Guidance Summary for the Valuation of Medical Product Gifts -In-Kind:

1. Guidance Summary for the Valuation of Medical Product Gifts -In-Kind:  A Framework for Rational Decision Making Thank you � happy to be here. Thanks to Chad, Coleen and the planning committee for inviting PQMD to participate. AERDO has been a wonderful partner and it is hard to find a more collaborative or thoughtful person than David Derr. I am��.. This morning I want to tell you a little about The Partnership for Quality Medical Donations or PQMD and the medical product GIK valuation project underway. I will cover, Who we are, Our history with standards, and why we are leading a discussion of medical product valuation now. Thank you � happy to be here. Thanks to Chad, Coleen and the planning committee for inviting PQMD to participate. AERDO has been a wonderful partner and it is hard to find a more collaborative or thoughtful person than David Derr. I am��.. This morning I want to tell you a little about The Partnership for Quality Medical Donations or PQMD and the medical product GIK valuation project underway. I will cover, Who we are, Our history with standards, and why we are leading a discussion of medical product valuation now.

2. 2 The Partnership for Quality Medical Donations is a unique alliance of non-profit and corporate organizations committed to bringing measurable health impact to underserved and vulnerable people through active engagement with global partners and local communities. Our members include medical product manufacturers that donate products and humanitarian organizations that use donated product. Medical product donations are not and should not be promoted as the solution to the global healthcare crisis. However, appropriate donations do serve as an effective, sustainable mechanism for providing access to needed medical supplies not available by any other means. (Point out the two membership sectors and some of our members, mention that membership is by invitation, but we have projects, like the valuation project that include members and non-members) Over the past ten years we have strived to accomplish this through setting and promoting quality standards, disseminating knowledge and influencing policy. The Partnership for Quality Medical Donations is a unique alliance of non-profit and corporate organizations committed to bringing measurable health impact to underserved and vulnerable people through active engagement with global partners and local communities. Our members include medical product manufacturers that donate products and humanitarian organizations that use donated product. Medical product donations are not and should not be promoted as the solution to the global healthcare crisis. However, appropriate donations do serve as an effective, sustainable mechanism for providing access to needed medical supplies not available by any other means. (Point out the two membership sectors and some of our members, mention that membership is by invitation, but we have projects, like the valuation project that include members and non-members) Over the past ten years we have strived to accomplish this through setting and promoting quality standards, disseminating knowledge and influencing policy.

3. 10,164 Shipments in 2008  3 PQMD members are responsible for thousands of shipments of donated medical products each year. The PQMD Annual Member Survey was developed to gather high level information from members about their medical product donation activity from the previous year. The activity reported included donations from both member and non-member companies. Steps were taken to ensure that donations from corporate donors to NGO members were not counted twice. Domestic prescription assistance program donations were not included. In 2008 PQMD members provided information about 10164 shipments of donated medical product to 140 (?) countries. (Explain the Categories)PQMD members are responsible for thousands of shipments of donated medical products each year. The PQMD Annual Member Survey was developed to gather high level information from members about their medical product donation activity from the previous year. The activity reported included donations from both member and non-member companies. Steps were taken to ensure that donations from corporate donors to NGO members were not counted twice. Domestic prescription assistance program donations were not included. In 2008 PQMD members provided information about 10164 shipments of donated medical product to 140 (?) countries. (Explain the Categories)

