Drug Pricing and Fraud Issues for 340B Institutions

1. Drug Pricing and Fraud Issues for 340B Institutions 340B Conference July 16, 2008 Virginia A. Gibson Assistant U.S. Attorney Eastern District of Pennsylvania

2. Views expressed herein are not Department of Justice Policy Allegations have not been proven in court

3. The Legal Framework behind Recent Drug Pricing Cases Medicaid Best Price Statute was intended to give Medicaid the �best discounts in the market.� 136 Cong. Rec. S 12954, *S12962 (1990) The mechanism for this price guarantee is quarterly reporting of best price and average manufacturer�s price, coupled with rebates to Medicaid based on units purchased

4. Best Price Act defines �Best Price� at 42 U.S.C. 1396r-8 c(1)C(i-ii): �the lowest price available from the manufacturer during the rebate period� Includes �cash discounts, free goods that are contingent on any purchase requirement, volume discounts, and rebates� Excludes �prices that are merely nominal in amount � Nominal pricing was excepted from reporting, as the legislative history showed to allow manufacturers to make charitable sales without having to pass the benefit of that eleemosynary act on to the Medicaid program

5. Best Price Legislative history showed this was to allow manufacturers to make charitable sales without having to pass the benefit of that eleemosynary act on to Medicaid. This pricing excludes prices that �manufacturers offer to special purchases, such as the sale of birth control pills for a penny a pack to Planned Parenthood.� 13 56 Cong. Rec. S 12954, *S12962 (1990)

6. Nominal defined Medicaid Rebate agreement and CMS release No. 14 91994) defines nominal as �any price less than 10% of average manufacturer�s price (AMP) in the same quarter for which AMP is computed.� What is �merely nominal?�

7. Market Realities Mfr of statin and pain-killing drugs has the challenge of distinguishing its drugs from others Price is the distinguishing feature Hospital formulary committees and/or pharmacist purchase drugs of this nature on volume basis, based upon best bargain This is not a question of quality of care Alternative Rx allowed only in limited circumstance within the hospital

8. Market Realities Patients tend to stay on the first drug they are prescribed for a condition, absent adverse reaction Capturing the hospital preferred formulary preference has post-discharge impact on sales of a drug. Patients rarely switch. Mfr focuses significantly upon formulary decisions where the prescribing physicians have less control over the particular drug in a class

9. U.S. v. Merck: The Discounts Mfr sets up volume discount program rewarding institutions who purchase more drug with lower prices HHS OIG regulatory safe harbor from kickback liability recognizes discounts are; encourage lower pricing But Best Price statute wants Medicaid to get the benefit of these bargains struck by mfrs with best customers PHS entities receive same pricing benefits

10. U.S. v. Merck: The Discounts When one tier of volume purchasing is achieved, the price drops below 10% of AMP When exclusivity of statin or pain med, plus highest volume tier of purchase, the price drops below 10% of AMP Mfr reports discounts to CMS Medicaid Program, except when they drop below 10% of AMP.

11. U.S. v. Merck: Government allegations SAVE: 1998-2006 � Merck offered tiered discounts, one below 10% of AMP, to hospitals who met monthly volume purchasing levels for Zocor and Mevacor; bundled the purchases. Merck improperly did not include the �nominal price� in its Best Price or PHS calculations

12. U.S. v. Merck: Government Allegations VIP: 2001-2004- Merck offered tiered discounts, one below 10% of AMP, to hospitals who met volume purchasing levels for Vioxx. Merck improperly did not include the �nominal prices� in its best price calculation or its PHS pricing.

13. Government allegation; Nevada decision Volume purchase contingency made the price other than �merely nominal.� 42 U.S.C. 1396r-8 c(1)C(ii) State of Nevada ex rel. Dean Steinke v. Merck & Co., Inc.(May 31, 2006, pp. 7-8): �[T]he phrase �prices that are merely nominal in amount� is �all prices that are less than 10% of the AMP, but without other qualifications.��

14. Nevada Decision �The SAVE and VIP discount and marketing plans described in the complaint required additional valuable consideration and conditions precedent that were more than a �merely nominal price.� Therefore, these prices are not without qualification.� Id.

