Fair Market Value Impact of Sunshine Act for R&D and Clinical Operations

Fair Market Value
Impact of Sunshine Act
for R&D and Clinical
Operations
Mark A. DeWyngaert, PhD
Huron Consulting Group
February 20, 2013

FIFTH ANNUAL SUMMIT ON DISCLOSURE,
TRANSPARENCY AND AGGREGATE SPEND FOR
DRUG, DEVICE AND BIOTECH COMPANIES

Overview of Impact on Clinical Research Payments from
Sunshine Requirements
Legislation passed by Vermont and Massachusetts currently requires the
reporting of payments to healthcare professionals (“HCPs”) and organizations
(“HCOs”) related to R&D and clinical activities
The federal government will require collection of clinical trial and research
related data starting August 1, 2013 as part of the formerly titled Physician
Payment Sunshine Act and now called the National Physician Payment
Transparency Program: Open Payments (Section 6002 of the Patient and
Protection Affordability Care Act (PPACA)).
“Research” payments defined by the federal government is “systematic
investigation designed to develop or contribute to generalizable knowledge
relating broadly to public health, including behavioral and social sciences
research. This term encompasses basic and applied research and product
development." (Public Health Service Act definition of research in 42
CFR 50.603)

1


Overview of Impact on Clinical Research Payment from
Sunshine Requirements
The definition of Research payments includes pre-clinical research, FDA
Phases I-IV research and investigator-initiated investigations.
A payment can be defined as “research” if it is “subject to a written
agreement or contract or a research protocol” (p. 9482 /Federal
Register/Vol.78 No. 27/ Friday February 8, 2013/ Rules and Regulations))
Research Payments must be reported to covered recipients, teaching hospital or
non teaching hospitals or clinics
Requirement to report the name of the individual or entity (regardless of if it is a covered
recipient who receives payment for research services and the PI(s).
Payments that are made by CROs or SMOs or any other third party on behalf of the company
must also be included in reported payments by the manufacturer down to the same level of
detail they report payments made directly by the company

2


Why is FMV Important to Sunshine?
FMV Where Did it Come From?
2003 Office of Inspector General (OIG) Compliance Program Guidance for
Pharmaceutical Manufacturers (U.S. Dept. HHS)
OIG reports emphasized that payments for research services should be FMV
for legitimate, reasonable, and necessary services.
However, “FMV” is NOT clearly defined
Goal and intent was to reduce the apparent conflict of interest
Similar guidelines are supported by the PhRMA Code and Advamed Code

3


Why is FMV Important to Sunshine?
Disclosure and Transparency will provide all Government Regulatory
bodies and other stakeholders rapid information availability for queries
and interpretation of data. Stakeholders will include:
Industry
Sponsors
Sites
Subjects/patients
Other agencies, and Media
FMV is key to the explanation of payments and contractual
relationships with HCPs and HCOs (Healthcare Organizations)
An effective Transparency program should include a consistent and valid
methodology to determine the FMV of HCP and Research payment arrangements.

4


Fair Market Value Definitions
Federal regulators have historically provided little guidance on the way FMV
compensation should be calculated (and they are prohibited from providing any
opinions regarding FMV). However, some Guidance under stark Law and the IRS
rules include:
IRS Definition: The price at which property or the right to use property would change
hands between a willing buyer and a willing seller, neither being under any compulsion to
buy, sell or transfer property or the right to use property, and both having reasonable
knowledge of relevant facts (IRS Rev. Rul. 59-60).

5


Fair Market Value Definitions
CMS Definition:-- The value in arms length transactions, consistent with the “general
market value.” “General market value” means the price of an asset or service resulting
from bona fide bargaining between well informed parties who are not otherwise in a
position to generate business for each other, on the date of acquisition of the asset or at
the time of the services agreement. Usually, the fair market price is the price at which
bona fide sales have been consummated for assets of like type, quality and quantity in a
particular market at the time of acquisition, or the compensation that has been included
in bona fide service agreements with comparable terms at the time of the agreement
where the price or compensation has not been determined in any manner that takes into
account the volume or value of anticipated or actual referrals. 42. C.F.R. § 411.351
Commercial Reasonableness=an arrangement that would make commercial sense if
entered into by a reasonable entity of similar type and size and a reasonable physician
of similar scope and specialty, even if there were no potential business referrals
between the parties. 69 FED. REG. 16093 (MARCH 26, 2004).