4. PQMD Standards and Guidelines Seven Components Assessment Appropriateness Quality & Quantity Packaging Transportation Human Resources Evaluation Why add medical product valuation? PQMD was formed to develop and promote standards guiding medical product donations. The first standard was the Seven Components of Quality Quality Medical Donation Programs. (Briefly describe each) The Seven Components were followed by guidelines for choosing donation program partners and for medical equipment. PQMD has also worked with WHO on the development and recent review of the WHO Guidelines for Drug Donations. In many ways the Seven Components are as relevant today as when they were first published 10 years ago. They provide donors and recipients with a specific framework for ensuring that only needed and requested quality products are sent to programs serving the world�s poorest countries. However, the guidelines do not address how donors or recipients should determine the financial value of the donated products. Fair value measurements are used by non-profit organizations (NPOs) to determine the value of donated medical products and record that value as income. Value declared for US based accounting purposes does not impact: Corporate IRS tax deductions Patient outcomes There are many legitimate approaches to valuation that are socially relevant and ensure compliance with required financial accounting standards. Until recently PQMD has not seen a need to address product valuation practices in the components, primarily because the impact of valuation practices on the target recipients of assistance is surmised to be negligible. What has changed is that today the vast and persistent differences in economic circumstances between recipients of donations and those participating in commercial markets where medical product valuations (price) are determined, have led to increasing debate over the use of fair value measurements for medical GIK. PQMD was formed to develop and promote standards guiding medical product donations. The first standard was the Seven Components of Quality Quality Medical Donation Programs. (Briefly describe each) The Seven Components were followed by guidelines for choosing donation program partners and for medical equipment. PQMD has also worked with WHO on the development and recent review of the WHO Guidelines for Drug Donations. In many ways the Seven Components are as relevant today as when they were first published 10 years ago. They provide donors and recipients with a specific framework for ensuring that only needed and requested quality products are sent to programs serving the world�s poorest countries. However, the guidelines do not address how donors or recipients should determine the financial value of the donated products. Fair value measurements are used by non-profit organizations (NPOs) to determine the value of donated medical products and record that value as income. Value declared for US based accounting purposes does not impact: Corporate IRS tax deductions Patient outcomes There are many legitimate approaches to valuation that are socially relevant and ensure compliance with required financial accounting standards. Until recently PQMD has not seen a need to address product valuation practices in the components, primarily because the impact of valuation practices on the target recipients of assistance is surmised to be negligible. What has changed is that today the vast and persistent differences in economic circumstances between recipients of donations and those participating in commercial markets where medical product valuations (price) are determined, have led to increasing debate over the use of fair value measurements for medical GIK.

5. There are many legitimate approaches to valuation that are socially relevant and ensure compliance with required financial accounting standards. The project is an effort to find common ground among often disparate opinions. Goal to create a white paper or standards. But first, there are three major challenges to address�� GIK Advisory Group In September of 2009, an advisory group formed by the Partnership for Quality Medical Donations collaboratively with InterAction and AERDO began to review common practices in medical product donations and in particular, to scrutinize the revised valuation regulations, the Statement of Financial Accounting Standards formerly known as number 157 (now �Fair Value Measurements�, ASC 820-20-05) set forth by the Financial Accounting Standards Board (FASB). All US-based NPOs are required to implement FAS157 by November of 2009. As the FASB standards are typically broad, the practice community has interpreted them in often different ways. PQMD would like to thank the GIK advisory group, InterAction , AERDO, and the many NPOs and pharmaceutical companies who contributed their members� time and expertise to ensure a robust and thoughtful guidance document. In an effort to find common ground among often disparate opinions, PQMD is hoping to develop a set of guiding principles, valuation standards or guidelines, a decision tree and valuation examples to frame a rational approach for NPOs working in this unique area of practice. However to accomplish this the advisory group must address three key challenges. Challenge #1: Identify and bring together stakeholders with different missions, needs and positions regarding valuation practices. In September of 2009, an advisory group formed by the Partnership for Quality Medical Donations collaboratively with InterAction and AERDO began to review common practices in medical product donations and in particular, to scrutinize the revised valuation regulations, the Statement of Financial Accounting Standards formerly known as number 157 (now �Fair Value Measurements�, ASC 820-20-05) set forth by the Financial Accounting Standards Board (FASB). All US-based NPOs are required to implement FAS157 by November of 2009. As the FASB standards are typically broad, the practice community has interpreted them in often different ways. PQMD would like to thank the GIK advisory group, InterAction , AERDO, and the many NPOs and pharmaceutical companies who contributed their members� time and expertise to ensure a robust and thoughtful guidance document. In an effort to find common ground among often disparate opinions, PQMD is hoping to develop a set of guiding principles, valuation standards or guidelines, a decision tree and valuation examples to frame a rational approach for NPOs working in this unique area of practice. However to accomplish this the advisory group must address three key challenges. Challenge #1: Identify and bring together stakeholders with different missions, needs and positions regarding valuation practices.

