Significant attention has been focused on participation by the pharmaceutical industry in public and private value-based healthcare initiatives, particularly high-profile arrangements between pharmaceutical companies and private health plans that link the cost of drugs to the perceived value of the drugs as determined by enhanced patient outcomes or reduced costs. Value-based healthcare arrangements, however, have remained limited by legal and operational challenges.
In this segment of our value-based health care teleconference series, “The Transition to Value-Based Health Care: Challenges and Opportunities for the Pharmaceutical Industry,” healthcare partner Eve Brunts and healthcare counsel Alison Fethke will discuss the value-based health care landscape relevant to pharmaceutical companies; examine key legal and operational challenges to implementing a value-based healthcare arrangement; and offer guidance highlighting when and how a value-based healthcare arrangement can be implemented successfully.
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Eve Brunts: Good afternoon (or for anybody participating from the west coast, good morning). Welcome to Ropes & Gray’s teleconference on “Challenges and Opportunities for the Pharmaceutical Industry.” This is part of our ongoing “Transition to Value-Based Healthcare” teleconference series. So thank you for joining us. My name is Eve Brunts and I am a partner in the healthcare group from our Boston office, and I am joined today by my colleague, Alison Fethke, who is counsel in the healthcare group in our Chicago office.
So starting with slide 3, you can see that we are going to focus on the concept of value-based contracting, which at its most basic, is the concept of linking payment for a product to the value provided by the product rather than to the volume sold. And this link that can be created between the value and the payment can occur in various ways. It can be a situation where the price negotiations are informed by the expected patient outcome and related cost savings so that that is taken into account in establishing the price of a product. It can occur because the price of the product is adjusted after purchase, based on, typically, patient outcome or cost savings. The adjustment can be both up (if the performance achieves expected patient outcome or cost savings) and it can be down if the performance does not. And you can also have a link if there is a situation in which compensation is provided to a purchaser or payor if the product performance is not consistent with expected patient outcomes or cost. This can be implicated, for example, in a situation where a manufacturer is providing an additional payment to cover the cost of treating an adverse event if that adverse event or the trend in adverse events is unexpected.
If you go to slide 4, you will see that we want to highlight the fact that we all recognize that over the past few years there has been significant interest in the pharmaceutical industry in value-based contracting, and exploring options with both payors and providers. And the reason for the interest is really two-fold. One, it may be a way to meet a strategic objective by demonstrating, the value that the product provides in a new and innovative way. Or it could be responding to perceived customer need. With the general healthcare reform and the focus of that healthcare reform on linking payment to value, a number of customers have that mindset and so the expectation is perhaps from that pharmaceutical manufacturers need to be able, in the same way that providers and payors are participating in a value-base arrangement and standing behind their product. One thing I do want to emphasize is a potential disconnect in value-based contracting between appearance and reality. Just because everyone is talking about value-based contracting does not mean that everyone is doing it all the time. There have been a number of highly publicized value-based contracting arrangements between pharmaceutical companies and health plans. I say health plans because not so much on the healthcare provider side, but it certainly is not the norm. And Alison is going to talk a little bit about the highly-publicized cases, but I think it is important to keep in mind that again it is not the norm and that parties need to think about where there are potential opportunities that make sense, both for the pharmaceutical company as well as the healthcare provider or health plan. And it may make sense in situations where there is an opportunity to address market access restrictions or to differentiate a product from a competitor product by demonstrating the value, or generate additional evidence that might help perceptions about the value of the product. But taking advantage of those opportunities requires really identifying and addressing a number of legal and operational challenges that we are going to be talking about during the course of this presentation. And you will see that many of the concerns are the same for payors and providers in these contracting arrangement, but there are some key distinctions.
Alison Fethke: So moving to slide 5, what we highlight here on this slide (for this slide, the statistics are from June of 2016- so just about a year old now) is the level of interest has been and continues to be high in outcome-based contracts with pharmaceutical manufacturers. If you see the disease states listed here, and we will talk a bit more about this on the next slide where we highlight some of the public arrangements that have been announced, you do see some themes. One is that for the most part if you look at the disease states at the top of this slide, very expensive disease states, very expensive therapies generally to treat these disease states. Some of them including MS, rheumatoid arthritis, hemophilia, tend to be chronic conditions so long-term patient use the need for ongoing therapy and also these tend to be quite competitive markets as Eve already alluded to the prior slide.
