Making the Best of a Tough Situation

Pharmaceutical companies can find themselves subject to corporate integrity agreements (CIAs) if the government discovers noncompliance of fraud and abuse. NGP asked Jayson Dukes of FTI Consulting what companies can do to help ensure a favorable resolution when subject to a CIA.

NGP. Could you give us an overview of the Medicaid Drug Rebate Program, the Deficit Reduction Act and the Medicare Modernization Act?
JD. The Medicaid Drug Rebate Program was created by Congress through the Omnibus Budget Reconciliation Act of 1990 (OBRA-90). This agreement requires manufacturers to report to CMS certain calculations commonly referred to as government pricing calculations. These calculations are the basis for which the manufacturer pays rebates to the state Medicaid agencies. Throughout most of the 90s, the rules and guidance from CMS were vague and ambiguous. The DRA sought to bring more clarity while at the same time make changes to the Rebate Program’s required government pricing calculations.

The other piece of important legislation is that related to the Medicare Modernization Act of 2003. This act changed the way in which drugs and biologicals covered under Medicare Part B were reimbursed by Medicare. Historically through the 1990s and early 2000s, these products were reimbursed based upon average wholesale price (AWP). The MMA moved Medicare Part B reimbursement away from an AWP based reimbursement to a concept called ‘average sales price’ reimbursement. ASP is a calculation based upon regulation and is performed by the manufacturer and reported to CMS.

NGP. Legislation and subsequent changes have made drug pricing and reimbursement methodologies a real labyrinth. What are some of the risks the industry faces?
JD. The risk from the manufacturer’s perspective is that the government has had issues with the manufacturer’s interpretation and application of the applicable regulations and that the government believes the manufacturer either knowingly or unknowingly submitted government pricing calculations that were incorrect. These alleged miscalculations resulted in an underpayment of rebates to the states. As it relates to the Medicare Modernization Act, we haven’t really seen a lot of scrutiny by the government yet. The risk here will be that the manufacturers are reporting overstated ASPs, resulting in a higher reimbursement to the doctors or to the other entities administering the product.

NGP. If the government discovers noncompliance of fraud and abuse, or even if companies self-disclose, they can find themselves subject to CIAs. What are the main elements of a CIA?
JD. Companies typically are required to enter into a CIA following settlement of civil false claims statute violations. The core elements of a corporate integrity agreement (CIA) are very similar to those of any corporate compliance program: the manufacturer is required to have a compliance officer and compliance committee in place, has a comprehensive and well written set of standards and policies and procedures, and provides comprehensive and specific training to all employees. The manufacturer is also required to perform certain testing and monitoring procedures, which will be overseen by an independent review organization.

The manufacturer is required to create a disclosure program that allows an employee to report to some other person not in the employee’s chain of command, any potential violations of criminal, civil or administrative law; and the manufacturer is also under obligation to restrict employment of certain ineligible persons as defined within the CIA. Additionally, a CIA requires certain reporting obligations with the Office of Inspector General (OIG).

A negotiated CIA gives a manufacturer insight into the government’s views of a comprehensive compliance program. From my perspective, it’s important to know the focus of the government so that you can incorporate, and structure around, elements of the corporate integrity agreement into your everyday compliance program as applicable.

NGP. What can companies do to help ensure a favorable resolution of a matter and reduce their costs and burdens when subject to a CIA?
JD. Towards the end of a settlement, there will be a shift of focus on to the negotiation of the CIA. It’s very important to take a look at the first draft given to you by the OIG, scrutinize it, and decide what is and what isn’t applicable to your company. Then work with the government to negotiate and incorporate into the CIA terms acceptable to both sides. A well negotiated CIA should dovetail with your current compliance program to ensure minimal disruption and the creation of additional work for the company.

Jayson Dukes, Senior Managing Director, Forensic and Litigation Consulting for FTI Consulting, has provided dispute advisory and forensic accounting services in the pharmaceutical and healthcare industries to attorneys and corporate clients for more than 16 years. He has advised clients on a variety of governmental regulatory matters and has assisted in negotiating resolutions with many government agencies.