6. CLICK ON THE PHOTO TO START THE VIDEOCLICK ON THE PHOTO TO START THE VIDEO

7. Exit price notion, from market participant perspective (ASC 820-10-30-2) The transaction to sell the asset occurs in the principal market (i.e. provides the greatest volume and level of activity for the asset) or the most advantageous market (i.e. maximizes the amount received from a sale) if a principal market is not available (ASC 820-10-35-5) They should not be adjusted for transaction costs (ASC 820-10-35-7). They assume the highest and best use of the asset by market participants (i.e. maximizes the value of the assets) (ASC 820-10-35-10). Challenge #2: Difficult Content Most of us are not accountants, so having to dive deep into accounting principles presented a number of challenges. Our strategy has been to Educate ourselves, without becoming dangerous, and Engaging accounting experts to keep us in line In addition, we also have tried to understand how the diversity of NGO programs, donated products and environments impacts how they value donated products. Pharmaceutical products perhaps being the the most complex. All the while remembering that PQMD, AERDO and InterAction do not set accounting rules or regulations. So while the accounting language and principles are daunting�..it is helpful to remember that the accounting guidelines impacting GIK are written in broad terms that recognize there is not a �one size fits all� solution to GIK valuation Most of us are not accountants, so having to dive deep into accounting principles presented a number of challenges. Our strategy has been to Educate ourselves, without becoming dangerous, and Engaging accounting experts to keep us in line In addition, we also have tried to understand how the diversity of NGO programs, donated products and environments impacts how they value donated products. Pharmaceutical products perhaps being the the most complex. All the while remembering that PQMD, AERDO and InterAction do not set accounting rules or regulations. So while the accounting language and principles are daunting�..it is helpful to remember that the accounting guidelines impacting GIK are written in broad terms that recognize there is not a �one size fits all� solution to GIK valuation

8. Challenge #3: AvoidingUnintended Consequences We want to be sure that our effort to provide guidance does not negatively impact organizations or programs in a way that leads to decreases in the number of people served. We believe there is time for a thoughtful and comprehensive review, that ensures we don�t create new or even more difficult problems that distract from our efforts to improve health. We want to be sure that our effort to provide guidance does not negatively impact organizations or programs in a way that leads to decreases in the number of people served. We believe there is time for a thoughtful and comprehensive review, that ensures we don�t create new or even more difficult problems that distract from our efforts to improve health.

9. Due process means that any person (organization, company, government agency, individual, etc.) with a direct and material interest has a right to participate by: a) expressing a position and its basis, b) having that position considered, and c) having the right to appeal. Due process allows for equity and fair play. The following constitute the minimum acceptable due process requirements for the development of consensus. Guided by:ANSI Principles & Due Process Our work and the process we are using is guided by the American National Standards Institute (ANSI) to ensure equity and transparency. Standards and guidelines are not regulations and compliance if entirely voluntary. Therefore it is essential to ensure their development is consensus driven and not handed down by a small group of �insiders�. (Read the slide)Our work and the process we are using is guided by the American National Standards Institute (ANSI) to ensure equity and transparency. Standards and guidelines are not regulations and compliance if entirely voluntary. Therefore it is essential to ensure their development is consensus driven and not handed down by a small group of �insiders�. (Read the slide)

10. Our Process In addition to developing standards the process we are using is also creating a learning community. The Input, Comment, Review and Revision activities at each stage of the process serves to inform and improve our work.In addition to developing standards the process we are using is also creating a learning community. The Input, Comment, Review and Revision activities at each stage of the process serves to inform and improve our work.

11. Principles Standards or guidelines White paper Examples Tools: a decision tree It is not meant as a replacement for any NPO�s professional financial review and interpretation of GAAP. Project�s Proposed Outcomes These are the proposed outcomes for the process (read them). Today I will cover the principles that we are considering right now. The remaining items will be based on these principles and through the many examples and case studies submitted by the advisory group and others.These are the proposed outcomes for the process (read them). Today I will cover the principles that we are considering right now. The remaining items will be based on these principles and through the many examples and case studies submitted by the advisory group and others.