Moving to slide 6, what we have captured here is a snapshot of some of the manufacturer value-based arrangements that have been announced in the past couple of years and you see there are a number of them and the announcements continue. Just drawing a few themes here with respect to the participants, there do seem to be some manufacturers as leaders in this space that is more interested in entering into more in these arrangements. You see some repeats here on the left column- Amgen, Lilly, Novartis- at the forefront of these value-based contracting initiatives. You also see repeats on the second column in terms of certain payors who are very interested in exploring this space- Harvard-Pilgrim in particular, Cigna, Prime Therapeutics- and then moving into the third column, as we have already alluded to, there tend to be different concentrations among disease states and types of drugs that actually lend themselves more easily to a value-based arrangement. In the cholesterol market, highly-competitive market, new innovative drugs in this area may lend themselves more easily to a value-based contract. Also the outcomes measures for these particular drugs also lend themselves to an outcomes based contract because the measurement of the LDL and then measuring any cardiac outcomes, relatively straight forward to measure. We also see again here cancer drugs, we see a couple competitors in the diabetes space, and then rheumatoid arthritis- so long-term, chronic conditions. Moving to the last column in the summary of the different type of arrangements- I will touch more on this on the following slides- but you do see here an array of different types of arrangements that have been made, primarily discounts, but also caps on utilization as well. I will just pause here and note, apart from manufacture payor pricing and discount arrangement there has also an announcement even continuing up until the last week of other types of partnerships where pharmaceutical manufacturers have announced collaboration and initiatives in this space of value-based care and outcomes based contracting methodologies. There is a consortium based out of Duke that has various industry and government participants that have focused on looking at value-based arrangements and coming up with approaches and strategies to try and help move this ball forward. Novartis just recently announced a collaboration with IBM Watson looking at optimizing cancer care and improving outcomes based on real-world patient data, hoping to lead to care efficiencies. And Merck and Optum just announced a deal where they want to develop and simulate reimbursement models based on health outcomes that they hope will be used by other payors and manufacturers to try to drive some consistency and set up the structures needed for other manufacturers to start moving into this world of value-based contracting.
So moving to slide 7, what we have captured here on slide 7 and 8 and will talk about are various approaches that we have seen proposed. We have not seen all of these implemented, but these are the type of arrangements that we have seen proposed specific to pharmaceutical manufacturers. So the first is the straight price adjustment, where manufactures would pay a rebate if certain clinical outcomes are below expectations. So going back to the cholesterol example for a moment, if the LDL lowering was not as high as expected or perhaps if a cardiac outcome did occur, there might be a rebate. We have also seen proposed shared savings models, so any cost savings attributable to the drug, to the extent those can be measured and valued, would be shared between the payor and manufacturer. A shared payment, which is just the reverse, meaning if there are excess or unexpected costs attributed with the use of certain drugs that the manufacturer would then share in the cost and the additional payments related to that. And then a “make-whole” type of arrangement, somewhat similar perhaps to a warranty concept, where the manufacturer would reimburse for cost to treat any complications related to the drug. You could see here some difficulty in determining what those complications might be in reaching agreement, whether it be perhaps a failure to reach the average expected outcome or perhaps adverse events.
Moving to slide 8, other approaches we have seen proposed: a trial period where there would be the drug provided for no charge for some period of time, potentially an opportunity to continue to build evidence and data related to the use of a drug for a certain period of time. Indication-specific pricing- so potentially pricing one indication for your product higher than others if the clinical utility might be stronger in some indications than others. Capping the payments at a specific duration of therapy and then last just having a cap wholesale, either on the number of doses or cap on total cost related to use of the product. And so the legal concerns for each of these may vary depending on the approach and the structure and some of them certainly would vary depending on your particular product and whether or not it would lend itself to this type of structure. But as we walk through the rest of the deck, we thought it would be helpful to keep these in mind as we walk through the various legal and operational challenges.
Eve Brunts: And as Alison suggests, and we have talked about, there are both legal challenges and operational challenges associated with implementing a value-based healthcare arrangement. So if you go to slide 10, you will see we highlighted one of the main issues when it comes to a legal analysis or identifying the challenge associated with applying the law to a value-based contracting arrangement is that both pharmaceutical companies on one hand and then healthcare providers and health plans on the other end of an arrangement are trying to basically apply traditional laws to innovative contracting arrangements- and the application of those laws is not always clear. And so there is some uncertainty created by the lack of clarity and it means that when it comes to assessing legal challenges, it is not just business as usual. It is trying to be very careful in terms of how the laws are analyzed and applied to these innovative contracting arrangements.
If you look at slide 11 and slide 12, you will see that we have tried to capture here really the laundry list of the potential laws that could be implicated by a particular value-based contracting arrangement. Not all will be implicated by every arrangement, as Alison suggested, but we wanted to provide a list and a brief summary and some minimal guidance in terms of how they might apply or be implicated by particular arrangements. What we are going to do those is focus on some of the key laws that are at play, and are typically at play in any value-based contracting arrangement, but hopefully slide 11 and slide 12 provide sort of a checklist or a list of guidelines to think about as proposals are being analyzed.
Going to slide 13, you’ll see that one of the main laws that has taken into account and needs to be applied when you are looking at value-based contracting arrangements it is really the federal anti-kickback statute. As we all know, at its most basic, it prohibits solicitation, offer of payment or receipt really anything of value in order to generate business that is reimbursable under federal healthcare programs, whether as a direct payment for a product or payment for a service in which a product is used. In the value-based contracting context, the key anti-kickback concerns are that an arrangement can involve the subsequent either initial discount or the subsequent transfer of value as part of the arrangement if patient outcomes or cost expectations are not met. Also, the arrangement could involve significant resources being provided by a pharmaceutical company in order to implement the arrangement, or providing supportive services to make sure that a product is used appropriately, or providing coverage for certain costs, or assuming or sharing the risk — all of which implicates the concern that the company is either subsidizing the routine operations of the healthcare provider or health plan, or is in some way assuming financial risk that should lie with the provider or the health plan.