6


Potential Multiple FMV Analyses Needed Based on the
Following Sunshine Reporting Requirements
Entertainment Current or prospective ownership or
Food investment interest
Travel Direct compensation for serving as
Education faculty or speaker for IME
Consulting fees Grant
Compensation for services other than Payments or other transfer of value by an
consulting applicable manufacturer to an individual
or organization at the request of a
Honoraria physician or teaching hospital
Gifts Any other transfer of value identified by
Funding for research (including Clinical HHS
Trials)
Charitable contribution
Royalty or license

7


Definition of Research
Definition of Research has been adopted from the Public Health Service Act
(42 CFR 50.603) and now includes research conducted where there is either
written agreement OR contract OR research protocol. CMS has clarified the
interpretation of 1128G(a)(1)(B) that transfer of value from applicable
manufacturer to covered recipient may include intermediaries in a continuous
chain of agreements.
CMS clarified that “Congress clearly intended that all payments should be
included on the public website, even if a product never received FDA
approval, licensure or clearance.”
CMS defined “research” based on the Public Health Service Act definition of
research in 42 CFR 50.603; which defines research as: “a systematic
investigation designed to develop or contribute to generalizable knowledge
relating broadly to public health, including behavioral and social-sciences
research. This term encompasses basic and applied research and product
development.” CMS concluded that “this definition includes pre-clinical
research and FDA Phases I-IV research, as well as investigator-initiated
investigations.”
8


Challenges to What Sponsors are Paying for
Clinical Research
Many sponsors use commercial databases of procedural costs to establish what
they believe to be FMV for a study
Challenges with this approach:
Data does not take into account enrollment success or quality of work
performed
Data includes the “negotiated” budgets for all sites that signed a Clinical
Trial Agreement, regardless of whether the site enrolled a single subject
Too narrow a range may discourage participation by higher cost, but high
performing sites
Time lag in adding information to the database
Note- to justify higher payments due to performance be prepared to supply
metrics and documentation.

9


How to Defend What Is Paid for Research
The best defense is to follow a consistent policy :
Create a defensible, “ground up” analysis for each study using consistent
assumptions
Consider also preparing a Coverage Analysis. A clinical trial coverage analysis
identifies and analyzes who the appropriate payer (i.e. the Sponsor, Medicare or
other third party payor) is for each item and service required by a clinical trial as
stated in the protocol and schedule of events.
Apply a uniform approach to determining costs for other budget items such as
overhead and administrative costs
Consider utilizing internal calculators to show systematic and consistent approach
Establish criteria and document that there are legitimate reasons for paying some
sites differently
Establish, monitor, and enforce compliance program, educate Medical Affairs
Clinical Operations and R&D personnel on importance of FMV

10


When Entering Into Consulting or Research Arrangements
Important Considerations
Does the arrangement have a potential to interfere with appropriate clinical
decision-making?
Does the arrangement have a potential to increase costs to federal health care
programs or beneficiaries?
Does the arrangement have a potential to increase the risk of overutilization or
inappropriate utilization?
Does the arrangement base compensation on volume or number of referrals or
placement on a formulary?
Does the arrangement raise patient safety or quality of care concerns?
Finally, how might an aggressive regulator view these services?

11


Implementing an FMV Strategy
Considerations for Implementing an FMV Process in New Areas
Include stakeholders during the analytical process, which will facilitate buy-in
and understanding for a new FMV rate structure and process
Those who identify required services and hire Vendors
Those who calculate and determine payments to Vendors
FMV payment structures should consider operational and business needs
Contracting requirements
Communication of assumptions to facilitate any discussions with contracted Vendors
and other business partners
Preserve as much consistency with current process as much as possible (i.e.,
submission of contracts, approval matrix, etc.)

12


Implementing an FMV Strategy
Considerations for Implementing a New FMV Process
Differing compensation arrangements that may exist with individual Vendors
across several business units (harmonization)
Differences from historical payment processes
Varying degrees of technical skill for end-users, a technology platform should
reflect the skill set of FMV end-users
Efficient support system to address ad hoc questions from and to support
users
Training staff into impact of their decisions on deal structure and on FMV
process (Compliance)

13


Study Budget Development
Fair Market Value Considerations for Key Payment Areas in Phase I – IV Trials

Cost Type Category Examples FMV Payment Source Considerations

• IRB Fees • Pass-Through Costs
• IRB Renewal Fees • 3trd Party
Pass- Through
• IRB Amendment Fees Database
Fees
• Institution Ethics Committee • Fixed costs
Fee
• Document and records • Resources and services included in this
management category should be detailed by line and
• Pharmacy set-up fees used only for the study
Site Costs Administrative • Research office set-up fees • 3rd Party Database
Costs • Advertising
• Patient reimbursement
expenses

• Overhead; % calculated by • Market Data or • Expenses included in this calculation should
institution Cost Data (by not cover items listed separately as
Indirect Costs
overhead administrative costs
component
• IRB Preparation • Fees provided for services such as IRB
Non- • Site qualification • 3rd Party Database preparation, logistics should be measured
Study Start Up
Procedure • Site enrollment validation • FMV Schedule for by time spent by staff and principal
Costs
Costs • Pre-screening activities HCPs investigator (i.e., 5 hours, etc.)

