HOW REVITAS IS HELPING MANUFACTURERS ADAPT TO HEALTH CARE REFORM. Health Care Reform s Long-Term Impact on Commercial and Government Contracting

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1 HOW REVITAS IS HELPING MANUFACTURERS ADAPT TO HEALTH CARE REFORM Health Care Reform s Long-Term Impact on Commercial and Government Contracting Revitas White Paper January 2012

2 INTRODUCTION On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act. A week later, he signed the Health Care & Education Reconciliation Act. The American health care industry has now entered a five-to-ten-year period, during which internal processes and systems must be aligned with the provisions of the health care reform acts. The new legislation changes the world of pharmaceutical contracting to a degree never before seen in the industry. The reach of this legislation is vast, with changes that radically impact Medicaid, Medicare, Public Health Service (340B), and commercial contracting. This document analyzes some of the major changes being driven by these health care reforms, and overviews how the Revitas Flex platform and suite of applications can help manage this historical transition. Revitas solutions build on two decades of expertise in commercial and government contracting for Life Sciences. The suite s inherent flexibility ideally positions manufacturers for compliance and profitability, even in the case of the monumental changes in 2010 and the following decade. REVITAS SOLUTIONS FOR ENTERPRISE REVENUE DYNAMICS To optimize business performance, companies must look to Enterprise Revenue Dynamics (ERD) systems that integrate contract lifecycle management with the management of pricing dynamics and compliance automation. The ultimate objective is to develop a unified contract repository for streamlining and standardizing contract management procedures while defining and automating the execution of complex pricing scenarios and improving analysis and compliance reporting. Revitas ERD solutions empower Life Sciences companies to manage the entire contracting lifecycle, from pre-deal modeling to post-contract execution and analysis. The suite is built on Flex, an industry leading technology platform that delivers scalability, auditability, and security to mission-critical business functions. In the current regulatory climate, several Revitas Enterprise Revenue Dynamics applications play important roles in managing government contracts: Revitas Contract Manager Manages the legal terms and language of all contracts, including government contracts. Revitas CARS Manages all commercial contracts as well as Medicare Part D, Public Health Service (340B), VA/Federal Supply Schedule, and TRICARE contracts, including ongoing compliance and adjudication requirements. Revitas Government Pricing Manages the price reporting and compliance 2012 Revitas, Inc. All Rights Reserved. 2

3 requirements of many government programs including Medicaid, Medicare Part D, Federal Supply Schedule and 340B / PHS. Revitas Medicaid Rebates Manages Medicaid, State Supplemental, and State Pharmaceutical Assistance Program (SPAP) contracts, as well as their ongoing compliance and adjudication requirements. Revitas Medicare Module Enables manufacturers to automate the calculation and payment of coverage gap rebates to ensure accuracy and compliance. Revitas Validata Manages the script-level scrubbing of claim data for commercial as well as government contracts, and oversees the Coordination of Benefits process as it relates to adjudication of claims. Revitas Analytics Manages the analysis of both what-if and actual results of commercial and government contracts, including ROI analysis, gross to net, and contract performance projections. HEALTH CARE REFORM S IMPACT ON THE PHARMACEUTICAL INDUSTRY While the full impact will be realized in stages over the next decade, the health care reform acts include more than a dozen provisions that take effect in Once fully implemented, all of the reforms will result in: A significant increase in newly insured lives, with an estimated 32 million added to various programs Up to 16 million lives newly covered under Medicaid Changes to the Medicaid unit rebate calculation and higher utilization of rebates paid on Medicaid Managed Care Change to Medicaid rebate on new formulations of drugs Expansion of Medicaid rebate reimbursements to include Medicaid Managed Care Revisions to the AMP calculation methodology Coverage of the Medicare Part D donut hole A significant increase in 340B-covered entities New integrity protocols for 340B pricing In addition to these changes, the broadened scope of publicly funded health care will inevitably lead to additional cost containment measures by the government. An increase in investigations 2012 Revitas, Inc. All Rights Reserved. 3