Now the premise or the justification, despite those concerns, for implementing a value-based contracting arrangement, is the fact that parties entered into an arrangement that involves either the purchase or the payment for a healthcare product on the assumption that the product would perform in a certain way- achieve certain outcomes for the patient, achieve certain cost savings. If that does not happen, the resulting transfer of value should simply be a way making sure the parties get the benefit of the original bargain, because the expectations were not met, the value that they thought would be provided was not provided, or it was provided and so you have to make an adjustment. And that is the justification doing value-based contracting.
If you look at slide 14, the rest of the discussion about the anti-kickback statute is going to be “how do we apply it to particular arrangements?” Assuming that the arrangement is justified based on justifications we just discussed, what do the parties look to? Well, first of all, in order to respond to potential risk we need to consider potential protection under the various safe harbors, which typically we would be looking at the discount safe harbor, the warranty safe harbor, and various managed care safe harbors. We are going to talk about the challenges in applying them. Also, if protection is not fully available in safe harbor, taking look at the facts and circumstances and analysis- we are going to talk about some keys trends and facts in that area. But I think the key takeaway is the fact that everyone seems to recognize that there is a need for enhanced or clarified guidance or protection about how the anti-kickback statute applies to these arrangements, so that arrangements that are appropriate and beneficial for all can go forward- and that evidenced by the fact the OIG issued in 2016 its annual call for comments on potential new safe harbors, both PhRMA and AdvaMed responded with comment letters that focused very specifically on the needs for either modifying the safe harbors or implementing new safe harbors that would provide protection for appropriate value-based contracting arrangements- and you will see on slide 15 an excerpt from the PhRMA letter. And I think the point, which is shared by the comment letters and I think is generally recognized by the healthcare industry is that if these are good and appropriate, they should be allowed to go forward, but the uncertainty is potentially impeding arrangements that are appropriate. And if there is a line to be drawn somewhere, the government should provide guidance on where the line is drawn.
But if you go to slide 16, we are going to go very quickly through some of the various potential safe harbors that might be available that parties can look to for protection. The first one would be the discount safe harbor. And that safe harbor, as we know, protects a reduction in the amount that certain categories of buyers, specifically healthcare providers or Medicare/Medicaid managed care plans, charge for an item or service based on an arm’s length transaction. The focus of the discount safe harbor, consistent with the statute, is that a discount needs to be determined in advance, either paid at the time of purchase or paid afterwards through the mechanism of a rebate, and that the whole discount arrangement needs to be transparent and that there can be no shifting of cost to the federal healthcare program as a result of the arrangement.
There are certain carveouts that we might touch on a little bit later, but if you go to slide 17 you will see, as we talked about, one of the key issues under the discount safe harbor are the obligations with respect to the buyers under the safe harbor and the obligations specifically focusing on disclosure. So, as we can see, the safe harbor protection is available as I talk about to only certain categories of buyers, so it does not protect arrangements with categories of buyers that are not covered by the discount safe harbor and that can be an issue. Because, for example, it does not cover a whole host of managed care organizations. This was an issue when Medicare Part D came around because it does not current apply to arrangement with Medicare Part D plans. It does not apply to arrangements with commercial health plans who may have Medicare/Medicaid patients that are covered on a secondary basis. Also too, you can see that the disclosure obligations vary. And disclosure is important because when you are talking about a value-based contracting arrangement, it is a little more complex, perhaps, to explain, when you are providing a discount, how the discount is calculated and how it is applied if there is a need for clarity in those circumstances.
Going to slide 18, you can see one of the other key issues with the discount safe harbor is the fact that the discount safe harbor, applying it to innovative contracting arrangements that may include or focus on how the product performs or the expectation that buyers will undertake certain activities in connection with the use of the product, is in tension with the evolving position of the government, specifically the Department of Justice, about the scope of discount safe harbor. Because you have, going back a few years, various allegations involving long-term care pharmacy and specialty pharmacy arrangements with manufacturers that rebates or discounts provided to those entities by pharmaceutical manufacturers were tied to those providers actively intervening to switch a product or to generate business for the manufacturer, and the government taking the position that it is a kickback and not protected under the discount safe harbor. And, going to slide 19, you can see the government is continuing to evolve its position on the discount safe harbor. First of all, both in court cases that played out in the District Court in Massachusetts, so you have a court case in which the Court is saying, in order for the disclosure requirement to be met, the disclosure must be made to the government even if the government has not necessarily asked for that disclosure. So it is kind of heightening the disclosure standard. You also have the Coloplast case, in which you have statements filed by the Department of Justice that take the position that a discount is protected only if it is a reduction in price that is conditioned on the purchase of a product. The value is not a protected discount if it is conditioned upon something else other than that simple purchase. And so, when you think again about a situation in a value-based contracting arrangement where there may be requirements in terms of how the parties act, what data is collected, how outcomes are measured, whether the provider is going to operate in accordance with the protocol to ensure appropriate use of the drug, that, again, creates a tension and raises questions about the extent to which the government would view the discount safe harbor as applying to value-based contracting arrangements.