15. Congressional Amendment Best Price statute, effective January 1, 2007: �Limitation on Sales at a Nominal Price . . . . Only sales by a manufacturer of covered outpatient drugs at nominal prices to the following shall be considered . . . Merely nominal in amount: (I) A covered entity described in section 340B(a)(4) of the Public Health Service Act. (II) An intermediate care facility for the mentally retarded. (III) A State-owned or operated nursing facility. (IV) Any other facility . . . The Secretary determines is a safety net provider . . . . 42 U.S.C. 1396r-8c(1)

16. Bundling Allegations FLEX NP: Merck improperly offered discounts to induce hospitals and GPOs to purchase or recommend the purchase of Pepcid for inpatient use, and to drive utilization of Pepcid post hospital discharge. Merck offered tiered discounts up to 92% off AMP for Pepcid tabs, lesser discounts on other Pepcid formulations, based on market share purchases of multiple Pepcid formulations.

17. Bundling Allegations FLEX NP discounts were �bundled sales� pursuant to Merck�s rebate agreement, and should have been reallocated among all Pepcid products in calculating Best Price. Merck reported a higher price than �Best� to CMS and overcharged PHS entities from 1996-2001.

18. Stock Bottle Scheme Inducements to influence utilization are illegal under 42 U.S.C. 1320a-7(b), and, if made in connection with a claim, form a basis for False Claims Act Pharmacists, who play a critical role in formulary decisions, were given large quantities of free drug �Free goods� are not reportable under the Best Price Statute unless contingent on a purchase requirement

19. Alleged Inducements to Prescribers Offers to prescribers, hospitals, managed care and HMO from 1997-2001: Consultancies, preceptorships, grants, advisory boards, roundtables, peer discussion groups, colloquia, promotional programs, lunch and learn, market research programs, grants, clinical and research studies

20. PhRMA Guidance, updated July 2008 Pharmaceutical Research and Manufacturers of America (PhRMA) notes �ethical relationships with healthcare professionals are critical to our mission of helping patients and marketing new medicines. . . . � �An important part of achieving this mission is ensuring that healthcare professionals have the latest, most accurate information available regarding prescription medicines . . .� �We are concerned that our interactions with healthcare professionals not be perceived as inappropriate by patients or the public at large.� Voluntary Code effective January 2009

21. PhRMA Elements 1. Promotional materials for healthcare professionals should a. be accurate and not misleading b. make claims about a product only when properly substantiated c. elect the balance between risks and benefits; and d. be consistent with FDA requirements

22. PhRMA Elements 2. Informational presentations: occasional meals appropriate as business courtesy, so long as presentations provide scientific or educational value, meals are modest, not entertainment or recreational, and conducive to informational communication. Meals should be limited to in-office or in-hospital settings. No take-out or spouses. l

23. PhRMA Elements 3. Manufacturers should not provide entertainment or recreational items, regardless of value, even to a speaker or consultant, or even if secondary to an educational purpose. 4. CME support appropriate if independent. No advice on content, faculty. No support for audience or time spent in participation. No direct meal funding.

24. PhRMA Elements 5. Support for third party educational or professional meetings appropriate if given to sponsor to reduce overall fee. No control over content, faculty, methods, materials, venue. No direct costs of travel, lodging, expenses of audience. No payment for time. 6. Consultants, advisors may be paid fair market value for time, travel, if bona fide. Criteria are: written contract

25. PhRMA Elements Criteria for bona fide: Written agreement, specific to services, payment Legitimate need identified in advance Selection criteria related to purpose by persons with expertise Number of professionals retained not greater than number reasonably necessary Maintain records of serivces provided No resorts, recreation or entertainment. Modest meals and receptions. No payment to audience who aren�t consultants.

26. PhRMA Elements 7. Speaker programs: define criteria for speakers; no inducements or rewards for prescribing. Training essential; may be compensated only when extensive training on drugs and FDA requirements; a valuable service; bona fide; FMV. No resorts, recreation. Cap annual compensation. Company shall monitor for FDA compliance.

27. PhRMA Elements 8. Formulary or Clinical Practice Guideline members: Manufacturers who employ speakers or consultants must ensure they disclose relationships with company to their formulary/practice guideline committee for 2 years beyond termination Scholarships/Educational Funds May be offered through institution, who will select students to attend.

28. PhRMA Elements 10. Non-Educational and Practice-Related Items prohibited if they do not advance disease or treatment education 11. Educational items appropriate, $100 or less 12. Prescriber Data: use responsibly; honor requests by prescribers not to use. 13. Independence of Rx