Tips for Pharmaceutical Manufacturers: Reacting and Responding to an OIG Review

November 2016

By Susan Dunne

The magnitude of government spending on drugs increases the pressure on Congress to demonstrate frugality, and consequently, Congress puts pressure on law enforcement agencies to scrutinize pharmaceutical manufacturers’ compliance with federal pricing requirements.

Pharmaceutical manufacturers typically conduct business with the federal government through commercial contract vehicles and a complex array of rebate, reimbursement and statutory programs established to put limits on pharmaceutical pricing. The array of relevant programs controlling federal pricing include:
  • The Department of Veteran Affairs (VA) Federal Supply Schedule (FSS) contract,
  • The 340B Drug Discount Program (for purchases by certain federally funded safety net providers),
  • The Medicaid Drug Rebate Program (MDRP),
  • Medicare Part B, and
  • the Veterans Healthcare Act (VHCA) statutory price ceiling requirement for drugs sold to the VA, DOD, PHS and the Coast Guard.

Some requirements are general to federal commercial business, like the disclosure and price tracking requirements of the VA FSS contracts, and many more are specific to the nature of pharmaceutical business, like the many price-type calculation submissions required for MDRP and Medicare Part B. The common thread among the compliance requirements the pharmaceutical industry faces? Management and categorization of transactional pricing data.

Because of the special focus on this industry, more is required of pharmaceutical manufacturers than other industries that choose to avail themselves of the federal marketplace for their commercial items. Pharmaceutical pricing scrutiny begets a need for more transparency in pharmaceutical pricing practices, as well as sales and marketing practices. This can lead manufacturers to implement measures to reduce costs, develop alternative means for delivering drug benefits and, of course, ensure an effective compliance program is in place.

On the other hand, this scrutiny also translates into the government prioritizing funds for Offices of Inspector General (OIG) to increase the number and focus of contract and compliance reviews. These reviews are often called OIG “audits,” but the term is misplaced, as these reviews do not entail all the details associated with “audits.” Pharmaceutical manufacturers are reviewed by a host of federal entities: the Department of Health and Human Services (HHS) and its Center for Medicaid and Medicare Services (CMS) (i.e., MDRP, Medicare Part B), the Office of Pharmacy Affairs (OPA) (i.e., 340B) and the VA for both the statutory (i.e., VHCA) and contractual obligations (i.e., the FSS contract and any BPAs thereunder).


Expectations

In general, when the OIG conducts a review, manufacturers must be able to produce an audit trail and establish the ability to reproduce all price-type submissions. For pharmaceutical manufacturers, that includes myriad pricing calculations and submissions for MDRP, Medicare Part B (where applicable), 340B and VHCA. Manufacturers should be able to demonstrate their calculations are current, accurate, complete and in accordance with the manufacturer’s understanding of its obligations and the business-related choices it makes under the law, as documented in their company policy documents.

It’s critical—and expected by the government—that manufacturers have a documented set of policies and procedures that they demonstrably follow. Therefore, manufacturers must maintain adequate documentation of relevant accounting transactions and decisions. Documentation of decisions that affect pricing calculations must account for the factors and causes that contribute to each decision. Customer classification should be clear and accurate. An OIG review can even be triggered by anomalies created when a manufacturer decides to either include previously excluded or exclude previously included customer classes. Finally, it is expected that manufacturers have all records available, electronic and hard copy, to support all submitted calculations since the inception of the three-year recalculation rule.