Going to slide 20, we kind of move from discount safe harbor to the warranty safe harbor. I put this out there, and Alison had mentioned earlier, sort of the concept that some of these arrangements are kind of like a warranty. Product is going to perform to certain specifications. If it does not there will be a transfer of value. This is a safe harbor, I think, that if you take a look at it, it protects a payment or exchange of anything of value under a warranty that is provided by a manufacturer or supplier as an item to the buyer. One important thing to note is buyer here is only the patient or the healthcare provider. So, where the focus of the pharmaceutical industry contracting has been on arrangements with health plans, this would not necessarily be a safe harbor that is available for protection but it would apply if those arrangements started to include healthcare providers. On its face, the definition of warranty is fairly broad and includes sort of any undertaking that involves refunds, repair/replace or take other remedial action with respect to a product if the product fails to meet required specifications. But it is important to keep in mind that the OIG, in talking about the warranty safe harbor, has tended to focus on it as being available in situations where you have product failure- not necessarily a situation in which a product has failed to meet or achieve certain patient outcomes or cost savings.
Going to slide 21, you will see that some of the obligations of the warranty safe harbor involve a significant amount of disclosure, raising the same questions about disclosure that we saw under the discount safe harbor. And also too, the scope of the safe harbor is limited in that aside from value being provided to the actual patient, the value provided to the healthcare provider or any other party can not exceed the cost of the actual product that is covered by the warranty.
On slide 22, you will see the government giving some guidance on how the government distinguishes between the warranty and discount safe harbor, which is helpful when you think about what applies and under what circumstances. And on slide 23, I have put in here an early advisory opinion that actually focuses on really a performance-based contracting arrangement between a medical device manufacturer and skilled nursing facility. And you can see here how the government analyzed it, both under the discount safe harbor and under the warranty safe harbor, and some of the limitations that the government imposed in terms of when it found this appropriate. But, looking at the components of the program, you will see that it includes a number of components that might be seen in a value-based contracting arrangement today. Sort of a fixed amount, fixed payment for a particular set of products, including training and protocols. Here, you actually have a requirement that the products be used exclusively. That may be appropriate where it is necessary in order to do patient outcome measurements or there is a reason for it, but that should be justified. And then, payment for some third-party liability in the event the product does not work as expected.
Going to slide 24, the other set of safe harbors that I referenced in the beginning are the managed care safe harbors. There are three different safe harbors that parties might potentially look to. And again, and this was emphasized by PhRMA in its comment letter, there is some uncertainty about the application of these safe harbors to arrangements involving pharmaceutical parties who are contracting with providers or are contracting with health plans. I think some of the issues that come into play is all these safe harbors are very specific, and the specificity or the scope may be limited in terms of, on the one hand, the health plans that are involved in the arrangements covered by the safe harbor. Some of them are more narrow than others. For example, only the third safe harbor that involves substantial financial risk very broadly applies to health plans- private as well as Medicare/Medicaid risk plans. There is also the question in terms of scope and whether pharmaceutical companies can participate. Some of the other parties to the arrangement on the other side of the health plan are defined very narrowly. So, for example, price reductions offered by providers to health plans- there, the definition of healthcare provider is narrow. It is slightly broader when you are talking about an arrangement between a first tier contractor or a downstream contractor, where the definition seems less likely to be limited to an actual healthcare provider. But these are all things that could be considered in trying to craft an arrangement that would fit or substantially fit within the scope of the safe harbor.
If you go to slide 25, I have just highlighted some of the complexities when it comes to safe harbor compliance. We have talked about some of them already. Limits on the parties that are eligible for protection under the various safe harbors and then, some of the issues with the warranty and the managed care safe harbors. On the discount safe harbor, you do some additional complexities that come into play aside from limitations on the buyers or the disclosure obligations. For example, in implementing an arrangement, a party might want to take into account when they are determining whether it is a commercially reasonably arrangement, all the extra costs associated with implementing that arrangement. How is that factored in when you are trying to determine whether something is commercially reasonable? How do you take into account the support services that might be necessary in order to make sure that the other party is operating in a way that would allow for appropriate measurement of outcomes or cost savings? And so, other issues may come into play if the arrangement is, say, with the provider and it is specific to or customized for a particular third party payor. Does that raise cost-shifting concerns?
