Some of the legal and regulatory obstacles to value-based contracting between biopharma manufacturers and payers could be cleared with the help of guidance from the HHS Office of Inspector General designating specific safe harbors, Eli Lilly & Co. VP and Deputy General Counsel (USA) Alonzo Weems commented at a recent conference in Washington DC.

“This is one very specific step the OIG can take, to issue new or updated compliance guidance to manufacturers, specifically addressing value-based contracts, specifically addressing what it deems acceptable and consistent with current law and the areas it would say to manufacturers, ‘Here is a space where you should be cautious,’” Weems said at the Pharmaceutical Summit on Business and Compliance Issues in Managed Markets June 9.

“Safe harbors are supposed to reflect health care transactions and relationships as they exist. That’s why I think safe harbors need to be regularly updated so they reflect the changes that are happening in the health care market,” Weems said. “The reason that we need to slow down today in value-based contracting is because the safe harbor as it exists today, both statutory and regulatory, simply doesn’t reflect or account for value-based contracting.”

Lilly issued a white paper in conjunction with national insurer Anthem Inc. in January outlining ways to advance value-based contracts ([A#00160229013]). Weems’ comments offered more insight into what the companies are hoping for.

He emphasized that drug firms are very wary of incurring government sanctions by attempting new types of contracts with payers, noting that Lilly’s involvement so far in value-based contracts has been experimental and relatively limited.

Contracts between manufacturers and payers 'are probably the most lawyered parts of the business in a manufacturing organization' – Lilly USA Deputy General Counsel Weems.

“There is a need for caution here because contracts between manufacturers and payers, certainly in commercial organizations, are probably the most lawyered parts of the business in a manufacturing organization. … When you think about the penalties in this space being violations of a criminal or anti-kickback statute or getting your price reported wrong to the government, those consequences are significant.”

His co-panelist, former Anthem Inc. Chief Medical Officer Sam Nussbaum, agreed with Weems’ assessment. “I think health plans are generally very conservative, but we are seeing even more risk aversion on the side of the pharmaceutical companies because of the ‘sword of Damocles’ that can be over their heads on some of this – knowing the penalties can be so significant.” Nussbaum retired from Anthem in late 2015 and is now a consultant with EBG Advisors.

Adherence, Data Analytics, Warranties

Weems cited three areas where a safe harbor is needed – manufacturer-sponsored medication adherence programs, management of data analytics regarding outcomes, and exercising a drug performance “warranty.”

With regard to adherence, he said, “one of the proposals that we have is a very clearly expressed … safe harbor that allows manufacturers and payers to engage in some experimentation to think about how we partner in this space.”

Explaining the need for a safe harbor on data analytics, Weems said that manufacturers are looking for the appropriate way to collect and analyze data as part of an outcomes-based contract but need guidance on “how we can bring the data together to make sure that we are measuring the right outcomes and doing that in very objective ways.”

He also pointed out “there have been discussions of whether you need to bring in a third party to manage the data, what data is being collected and how it is being analyzed. Having some kind of safe harbor in this space that acknowledges this as a necessary underpinning to drive value-based contracting is needed.”

Finally, manufacturers are looking for ways of adapting current regulations regarding product warranties to performance-based contracts for drugs. “The language is imprecise, unclear. It does not give the kind of guidance that myself and others think would open up the path to say, ‘I know how to design a contract to meet this warranty safe harbor for value-based contracts and now we can move ahead in this partnership.’”

“What I think we are calling for is either [a safe harbor] that is focused specifically on value-based contracting or a redraft of the existing warranty safe harbor in order to expressly contemplate value-based contracts,” Weems said.

Industry Proposal Expected In September

Lilly has not sought a formal opinion from the OIG for a new a safe harbor regarding medication adherence but supports a safe harbor developed by the industry-funded Prescriptions for a Healthy America, a company spokesperson said. Members of the PHA steering committee include the Pharmaceutical Research and Manufacturers of America, Merck & Co. Inc. and CVS Health Corp.