Goals of an OIG Review

Once a manufacturer is notified of an impending OIG review, key stakeholders associated with the relevant federal programs (depending on the scope of the OIG review) should meet and discuss their goals for the review. Goals might include the following:
  • Understand the OIG review process
  • Gain insight into strategic logistical considerations
  • Gain insight into effective and consistent communication
  • Share legally approved information
  • Refocus efforts in record retention and documentation
  • Enhance business practices
  • Gain additional perspectives

Just as a manufacturer establishes goals for a successful review, so too does the relevant agency. Typically, OIG’s goals may be as follows:
  • Ensure statutory and regulatory compliance
  • Understand manufacturer’s methodologies
  • Confirm compliance of manufacturer’s systems/process
  • Ensure process supports timely and accurate submission
  • Confirm regulatory consistency in foundational data
  • Assess compliance environment
  • Understand the states’ disputes resolution process
  • Gain insight into reimbursement rates
  • Prevent revenue leakage

Because the agency and manufacturer’s goals for the audit might diverge, best practices to prepare for the review include effective, consistent and clear communication with the government team, effective upfront negotiation regarding the pool of relevant data required for review and development of an effective work plan to manage the review process.


What could go wrong?

The most common manufacturer concern during the review is that often OIG reviews take longer than expected and expend more of the manufacturer’s resources. Manufacturers undergoing a review should anticipate factors that could impact review timing. For instance, they should consider the accessibility of relevant data pools, the availability of resources to compile the data and respond to on-the-spot requests, the accuracy (and reproducibility) of the data, and how well it supports the submitted calculations and/or disclosures. Manufacturers should also be cognizant of the availability of relevant upstream stakeholders, who may not be aware of the potential review and their associated roles. Planning and prioritizing availability for these additional resources can be crucial to ensuring a speedy and smooth review process.


How to mitigate delays and other interferences

Consistent communication with OIG representatives can help the process run smoother and mitigate delays. Manufacturers should have a key point of contact or manager charged with overseeing the review process. Funneling all communication through this individual allows for reasoned, efficient responses to OIG requests. It is also important to get IT involved upfront to ensure appropriate priority for the response. The review is essentially a data-driven effort, and its success or failure can hinge on IT preparation. The point of contact should also act as a project manager and coordinate the timeline of responses to ensure they are efficient and thorough. Finally, it is crucial that the point of contact and other various upstream stakeholders in the pricing process reach a consensus on the critical dependencies of the review’s various elements.


What challenges can arise during a review?

The review manager should anticipate—and communicate as needed to individuals in the organization who might be unfamiliar with the process—the compliance challenges among the company’s various programs. OIG may lack a full understanding of the complexity of the manufacturer’s commercial pricing data, as well as the expectations and requirements of commercial operations. Companies can manage this disconnect by anticipating the issues that are likely to arise and managing the risks accordingly.

Common challenges include:
  • Lack of clarity on net price and what constitutes a price concession
  • Data isn’t always available at the necessary level of detail
  • Inclusion and exclusion of Class of Trade (COT), contract, transaction type reason codes and price per unit
  • Tight turnaround—responses are required within 30 or 45 days
  • Lagged transactions
  • Variation across programs
  • The nature of programs impairs the ability to be conservative
  • Guidance is often incomplete, unclear and constantly evolving


Preparation leads to success

The more business a manufacturer conducts with the government through commercial contract and rebate programs, and the longer a manufacturer participates in these federal programs, the more likely it is an OIG review will occur. The cost of non-compliance is very high, not only financially, but also to the company’s reputation; the cost of compliance should be factored into the equation when deciding to sell pharmaceuticals and do business with the federal government. Manufacturers should ensure a robust compliance program is in place prior to encountering a review notice. Once a review is on the table, manufacturers should waste no time in naming a project manager, reviewing their process, ensuring data is accessible and accurate, and coordinating and communicating with the relevant stakeholders to ensure appropriate priority.

The best response to an OIG audit is summed up in just one word: preparation, preparation, preparation.

Susan Dunne is a managing director in BDO’s Government Contracting practice, and may be reached at sdunne@bdo.com.

Read Next Article, "So You Bought an Internet Domain: IRS Chief Counsel Offers Clarity Surrounding Tax Treatment of Domain Acquisitions" 

Return to BDO Knows Government Contracting Newsletter - Fall 2016