If you go to slide 26, you will see that we thought about the discount safe harbor, but we are also taking a look at some key issues to think about from a facts and circumstances analysis perspective. Some things I want to highlight in this particular context is that so many of the arrangements are with health plans, so we are talking the managed care world. And we see, again, at the same time value-based healthcare is taking off, increased government scrutiny on arrangements between pharmacy benefit managers (“PBMs”) and manufacturers. And so, to the extent that there might be concern about these arrangements and what influence a PBM may have on utilization of drug products with regard to its arrangements with health plans or members, indirectly, it is something to think about as the arrangements with managed care plans are being implemented- just an extra sensitivity to make sure that it is clear that the arrangement is in alignment with promoting cost effective, high quality care.
On slide 27 and 28, I include just a couple of slides that really summarize government guidance when it comes to gainsharing arrangements. Now, the government’s focus on gainsharing and the limits on gainsharing arrangements are something that is probably more familiar to any healthcare provider participants on the phone rather than the pharmaceutical company participants, but it comes from the fact that the government has issued fairly extensive guidance in the form of OIG advisory opinions on risk-sharing arrangements in terms of what is permissible and what is not permissible from the government’s perspective. And risk-sharing arrangements with providers that involve sharing and cost savings or related third-party payor payments or penalties may be viewed by the government as akin to a gainsharing arrangement. And so, taking a look at what the government has said in the gainsharing context when it was focusing on arrangements between hospitals, say, and physicians that practice at the hospitals would be helpful in thinking about how additional safeguards could be incorporated into the arrangement to make sure that the government would view it as appropriate rather than as problematic. I am not going to go through them all, but I have put them out there as a possible source of guidance. I think with that, Alison is going to take over for some of the other legal challenges.
Alison Fethke: So, let’s start with government pricing, which has been a challenge, I think, that has been discussed a fair bit in the last couple of years, particularly in the manufacturer community. So, one of the impediments right now to value-based contracting are the government pricing rules and regulations and there has been to date no specific guidance. CMS has made a couple of acknowledgements of the issue. Last year they have publicly stated that they think that there is value in value-based purchasing arrangements and is considering how to provide more specific items (very helpful) and then they later last year in July said (also very helpfully) that the best price and how best price will be determined will depend on the structure of the value-based purchasing arrangement. So, basically, we have an acknowledgement without real concrete guidance. That same CMS notice from last year did encourage manufacturers to reach out with questions, and we do know that that has happened in some cases. But right now there is a fair bit of uncertainty about this will all work. And the uncertainty stems from the fact that for the most part, the price reporting rules- either Medicaid best price, the 340B ceiling prices, the Medicare Part B ASP prices- all, to some degree, rely on the government getting the benefit of the best discount or the lowest price that the manufacturer offers to any payor or purchaser. Specifically, with respect to Medicaid best price, that is generally set on a unit price, so in any scenario under any arrangement in which the manufacturer offers a unit at the lowest price, that is then the price that should be used. And these unit prices really do not lend themselves very well to these value-based arrangements where, as we have discussed, there may be price adjustments based on individual instances, perhaps of a drug working very well or perhaps not working, where an individual payment for a particular patient may be adjusted, but on the whole, the price paid for the population may go up and down but average out to about where the discount might otherwise be. And so, part of the concern that has been expressed in one of the requests that industry has made is whether weighted average pricing, CMS would acknowledge that that would work better in some of these value-based purchasing arrangements. Other things that just add complexity to this government pricing puzzle is the fact that, as we have discussed, the pricing adjustments often happen during a period of time both over a course of time and sometimes after a period of time, many months or potentially even years. In some cases value may be conferred other than in a reduction and in unit price. Back to the models we started with at the beginning of our discussion, there may be caps put on spending. There could be periods of free trial. Those are much more difficult to value and figure out how they actually impact the per unit price of the drug. And then also, as Eve alluded to, some of these arrangements involve more than just providing a discount on product. There may be other related services or tools that are part of an arrangement between a manufacturer and a payor all designed to encourage better outcomes, but which do not necessarily translate into a per unit reduction in price. So, unfortunately, at this point I think it is TBD on how the price reporting rules may evolve to help manufacturers enter into these arrangements more routinely.
Moving to slide 30, we are going to spend a few minutes on concerns posed from the FDA side as well. As I am sure most of you know, the basic FDA promotional rule is that manufacturers should only promote their drugs consistent with the approved label or prescribing information. This raises some concerns in the value-based contracting context. In some of these arrangements, there is a possibility that the value-based contracting arrangement may lead to a potentially new intended use of the product. For example, it could be that the drug is being reimbursed for uses outside of the approved label. In addition, as manufacturers work with payors on all of the mechanics that are generally involved in a value-based arrangement- the measurements, the analytics, the payments- some of the activities a manufacturer engages in may relate to indications again that are not consistent with the label. So this is an area of concern. It is another area of uncertainty. I think that there have been some activities from FDA of late that help point in the right direction in terms of indicating maybe some increased flexibility on the part of FDA. There are some others I think that are not as helpful. Generally speaking, what would be most helpful is if FDA would just concede that commercial contracts constitute protected speech. Or announce enforcement discretion with respect to these value-based contracts, and we certainly have not seen them go that far at this point.