14


Fair Market Value Considerations for Key Payment Areas in Phase I – IV Trials
FMV Payment
Cost Type Category Examples Considerations
Source
• Study Coordinators • Support staff and study coordinators should be
Study • Administrative support staff selected by a site and compensated only for
Support • Research Coordinators time spent on approved study
• FMV
Costs
Schedule for
Non-
HCPs
Procedure
• Clinical investigator(s) contracted to • Third Party • Selection criteria for each principal investigator
Costs
conduct study on behalf of manufacturer Database should be well documented
Principal
Investigator
Costs

• Enrollment fees • There needs to be consideration of standard of
• Per subject visit fees (procedures, etc.) care within the budget and follow-up regarding
• Final study fees insurance payment policies with the specific
• Costs for additional procedures (e.g., institution
Procedure Direct Study DNA tests, supplemental study • Third Party
Costs Costs procedures, etc). Database
• Patient stipends
• Adverse event reports

15


Recommendations
To mitigate the risk associated with unallocated payments made to a site,
Companies may wish to address budgeting for study costs for non-procedural
services and study support through a broader analysis. Disaggregating non-
procedure study costs is necessary to ensure overall transparency and in
determining the appropriate fair market value.

Process Step
Overhead Charges
Administrative Fees
Study Initiation Fees
Standard of Care Procedures
Principal Investigator and Study Support Staff Time

16


Additional Payment Areas That May Need FMV

Category Examples
Equipment • Refrigerators
• Computers
Advertising and Marketing Expenses • Advertising for patient enrollment
• Physician going through files prior
Patient Chart Review to bringing patient in for trial
participation
• Time spent by a PI or support staff
Protocol Amendment Fee
reviewing any changes to a protocol
• Long term studies requiring storage
Storage or Archiving Costs
for documentation / paper trails
• Stipends to promote patient
Patient fees or stipends
enrollment at sites

17


Third Party Bona Fide
Services and FMV

18


GPO’s and FMV Value
Applicable manufacturers and group purchasing organizations (GPOs) must
also report to CMS ownership and investment interests (other than in publicly-
traded securities or mutual funds) held by:
A physician
Immediate family member of HCP, in the manufacturer or GPO
Manufacturers and GPOs must report:
The dollar amount invested by the physician
Value and terms of each such interest
Any payment or transfer of value to a physician holding such interest, or
payment or transfer to another individual or entity at the physician’s
request

GPOs must also report HCP payments at the same level of detail as
manufacturers
19


Background
Key Treatment of Bona Fide Service Fees for GP
Appropriate treatment of fees paid is critical also to the accuracy of GP statutory
pricing calculations, and integrity of price reporting:
Service fees need to be evaluated to ensure that they meet CMS’s definition of bona fide
service fees
Yet, there is minimal guidance to provide clarification, especially in what would constitute
FMV
In the 2012 Proposed Rule, CMS declared specifically that it will NOT define FMV, and it
requires manufacturers to make reasonable assumptions and document their rationale
One of the most important aspects of BFSF and FMV evaluation is the rationale and
documentation required in order to demonstrate due diligence in the decision making
process:
In this dynamic regulatory environment, and given the evolving guidance, it is critical to
have a clear record of the rationale for your determinations
The scrutiny on BFSF’s has increased dramatically, as they are determinations that must
be made by the manufacturer, and can have a dramatic impact on reported government
prices
Manufacturers cannot make determinations based upon what is “conservative or
aggressive” as the impact of calling a payment a “Bona Fide Fee for Service” and exempt
from calculations can be conservative in one program and aggressive in another

20


Assessing Fair Market Value
Identify potential fee-for-service arrangements through interviews and a
comprehensive review or sampling of contracts.
Review the fee-for-service arrangements for potentially bona fide services.
Every bona fide service or data set should be clearly defined.
Description
Attributes that may drive value
The primary tangible and intangible assets employed to deliver the service
or data set (assumptions)

21


Assessing Fair Market Value
The manufacturer must determine at what level the FMV assessment will be
determined:
Activity (e.g., call, educational insert, letter)
Service (e.g., activity times volume for the contract)
Contract (e.g., fair market value for all services in a contract)
Attributes of the market to be considered may include:
Pricing Efficiency
Bargaining power of buyer and seller (e.g., market share)
Buyer and seller knowledge of other transaction prices
Access to unique assets (e.g., customer relationships)

A solid understanding of the markets in which services are bought and sold
will allow for a more accurate assessment of the profit to be placed on the
service or data set.
22


Risk Management
Risk management under the Sunshine Act:
Implement tracking and reporting systems, with regular compliance audits
and monitoring.
Implement compliance training for affected personnel.
Undertake legal review of payment data prior to submission to CMS.
Document assumptions regarding the characterization of various
payments and the requirement to report them, and submit to CMS.
Consider adding an FMV review to the Contracting Committee analysis
Diversity in representation on the Committee helps to ensure that practical
considerations are not overlooked
Implement an SOP to detail when and how to apply FMV
An SOP demonstrates an organization’s commitment to any reviewing
agency
Include a formal exceptions process
Train on the SOP
Audit against the SOP

23


Questions?

Contact Information

Mark A. DeWyngaert PhD MBA
Managing Director
Huron Consulting Group
599 Lexington Ave
New York, NY 10022
(o) 646-277-8817
Email: mdewyngaert@huronconsultinggroup.com

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Fair Market Value Impact of Sunshine Act for R&D and Clinical Operations

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