4 into the pricing practices of the health care supply chain is likely, which will impact drug manufacturers, group purchasing organizations, and managed care organizations. With this additional pressure, compliance must become an even higher priority for manufacturers than it is today. REVITAS: PREPARED FOR CHANGE Revitas helps pharmaceutical manufacturers successfully align business operations with health care reform. Increases in Medicaid Covered Lives and New Rebate Calculations The new federal qualification guidelines for Medicaid recipients will be based on 133% of the federal poverty line. This will add an estimated 16 million lives to the Medicaid roster over the next ten years an increase of approximately 25%. This will have a significant impact on pharmaceutical manufacturers, in both program scope and data management needs: Additional volumes of drugs sold to the previously uninsured Reduced margins overall as more prescriptions are covered by Medicaid Increased need for data validation and script-level data scrubbing to prevent revenue leakage Increased need for timely and accurate forecasts and accrual generation Rebate calculations are changing significantly. A new base rebate percentage and extended line products must be taken into account, and rebates will be capped at 100% of AMP. Pharmacy reimbursements will also be based on newly defined AMP calculation methods. Users of Revitas ERD solutions can efficiently respond to all of these changes with the existing toolset. Revitas Medicaid Rebates was built with flexibility in mind and is able to quickly adapt to changes in volumes and reimbursement methods. Using Revitas Analytics, users may model what-if projections to Medicaid participation levels and reimbursements to forecast and accrue future Medicaid exposure. And using Revitas Validata, manufacturers can scrub Medicaid script-level data to ensure that they are paying every Medicaid rebate that is owed, but not a penny more. Increase to the Medicaid Unit Rebate Amount Calculation The health care reform acts include an increase to the base Medicaid rebate amounts: from 11 to 13% for Non-Innovator drugs, and from 15.1 to 23.1% for Single Source and Innovator drugs. Particularly for branded drugs, this increase is substantial almost 50% compared to current rebate amounts. This hike in Medicaid rebate exposure, combined with the increase to Medicaid covered lives, creates a significant shift in manufacturers profitability and the ability to keep up with the demands of the program. Additionally, a 17.1% base rebate has been instituted for certain clotting factor and pediatric-use drugs, posing another operational challenge to manufacturers. Revitas Medicaid Rebates is able to easily adapt to the adjusted rebate 2012 Revitas, Inc. All Rights Reserved. 4

5 amounts to allow for a seamless transition to the new methodology. Using Revitas Analytics, manufacturers can perform what-if analysis and projections on how these changes impact the bottom line. Finally, manufacturers can use Revitas Validata to perform script-level scrubbing on Medicaid claims data and ensure that only legitimate, non-duplicate scripts are approved for reimbursement to the states. Change to Medicaid Rebate on New Formulations of Drugs The new legislation changes the Medicaid rebating practices applied to new formulations of drugs, particularly focused on extended lines of single source and innovator drugs. Manufacturers will now be responsible for paying an alternate additional rebate amount that takes into account both the new drug s AMP and the original formulation s AMP. This new methodology can significantly impact the benefits of introducing new formulations and reduce financial incentives. Revitas Medicaid Rebates is fully compliant with this new requirement and offers a flexible infrastructure for configuring these extended line relationships and rebates. Using Revitas Analytics, manufacturers have the ability to model what-if projections of new formulation profitability and market share, to help in determining the benefits of bringing the new drug to market. Expansion of Medicaid Rebate Reimbursements to Include Medicaid Managed Care Traditionally, prescriptions covered under Medicaid Managed Care plans have been subject to independent contracts and reimbursement methodologies, and the Medicaid Drug Rebate Program has only applied rebates to drugs dispensed under Fee for Service programs. With health care reform, manufacturers will now be responsible for paying rebates for both Fee for Service and Medicaid Managed Care utilization. This impacts manufacturers in several ways: Higher rebate exposure as MDRP reimbursable volumes increase significantly Increases to coverage and utilization under Medicaid Managed Care Need for prescription-level scrubbing to capture duplication between FFS and MMC claims Increased need for timely and accurate forecast and accrual generation Revitas Medicaid Rebates was built to handle the needs of a constantly changing market, and can adapt to revised reimbursement methodologies quickly with minimal overhead. Using it in conjunction with Revitas Validata, manufacturers can significantly reduce duplicate claims and prevent overpayments across FFS and MMC scripts. The data in Revitas Medicaid Rebates combined with the forecasting and modeling capabilities of Revitas Analytics allows manufacturers to generate realistic accrual and forecast numbers that take into account these major changes Revitas, Inc. All Rights Reserved. 5