Moving to slide 31, I wanted to spend just a couple minutes on intended use because this has been an interesting area to follow in the last couple of years. Given that a lot of FDA’s enforcement, particularly in the area of off-label enforcement and then also shared by their enforcement colleagues in DOJ, tends to circle around off-label or an intended use beyond the scope of the approved label, this could be important in the context of a value-based arrangement if the perception is that the manufacturer is promoting and contracting for payment for uses which are not consistent with the approved label. The current rule prior to January 2017, although, was proposed to be modified based on a proposed rule issued in 2015, was that FDA can consider a manufacturer’s knowledge of off-label use in determining intended use. That is, even if there were not direct activities, promotional activities, materials or direct statements made by the manufacturer that would indicate that the manufacturer was promoting the drug for an off-label use, knowledge alone that off-label use was happening may be enough to make a case that there was intended use by the manufacturer. Back in September of 2015, FDA circulated a proposed rule that sought to delete the sentence that caused the heartburn of manufacturers and that put that in place, that is that if a manufacturer knows or has knowledge of facts that would give him notice that a drug introduced into interstate commerce is to be used for conditions, purposes or uses other than the ones for which he offers it and are approved, may lead to a misbranding claim.
So in September 2015, to everyone’s joy and delight in the industry, FDA proposed a rule that would remove this knowledge qualifier. Unfortunately, fast-forward a year and a half, in January of 2017, FDA issued a final intended use that bore very little relationship to the proposed rule circulated in 2015. And the proposed rule looks at the totality of the evidence to establish whether the manufacturer objectively intended that the drug was to be promoted for off-label uses. So unfortunately, the FDA sort of receded from its earlier 2015 position where knowledge was taken off the table. They did concede that they wanted it to be not just knowledge, but a broader standard, that is the totality of the evidence. But it does leave manufacturers in a position of some risk, in that the FDA continues to take the position that they can look at a broad array of activities to determine whether or not the manufacturer is actually promoting an off-label use. So there was a lot of hew-and-cry after this final rule was issued in January 2017. Understandably, arguments were made that there was no real notice and comment period. The language of the final rule and so March 17th, FDA did announce that it will delay the implementation of the new and final intended use rule for one year to March of 2018 and reopen the comment period. So I think at the end of the day, what this goes to show you is this continues to be an area of movement and uncertainty. We are not entirely sure where FDA is going to go, but where what has happened does not necessarily lend a lot of comfort in terms of value-based contracting and intended use, at this point.
So moving now to slide 32, I’m now going to discuss a couple of other FDA guidances, which I think are more helpful in thinking about FDA and its potential enforcement and interest in value-based contracting. So first I will just spend a couple minutes talking about a guidance also issued in January 2017, a very busy month for FDA, where FDA for the first time laid out in their pretty extensive guidance, what it views to be label-consistent. And this would be the category of communications, representations, statements made by manufacturers about its drug that are not necessarily squarely within the four corners of the approved prescribing information. Not off-label, such that a new supplemental or new drug application would need to be submitted, but somewhere in the netherworld, consistent with the labeling. And so for the first time FDA laid out the criteria it would use to determine if these statements or communications be consistent with the labeling and therefore not “off-label” or lead to a misbranding claim. So they laid out this 3-factor test. Factor 1 has a number of criteria that need to be picked through, but each of them ask whether or not the indications or suggestions in the communication would lead to a different, a fully different indication, would represent use outside of a cleared or approved patient population, if the use discussed would conflict with the directions for handling, or pairing, or using the product in the approved product label, or conflict with the approved dosing regimen, or route of administration. So if it is consistent with those four things, the next step is to go to factor 2, which is a more policy-based factor, which is where FDA would consider whether or not the communication or the statement alters the risk benefit profile of the product, in that it would potentially increase risk of harm. If so, then the communication would not be consistent with the label. And then lastly whether or not the current prescribing information is such that the statements made, the use alluded to in the statements made, that use could be done in accordance with the instructions provided in the label. And so this, I think, and then FDA took through a number of examples in this guidance document. I’m going to highlight a couple of them. I think industry regulators generally perceived that this allowed more leeway than had been allowed in the past, allowed some clarity and flexibility that the industry had long been looking for. A couple of these examples, in particular, I think, allow us to maybe have some flexibility, specifically in the value-based contracting context. One is FDA specifically talks about how use of long-term safety and efficacy data that is beyond the scope of the clinical studies described in the label would be generally permitted. They also talk about use of patient sub-groups within approved patient populations, which also tends to be another type of data commonly used in healthcare economic information. Lastly, FDA opens the door to data about convenience and patient-reported outcomes. So all three of these tend to be important data points in healthcare economic information and data shared by manufacturers and also may be particular endpoints that would come into play in a value-based contracting arrangement.
So on slide 33, just quickly, FDA of course stated in this same guidance that if you are going to use this label-consistent information, you have to make sure it is appropriately substantiated, and they go through some example of what appropriate substantiation is. I think the take-home here is that they lay out this scientifically appropriate and statistically sound standard, which is generally understood to be lower than the substantial evidence standard that had been previously thought to be what the FDA requirement was.
