Case Study: Planning Aggregate Spend Activities for the Next Three Years

1. The National Disclosure SummitWashington DCMarch 6, 2009 Case Study: Planning Aggregate Spend Activities for the Next Three Years Cynthia “Cindy” Cetani Jon Wilkenfeld

2. Cynthia “Cindy” Cetani* Executive Director Novartis Pharmaceuticals Corp. Cynthia.Cetani@novartis.com (862) 778-3949 Jon Wilkenfeld President Potomac River Partners Jwilkenfeld@potomacriverpartners.com (610) 470-7616 (M) Introductions *Disclaimer: The views of the Novartis presenter reflect a personal perspective and should not be considered an endorsement by or specific views of Novartis Pharmaceuticals Corporation

3. ARS: Aggregate Spend Status Where are you within the lifecycle of building an aggregate spend solution regarding physician spend? • Fully implemented for HCP spend • Partially automated and partially manual for HCP spend • Building a solution now; spend capture is manual by state • We are in early planning stages • We haven’t started planning or building yet

4. 2. 6. Change Management 5. 1. 4. 5. 3. Today: The Basics of an Aggregate Spend System

5. What do you believe will follow the Sunshine Act? • States will be satisfied with the data reported at the federal level and will not request additional information. The federal government will take no additional action. • States will be satisfied with the data reported at the federal level but the federal government will require additional disclosures. • States will not be satisfied with the data reported at the federal level and will continue to proliferate new reporting requirements. • Don’t know

6. MAINE IOWA • How will the changing regulatory impact your rules engine? • Definition of HCP • HCP degree/specialty • Purpose/nature of spend • Meal allocation methodologies • Medicare billing / State Licensing #s • Other? US Regulatory Environment Current and Future Regulatory Environment • Physician Payment Sunshine Act • Additional congressional action • Grant transparency • Samples • Changes to existing state laws • New state laws • Mid-level prescribers and other HCPs • Specific requirements from CIAs, consent decrees

7. Q . Do you currently have the capability to link individual HCPs to organizations? • Yes, we can link HCPs to affiliated organizations (e.g. medical practices, hospitals, universities, societies) within our aggregate spend system • No, we cannot link HCPs to affiliated organizations within our aggregate spend system • We are currently working on implementing the capability to link HCPs to their affiliated organization • Don’t know

8. 2012 Customer Master: 3D HCP Smith Hospital Affiliation Managed Care Plans Degree/ Specialty Address(es) Staff Peer HCPs Association Memberships D/B/A Corp. Medical Practice Future: Customer Master With Relationship Data 2008 Customer Master: 2D Questions to Consider: • What relationship aspects will be included within your data? • Will you be able to automatically toggle between individuals and DBAs? • Will you be able to automate identification of Government Employees? • Will you be able to identify all members of a medical practice? All members of an association (e.g. Wisconsin Medical Society)? Those employed by Stanford?

9. ARS: Spend Capture on HCOs What is the status of your aggregate spend solution for HCOs? • Fully automated for HCO spend • Partially automated and partially manual for HCO spend • Building an automated solution; spend capture is manual • We are working on our plan now • We don’t intend to capture any HCO spend HCOs include: hospitals, clinics, medical practices, universities, pharmacies, professional associations (American Med Assoc) and medical societies (American Cancer Society)

10. Challenges with Healthcare Organization (HCO) Spend • How will the changing regulatory environment impact HCO spend capture? • How do you define HCO? • State law disclosure reports include the following: • Hospitals, clinics, universities, pharmacies, medical groups, disease-specific patient advocacy / support groups • Challenges with building your HCO Customer Master • Establishing consolidation rules (local vs. national orgs; corporate parent structure) • Two-dimensional vs. Three-dimensional data • Data capture requirements • Payable to vs. recipient for grants • Convention / health fair spend capture • Data integrity challenges unique to HCOs? • False positive (e.g., NAIC Codes are too broad) • Less effective, costlier scrubbing processes • Incomplete third-party data

11. ARS: Data Integrity What actions are you taking to ensure accurate data? • Full-time “Data Steward” responsible for data integrity • We periodically audit/monitor data • Manual checks by Aggregate Spend owner (e.g. Compliance) that focuses primarily on data outliers • We rely exclusively on data accuracy within the source systems

12. Data Monitoring: Garbage In – Garbage Out • Can your data pass the sniff test? • Will it hold up to intense scrutiny? • Media • Individual physicians • Associations • Plaintiffs Bar • What are the sources of data errors? • False matching/merging records • Incomplete internal data entry • Inaccurate third-party submissions • What are you going to do about it? • Enhanced manual auditing and monitoring of data • Enhanced IT validation (e.g., drop-downs) • Monitoring data outliers or all data? • Do you have validation timing concerns? • Can you track data changes? Can you see changes over time?

