Officer Perspective – Putting Theory Into Practice • Know Your Audience • Industry Sector • Pharma • -- Sales & Marketing • -- Corporate Office (R&D, Finance, QA, HR, Legal, MIS, etc.) • Hospitals, Health Systems, Physician Practices, Managed Care Organizations, etc.

23. Ethics & Compliance Officer Perspective – Putting Theory Into Practice • Know Your Audience • Internal • Board • Executive Management • Functional Areas • Senior Management • Mid-Level Management • Employees • Stakeholders

24. Ethics & Compliance Officer Perspective – Putting Theory Into Practice • Know Your Audience • External • Government • HHS • OIG • FDA • DOJ • Congress • Media • Public

25. Ethics & Compliance Officer Perspective – Putting Theory Into Practice (Cont’d) • Have the Right Resources/Team • Resources • Senior Management Support • Time • Money • Technology/Systems • People • People – • Compliment your skill sets • Emphasize communication skills • Emphasize credibility • Seek diversity

26. Ethics & Compliance Officer Perspective – Putting Theory Into Practice (Cont’d) • Use Effective Marketing Techniques to Brand YOUR Product • Create a theme, recognizable brand, logo • Use visual and vocal branding through color, sound • Pay attention to details • Font type, size and color • Use of punctuation • Apply your brand to all of your materials • Code of Conduct • Training Materials • PowerPoint Presentations • Displays and Posters

27. Ethics & Compliance Officer Perspective – Putting Theory Into Practice (Cont’d) • Use Relevant Case Studies • Tailor training to real-world issues that your audience experiences • Makes it real, more memorable and more effective • Use role plays or some form of interactive participation • Video vignettes • Case study teams in live training • Interactive computer questions • Inject humor when possible but strike careful balance not to go “over the top”

28. Ethics & Compliance Officer Perspective – Putting Theory Into Practice (Cont’d) • Use Multiple Media to Communicate/Train • Redundancy of message can be good • Resources allowing, use • Live training • Computer-based training • Voice-mail • E-mail • Written materials • Web-based materials • Audio & video tapes • Do NOT rely on any ONE medium. • Seek to compliment and enhance different forms of training.

29. Ethics & Compliance Officer Perspective – Putting Theory Into Practice (Cont’d) • Dare to Laugh and Poke Fun at Yourself • Be yourself • Self-deprecating humor works • Use seriousness and perceived negativity of subject to lighten tension. • Recognize up front that this stuff can be dry and boring • Openly express intent NOT to demonize or play “Gotcha!” • Focus on service-oriented approach, partnership • Openly seek to have fun and laugh at yourselves • Don’t overdo it; strike a balance

30. Ethics & Compliance Officer Perspective – Putting Theory Into Practice (Cont’d) • Create Positive Incentives • Add ethics & compliance performance criteria to performance evaluations where achieving goals lead to financial rewards • Create team contests involving functional areas, divisions etc. where “winners” will be rewarded

31. Your Presenters Joseph W. Metro, J.D., Partner, Reed Smith jmetro@reedsmith.com Anthony Farino, CPA, Assurance and Business Advisory Services Partner, PricewaterhouseCoopers anthony.l.farino@pwcglobal.com L. Stephan Vincze, J.D., LL.M., CHC, Ethics & Compliance Officer TAP Pharmaceutical Products Inc. steve.vincze@tap.com