12. Developed to inform the valuation process used by non-profits to assign a financial value to medical product donations. Also provides a foundation for standards. Transparency Compliance Relevance Proper documentation Patient centered donations GIK Valuation Principles Read this slide and say the we will look at each principle in more detailRead this slide and say the we will look at each principle in more detail

13. There should be a clear and transparent donation valuation framework that complies with all applicable external accounting requirements. Transparency Read Slide Examples: GAAP already requires disclosures which should be developed, but may be too long to share with the public. We are looking at whether a concise description of the donation valuation framework can be developed and made available to the public upon request. Read Slide Examples: GAAP already requires disclosures which should be developed, but may be too long to share with the public. We are looking at whether a concise description of the donation valuation framework can be developed and made available to the public upon request.

14. Valuation frameworks must be GAAP compliant, subject to accounting interpretation within the law, but consistent in application. Compliance Read Slide Examples: Financial reviews should be conducted to ensure compliance with GAAP or the prevailing accounting regulations that may be set in place by government- backed authorities. While the valuation question is primarily a US issue, we would like NGOs to ensure they are following requirements of other countries as well. Read Slide Examples: Financial reviews should be conducted to ensure compliance with GAAP or the prevailing accounting regulations that may be set in place by government- backed authorities. While the valuation question is primarily a US issue, we would like NGOs to ensure they are following requirements of other countries as well.

15. The valuation framework should reflect the wide range of products, sources, markets and recipients. Relevance To the extent possible, the value should reflect the attributes of the product as closely as possible. Attributes include: generic name, proprietary name (if applicable), item number (for US made products, NDC), lot number, package size, quantity, strength, dosage unit, expiry, dosage form and usability�. Organizations should use observable inputs to determine product values when possible. The larger the volume of donations, the greater the expectation to identify observable inputs. Unobservable inputs are acceptable only when observable inputs do not exist. We are still working on the exact language, but in general: Observable inputs � The quoted prices (unadjusted) in active markets for identical assets that the reporting entity has the ability to access at the measurement date. The quoted prices (unadjusted) in active markets for similar assets that the reporting entity has the ability to access at the measurement date. Consolidated pricing guides. (Red Book, CMS, etc) Unobservable inputs � These inputs apply when there is little or no market activity for the asset or liability at the measurement date, and may include the reporting entity�s own data. It should be developed based on the best information available in the circumstances and may require multiple data sources �To the extent possible, the value should reflect the attributes of the product as closely as possible. Attributes include: generic name, proprietary name (if applicable), item number (for US made products, NDC), lot number, package size, quantity, strength, dosage unit, expiry, dosage form and usability�. Organizations should use observable inputs to determine product values when possible. The larger the volume of donations, the greater the expectation to identify observable inputs. Unobservable inputs are acceptable only when observable inputs do not exist. We are still working on the exact language, but in general: Observable inputs � The quoted prices (unadjusted) in active markets for identical assets that the reporting entity has the ability to access at the measurement date. The quoted prices (unadjusted) in active markets for similar assets that the reporting entity has the ability to access at the measurement date. Consolidated pricing guides. (Red Book, CMS, etc) Unobservable inputs � These inputs apply when there is little or no market activity for the asset or liability at the measurement date, and may include the reporting entity�s own data. It should be developed based on the best information available in the circumstances and may require multiple data sources �

16. The valuation process should be documented through written procedures and practices and published as part of an organization�s financial statements. Proper documentation The valuation process should be a living process so that it reflects current conditions. Valuation frameworks and methods should be regularly updated to ensure they reflect changing conditions. The valuation process should be a living process so that it reflects current conditions. Valuation frameworks and methods should be regularly updated to ensure they reflect changing conditions.

17. Primary focus should remain on the recipients; the community, the receiving institution, and the patient. Where there is a conflict between valuation and service to this population, we will make decisions that first do no harm to the recipients, within the law. Patient centered donations. This is a principle that may not always be relevant. However, we hope the NGOs will keep it in mind when setting product values so that we continue to serve as many individuals and communities as possible. This is a principle that may not always be relevant. However, we hope the NGOs will keep it in mind when setting product values so that we continue to serve as many individuals and communities as possible.

18. Expansion of Principles into Guidelines/Standards Public Comment Period Survey on PQMD.org and email Revisions and Final Comment Period Publication Next Steps Read the slide And let them know that we will extend an invitation to them to comment through AERDO. Hopefully this month.Read the slide And let them know that we will extend an invitation to them to comment through AERDO. Hopefully this month.

19. Thank you!