Prescriptions for a Healthy America submitted a proposed safe harbor for medication adherence initiatives in government-sponsored programs to the OIG in early 2015. It recommends that adherence support be excluded from the definition of remuneration under the federal anti-kickback statute if certain conditions are met, including that the adherence program is not designed to interfere with the independence of health care provider decision-making.

In addition, the proposal stipulates that adherence support “does not include the provision of discounts, rebates, or payments that directly impact the price of the health care provider-recommended treatment.”

Following receipt of the proposal, OIG said in its December 2015 report to Congress that it needed additional information regarding the specific need for the safe harbor and support related to the problem of medication non-adherence in federal health care programs.

Prescriptions for a Healthy America is currently working on a white paper that will explain the problem and solution in greater detail, a spokesperson for the organization said. It is expected to be completed in September.

The Lilly executive pointed to the pharmaceutical compliance guidance issued by the OIG in 2003 as a possible building block for new guidance that could help advance value-based arrangements.

The 2003 guidance provides the OIG’s views on what policies and procedures should be involved in a drug company’s internal compliance program and identifies specific areas of compliance “risk,” including kickbacks and “other illegal remuneration” Also see "IG Compliance Guide Approach To CME, Consulting Concerns PhRMA" - Pink Sheet, 26 May, 2003..

The compliance guidance “really cleared the path for understanding OIG’s thinking on these very important issues and provided, I think, some reassurance about certain transactions and some caution about others.” Weems said.

New guidance from the OIG may be the most likely source of assistance in the short term. But Weems pointed out the optimal development would be actual regulations defining best practices. The “better course of action [would be] going through the full rulemaking process … and actually getting new regulatory safe harbors,” he said.

That “is clearly the better place to be, as value-based contracting becomes less of an exception and more the rule. The clearer the guidance, the more efficient we can be in partnering with payers across the country.”

CMS Waiver Authority Not That Appealing

Weems and Nussbaum addressed whether leveraging the demonstration authority at the Centers for Medicare and Medicaid Services innovation center might be useful in efforts to expand value-based purchasing.

Established by the Affordable Care Act, the Center for Medicare and Medicaid Innovation (CMMI) is empowered to waive some legal and regulatory obstacles, such as the anti-kickback rule, in order to carry out payment experiments. The HHS secretary then has the authority to expand (including implementation on a nationwide basis) the duration and scope of a model if it reduces spending while improving or not reducing quality of care.

However, the prospect of supporting a CMMI payment experiment is tricky for manufacturers who worry about incurring additional pricing oversight in the Medicare or Medicaid programs. For example, drug firms are strongly opposed to some of the forms of value-based pricing that are included in CMS’ proposed demonstration for Medicare Part B drugs, such as reference pricing ([A#00160314019]).

Weems and Nussbaum suggested a CMMI demo would, at best, be of limited benefit and suggested it is unclear whether or how the waiver would lead to a permanent change in the law if the secretary determined a demonstration should be implemented nationally.

“If [a CMMI demonstration] is an option that perhaps helps in a very limited circumstance, the question I would ask is, what happens after that instance where the waiver has been applied?” Weems said. “If [a demonstration] is a precursor for learning, for later action, then maybe” it would be helpful. “But I think certainly the better option is more broad-based, across-the-board guidance that a number of manufacturers can benefit from.”

“I don’t know what happens if there is a CMMI experiment that’s successful and that gets implemented, what impact that has over the statutory laws that exist today,” Nussbaum added. He indicated it would be more productive to focus attention of changing existing laws.

The laws that create obstacles to value-based contracting “are what have to be addressed. It really has to be taken head-on,” Nussbaum urged. “Everybody is asking for it, in all parts of the industry.”

Value-Based Contracting Needs Federal Safe Harbors To Flourish, Lilly Says

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