So let us then move to FDA’s next guidance. This was two guidances, one was the 21st century cures, which was issued in December 2016, and then FDA issued some regulatory guidance interpreting new provisions of 21st century cures again in January of 2017. And this specifically relates to healthcare economic information, which is a big topic of interest among the pharmaceutical and payor community. So first of all, the 21st Century Cures provision did expand a little bit the scope of FDAMA 114, which is the safe harbor that manufacturers have used in order to provide healthcare economic information. They potentially expanded the audience, the appropriate audience. Also, whether or not the information discussed needs to be only related to an approved indication versus directly related to an approved indication, and they also clarified that all of the underlying data need only meet the CARSE standard, the “Competent And Reliable Scientific Evidence” standard, versus prior potentially the substantial evidence standard. So some helpful clarification here. A little bit of helpful expansion. FDA then issued a guidance in January 2017, where they gave more detailed guidance on what the components of this health economic information would be in this guidance. They do tee up directly our question of the day, which is what does the agency think about risk-sharing and value-based contracts between firms and payors, and FDA specifically states here that while it is talking about communication of healthcare economic information to payors, that FDA does not regulate the terms of contracts between firms and payors, so a potentially helpful step here, and in general a helpful expansion of their view of what is permissible in this scope of healthcare economic information.
So moving now to slide 35, addressing yet another set of potential types of laws that present legal challenges for these types of arrangements. So privacy concerns are also another area that have been discussed and are causing consternation in the industry. When we think about how these types of arrangements can be operationalized, to do a value-based arrangement well, it requires a lot of data-sharing among payors, providers, pharmacies and manufacturers. And all of the data needed, the claims data and the data about the patient use is protected under various federal and state laws. So this causes a lot of challenges. I do not think we have fully worked through all these issues, but we will walk through a couple of options that have been considered in terms of how to navigate through the difficulties of the privacy restrictions, in order to have access to very robust data sets, including real world data, and how to do the data analytics and the measurements necessary to make these arrangements successful. So things to consider: use of de-identified data may be a path forward, however, consider the fact that in all cases, de-identified data may not get you where you want to go in these arrangements, so a potential downside. Consider use of broad patient authorizations, although unfortunately in some cases those can be quite difficult to obtain, and if you end up in a situation where you have some authorizations and not others, you may not have the access, an ability to manipulate the data set in the way you would like. Consider potentially relying on the payment purposes, authorization under HIPAA. Just one caveat to think about there is if you are relying on the payment exception, it may get you where you want to go initially in terms of the actual payment provisions under the contract, but down the line it may restrict you in terms of everything you would like to do with that data under the arrangement. And then lastly, considering the use of a third party business associate, which would require very careful analysis of all of the different types of data, all of the input where it will be used and how it will be reported and manipulated in order to substantiate the payment terms and outcome measurements in your value-based arrangement.
So now moving to operational challenges, now that we have sort of set the table with the legal challenges, on slide 37, to sort of bring a full picture together, the things to think about when you are considering whether or not you’d like to enter into this arena of value-based contracting, do you have the right partner? Do they have the right infrastructure to do the measurement, the reporting, to enter into this arrangement? Do you have engagement of the right stakeholders? Do you have the resources committed both over the time period and the operational resources you need to make these successful? And for implementation, do you have the data requirements? Do you have the authorizations you need? Have you thought about how you are going to manage expectations on both sides of the parties? What is going to happen in the event of potential disputes? Either over data measurement, outcomes measurement? What if there is a difference of opinion about whether a certain measure was met? These are all things that should be thought about prospectively when entering into these arrangements.
And moving now to 38, as we’ve already talked about a bit, do you have the type of product and the type of clinical profile that would make measuring and identifying certain performance metrics easy? Just something to think about. And then, how will this metric be measured? Will it be per patient? Will it be a baseline measure against a particular baseline patient group? Is it an average of data? How do you screen out the noise that can happen in real-world claims databases to make sure you are actually getting the right data? And then, what kind of product and support commitment do you need to have in place in order to make these arrangements a success? And the last point here is that it may be worth considering a trial period before the actual measurements and the payment requirements and provisions in your arrangements kick in.
Eve Brunts: And turning to slide 39, one of the things to think about, I think, in terms of either doing contracting when you are dealing with providers and that a provider as far as a manufacturer what you want to think about the collateral impact. To the extent that there are existing arrangements in play with regard to the purchase of the products, just making sure that as you are entering into very specific value-based arrangements, you are not inadvertently triggering obligations under GPO contracts, and we have identified some of the ways those might be triggered.