13. Q . Does your data certification process lead to corrections in source system data or manual adjustments to your reports? • Yes, corrections to data are identified and corrected in source systems prior to final certification sign-off • Yes, corrections are identified during certification sign-off and addressed via manual adjustments to reports that are filed • Both 1 and 2, depending upon the system • We have never identified a necessary correction • Don’t know

14. What is the ideal format and structure for certifications by C-level or Board? What is the ideal format and structure for sub-certification (e.g. Head of Medical Affairs)? How frequently will certifiers get data? How do you measure data quality? What is an acceptable error rate? What is the impact of unintended disclosures? Impact of manually removing entries from Aggregate Spend solution? Have you developed a procedure stating how and when you would re-file a submission? Data Certification

15. ARS: HCP Impact In your humble opinion, which do you believe will be the biggest impact of PPSA on HCPs? • Some HCPs may limit their industry compensation for concern over disclosure • HCPs may refuse to accept value (e.g. a meal) while still attending an event • Attendance at promotional programs will decline • HCPs will demand to see copies of their disclosures prior to publishing on the web • No impact– HCPs will continue to interact with pharma companies exactly as before

16. HCP Impact • How do you think HCPs will respond to disclosure? • Fewer speaker events per speaker • Will you need to track promotional attendees with and without meals consumed • What role will your company need to play? • Preemptive reports to all HCPs • Proactive communications/training on PPSA to HCPs • Responding to inquiries (methodologies, interpretations, errors?) • Public relations responses • Will HCP response impact representative performance metrics? • Will you be in a position to point out emerging data patterns to senior management?

17. ARS: Business Impact from Aggregate Spend How does your company “use” aggregate spend data? • We haven’t built our system yet • Use it only for state law reporting and monitoring • State laws + Compliance uses it for various monitoring activities • Compliance + Operations Groups (Sales Ops, Sourcing) look at cost figures • Compliance + Ops + the rest of the organization including Business Analysis, Market Research, Brand Teams, and/or Senior Management

18. Business Value from Aggregate Spend Compliance Monitoring • Modest meals • Minimum attendance • Fair market value • “Occasional” or similar quantity language • Promotional $ cap • Other outliers? Cost Containment • Speaker payments for cancelled programs • Unused minimum guarantees • Unapproved pass-through expenses • Spending on non-HCPs and non-targets Top Line Growth • No ROI on payments! • But…can you use aggregate spend to optimize promotion? • Do some promotional programs have better results? • How can you leverage this data in an ethical manner?

19. Q . Do you currently report on behalf of a merged company or an affiliated legal entity? • Yes, we manage reporting for our company and the company we merged with • Yes, we manage reporting for our company as well as other affiliated legal entities • Yes, we manage to both above • No, we report for our legal entity only • Other • Don’t know

20. Any entity which is engaged in the production, preparation, marketing, or distribution of a covered drug, device, biological or medical supply Undefined “Subsidiary” Reporting and Post-Merger Integration PPSA Disclosure = Manufacturer + Subsidiary /Entity Affiliated with Such Entity • Have you started to capture spend for other US subsidiaries? • Animal? Consumer Health (i.e. OTC)? Generics? • Lessons learned? • What IT challenges would you face in the event of a major acquisition for your firm? • Integration of Customer Master systems • Coordination of third-party vendor reporting standards • Potentially two different ERP systems (e.g. SAP and JD Edwards or Oracle) • What change management would be required? • New business rules and supporting matrices • Training on new policies and data standards

21. ARS: Global Spend Which payments are captured by your system? • Only US-Parent Corporation spend on US HCPs • All payments to US HCPs (US and Global subsidiaries) • All payments from US-Parent Corp (US and Non-US HCPs) • #2 and #3 • All spend (US and Global Subs) to all HCPs (US or Global)

22. Global Spend • How do you leverage internal knowledge, resources, and IT systems? • Are you concerned about corporate separateness? • Are you confident that global spend doesn’t violate US law (e.g. FCPA)? • Will other regulatory bodies require global reporting? EU? EFPIA? Specific countries? • What is your approach to IT systems? • Portals or spreadsheets to capture payments? • Global Customer Master? • How do you implement change management around the world?

23. 2009 • Finish building automated Aggregate Spend system (HCPs) • Begin building HCO infrastructure • Data integrity: Outlier analysis • Compliance monitoring • Sub-certifications by management • Communications to HCPs about PPSA Illustrative 2010 • Begin including advanced hierarchies into customer master • Enhanced data audibility (storage of legacy data) • Data integrity: Avoidance of errors • Project plan for global and/or subsidiary spend • Cost management; Key opinion leader (KOL) management • Testing for PPSA reporting and other new requirements 2011 • Initial PPSA report with corresponding disclaimers • Automated HCP affiliation identifications • Begin capturing global or subsidiary HCP spend • Global / subsidiary change management • Compliant revenue optimization Solution: Develop [Another?] Three-Year Plan

24. Questions