6 Revisions to the AMP Calculation Methodology The calculation for Medicaid AMP will be revised in late 2010, causing a significant shift to the standard method of identifying classes of trade and classifying retail pharmacies. As manufacturers update their Government Pricing systems in response to this change, many considerations need to be taken into account, including revisions to smoothing algorithms, special exception handling, and updates to methodologies for historical recalculations. Revitas Government Pricing is designed to allow for great flexibility and configurability through the user interface, without the need for custom coding. Users may quickly and easily model these methodology changes and accurately manage versions and traceability of the original calculations. Revitas Government Pricing allows for a streamlined, smooth transition to the post-hcr methodology. Coverage of the Medicare Part D Donut Hole In addition to the sweeping changes proposed to Medicaid, many changes are being introduced to the Medicare Part D program. Perhaps the most significant change is the coverage of the current donut hole. The health care reforms dictate that this coverage gap will be eliminated, and that manufacturers will be responsible for paying for 50% of the coverage. This will be managed using discounts provided at point of sale. Non-compliance carries severe financial penalties and even the risk of jail time for executives. Organizations need a much more efficient way to manage the Coverage Gap Medicare Part D Rebate Process, proactively and accurately process refunds payable to plan sponsors and report on and prove compliance. Manufacturers will require a tool with the flexibility to pay rebates using configurable calculations. Revitas CARS and its unique Formula Builder functionality helps manufacturers adapt to new and unusual reimbursement methodologies. Revitas Medicare Module effectively manages the true-up and refund process, greatly reducing administrative overhead, and minimizing the risk of non-compliance. These tools, along with Revitas Analytics, can help manufacturers quickly respond to new mandates while closely monitoring the financial impact. Significant Increase in 340B Covered Hospitals The new health care reform acts place a significant emphasis on the 340B program, expanding its scope to include new types of hospitals. Additionally, programs will be implemented to monitor the integrity of 340B ceiling prices reported by manufacturers, which may result in many new administrative requirements. Manufacturers will be impacted with several new operational requirements: Greater need to accurately manage 340B membership Greater need to manage Coordination of Benefits across 340B and Medicaid inpatient prescriptions 2012 Revitas, Inc. All Rights Reserved. 6

7 New requirement to identify reductions in 340B ceiling price and manage the resulting reimbursement process to the affected entities Revitas CARS has helped pharmaceutical companies manage 340B contracts for more than a decade, and offers the flexibility to handle changes with minimal overhead. As the need to manage revenue leakage becomes even more of a priority, manufacturers can take advantage of the robust membership management capabilities of Revitas Advanced Membership, combined with the script-level scrubbing capabilities of Revitas Validata. These modules directly impact the bottom line as they help to avoid overpayments and unnecessary payment of fees. SUMMARY While the full significance of the new health care legislation is not yet understood, one thing is certain: change has begun. Manufacturers can minimize risks by taking proactive measures to align systems and processes with health care reform. Revitas solutions for Enterprise Revenue Dynamics offer a solid foundation that can help manufacturers ease the pains of transitioning to new methodologies and compliance requirements Revitas, Inc. All Rights Reserved. 7

8 2012 Revitas, Inc. All Rights Reserved. revitasinc.com