If you look at slides 40 and 41, what we are trying to do is to identify really what we perceive as some of the different perspectives, on the payor side and on the provider side. To understand how an arrangement can be structured that would be attractive for both parties, and taken to the fact that they may have different needs or a different wish list. So on the payor side, some of the issues that may come into play is the fact that payors are often dealing with changing membership, and so the annual enrollment period comes around, a person flips from one plan to another, and so a cost savings or patient outcome that would only be achieved over the course of a number of years may be something that is less attractive. Payors, however, are at risk, potentially for the cost of care to the members across the continuum of care. So an arrangement that may involve the purchase of a more expensive product that would result in long-term — not long-term but over the course of a continuum of care, less need for other types of care, then that may be more attractive to payors, because they are at risk for the full continuum. Also, an issue with payors is the fact that because of the data that they already track, the claims payment, they may be in a position to already have the infrastructure from the data analytics perspective, to do the value-based contracting without an initial resource commitment in that respect.
On slide 41, you will see a slightly different perspective when you are talking about providers. They are less likely to have a really sophisticated infrastructure to track and manage drug use or to pull the data automatically in the way a payor would, and if you look at slide 42, you can see this was a survey done a few years back that was taking a look at ACOs, where you already have integration of providers, and the extent to which they are able to manage the use of medication, utilization of medication within the provider facilities, and it is kind of surprising as a snapshot of how unsophisticated some of the ACO providers are, but staying on slide 41, another thing to keep in mind is that cost savings across the continuum of care is going to be less relevant if you are contracting providers unless you are contracting with an integrated delivery network, because one provider is not necessarily going to be in a position to pay a higher price just because it is going to reduce the cost of care to a separate provider in a different setting. Also in the provider setting, there is often a need to engage multiple stakeholders to make something specific if someone from the purchasing department, it is the hospital, it is the physicians who practice in the hospital, it is making sure nursing is involved, and that can be difficult in pushing something through or getting the interest that is needed. Also, providers may have limited attention or competing initiatives. They are trying to improve the quality of healthcare across the board, and so there may be other low-hanging fruit that is more attractive or where they are going to focus their efforts given that they may have not unlimited resources to address everything. And so those are some of the operational challenges that can come into play.
Alison Fethke: And I know we are beyond time, so I will encapsulate the discussion we were going to have on where the various federal and state regulations and rules are, very quickly, which is at the federal level under the Trump administration, quite uncertain. There have been some delays in implementation of various new mandatory payment models, delayed until 2018. At the state level, the initiatives on value-based payment structures are already well in place and continue to evolve. This is a place to look to, I think, for sort of ideas about how things may be structured in the future. We expect to see more of this particularly in expensive treatment categories and CMS has highlighted in its 2016 bulletin that it would be very interested in hearing more about supplemental rebate arrangements with manufacturers and state Medicaid payors.
Eve Brunts: And I think, taking a look at some of the potential considerations, if you are actually looking to explore the possibility of doing these types of arrangements, I think one thing to keep in mind that is important is coming up with a proposal that aligns with the existing payor and provider initiatives. So where their focus is, is something that is going to make it more likely that a pharmaceutical manufacturer putting a proposal in place will have that proposal accepted. So if it is a situation where, are they currently focusing on reducing post-surgical infections, reducing opioid use, or some of the major initiatives, what is a key quality measure? Is it reducing cholesterol levels, or limiting the possibility of readmission. What can your products do in that respect? Because that is going to catch attention, and it is going to be something that parties can behind. And obviously, in terms of demonstrating short-term impact, because sooner rather than later, it is going to make the proposal more appealing. Again, does it make sense for the manufacturer? So is this a way to differentiate yourself in a cryo-disease state, and something Alison alluded to before, which is simplicity. The less administrative infrastructure, or the less complexity, would mean something could be implemented quicker, faster, easier. And then it is the ability to leverage existing infrastructure. Are you looking to pull data that is already collected by providers, or that is already captured in the claims database of a healthcare payor.
Looking at slide 49, what are some other potential considerations? If it is a situation where a sort of a value-based contracting approach is not something that is appealing, is there a possibility instead to do a cooperation, to demonstrate the value of the product outside of the value-based contracting arrangement? Or perhaps, if it is not widespread, is there a way to do a test case, say with a member of a GPO, and then have that information results be available as a case study to other GPO members or perhaps support the values of product in that fashion.
But those are all some things that speak to the fact that there is no one-size-fits-all, and the focus on doing this arrangement is something that we started out the teleconference by talking about, which is it has to make sense both for the pharmaceutical company as well as for the health plan and the provider in order for it to be something that’s actually going to be able to go forward. So just on the last few slides, I just point that from slide 51 we do highlight the fact that we have a number of resources available that speak to value-based contracting that if you need additional information that is a good resource. It includes information from our past teleconferences and you can see on slide 52 just a snapshot of the website where we have that. On 53 I note that the transition to value-based healthcare teleconference series, we’re doing our final segment later in June, and that is focusing on the payor industry. Alison?
Alison Fethke: So we are out of time and we apologize for running five minutes over. We are happy to take any questions if you send them to the RG Events team, we will follow up by email with anyone who has questions so that we do not keep everyone over, but thank you so much for joining us today. We hope it was helpful and we look forward to hearing from you.
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