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Q&A: Taking a look at contracting and pricing
January 2015
by Lloyd Dunlap  |  Email the author


Lois Byra is vice president of contracting, strategy and compliance with Alliance Life Sciences Consulting Group. With more than 15 years of experience in the life-sciences industry, she has developed and implemented solutions that deliver operational efficiencies across the organization. Leveraging her IT background and business acumen in the commercial and government contracting space allows her to advise clients on appropriate solutions to their business problems.
DDNews asked Byra to help clarify compliance issues as they now stand.
DDNews: How would you define or describe the managed markets division of a pharmaceutical manufacturer?
Lois Byra: The managed markets division of a pharmaceutical manufacturer is comprised of groups that are involved in ensuring the commercial access of a product, including national and regional sales teams, marketing, and contract operations teams. Managed markets divisions contract with various entities in order to ensure that products are commercially available to patients through reimbursements to wholesalers, pharmacy benefit managers (PBMs), managed care organizations (MCOs), group purchasing organizations (GPOs) and government programs, such as Medicare and Medicaid—just to name a few. Specifically, in the “Silos to Synergy” white paper, we are focusing on those that deal with reimbursements to PBMs and MCOs.
DDNews: How do contact management, rebate processing and government pricing teams interact? Who does what?
Byra: Contract management teams negotiate the contracts between the manufacturer and the wholesalers, GPOs, MCOs and PBMs. The rebate processing group calculates the reimbursement these customers are eligible for based on the negotiated contracts. The government pricing team then utilizes certain data from the manufacturer’s direct and indirect sales, as well as the rebate payments, to play a part in determining price points required for provision to the government.
DDNews: What exactly are rebate payments and what role do they play in the overall system?
Byra: Rebate payments describe the flow of cash from the manufacturer to any customer that is contractually or legally eligible for a reimbursement on a pharmaceutical product. The managed care rebate payments are calculated in the revenue management system based on data provided by MCOs or PBMs, the contracts configured within the system that determine the eligible rebate percentages and the wholesaler acquisition cost (WAC) of a particular drug. A rebate percentage, for example, can be based on the formulary tier of a product on a health plan—meaning that those products on a more advantageous tier receive a higher rebate percentage—or by the market share achieved during a certain period in a particular therapeutic class. In the case of wholesaler and/or GPO fees, although contract structures vary, rebate percentages are usually calculated based on variables of direct and/or indirect sales, and WAC or contract price.
DDNews: Please describe the importance of MCOs and PBMs in the overall revenue management system.
Byra: Within the revenue management system, MCOs and PBMs are customers that are eligible for managed care rebates. These customers all have unique contracts with the manufacturer, and it is crucial that the revenue management system is configured based on their contracts. Improper or inefficient setup can lead to incorrect rebate payments or late fees.
DDNews: How important are Medicaid contracts?
Byra: Medicaid contracts and rebates, while administered separately from other reimbursement mechanisms, are heavily dependent upon other areas of a manufacturer’s business. The rebates given to the states on Medicaid contracts are determined by government pricing calculations, which are in turn derived from aggregated commercial sales data. While participation is voluntary, the terms of the agreement are standardized across all manufacturers. Involvement in the Medicaid program also mandates an agreement with the Section 340B Drug Pricing Program and the Federal Supply Schedule. Concurrently, the entities reimbursed under these government programs must maintain mutual exclusivity from those covered under the Medicaid program and its extensions. Unlike managed care, where rebates are provided to customers as purchase-based incentives, Medicaid rebates serve the purpose of lowering the net costs for program administration within each state, thereby allowing the drugs to be provided at a bare minimum of expense to the covered individual. As such, the manufacturer does not see much profit from Medicaid utilization. Rather, the program allows a manufacturer’s drugs more ubiquity through access to a wider area of care settings and formularies. Choosing not to participate limits the overall extent of the manufacturer’s portfolio.
DDNews: Describe how formulary codes work and why and how they can be problematic.
Byra: For some customers, formulary codes are embedded in the utilization file that is provided to the manufacturer by the MCO or PBM. These files are submitted in a set format that is predetermined in the contract and encompasses all of the necessary information the manufacturer needs in order to calculate the rebate payment. For those contracts with multiple formulary tiers, and therefore different rebate percentages, a formulary code provides a unique field within the data that the system can be set up to read to determine the proper formulary for that particular transaction. In the event that the customer does not submit a formulary code within the utilization files, most revenue management systems have ways of configuring a setup within the system based on another field in the data. This, however, can become problematic in the event that a health plan shifts tiers from one period to the next. At times, the management of these formularies within the system is extremely cumbersome and requires significant upkeep. A formulary code within the utilization file removes the need for this maintenance.
DDNews: What impact, if any, will the Affordable Care Act have on pharmaceutical manufacturers and on the role played by Alliance Life Sciences Consulting Group and others in the field?
Byra: While Medicaid contract terms cannot be negotiated between the government and the manufacturer, the guiding regulations have evolved throughout the years, from OBRA ‘90 and ‘93 to the Deficit Reduction Act of 2005. Like prior legislation, the Affordable Care Act poses new stipulations for the program, and therefore changes to how the contracts must be managed. New segments of the population are covered based on changes to the minimum percentage threshold of the federal poverty level required for eligibility. Many states manage this by submitting rebates under “Medicaid extension” contracts, which must be handled in tandem by manufacturers along with the original contracts. The act also required that utilization through Medicaid MCOs be submitted quarterly to manufacturers in addition to traditional Medicaid fee-for-service rebates, increasing the amount of time and resources required to process invoices. Significant changes were effected for calculations of and regarding the average manufacturer price (AMP), on which Medicaid rebate levels are partially based. Most critically, the Centers for Medicare and Medicaid Services proposed two distinct methodologies for AMP calculation based on sales in retail and non-retail classes of trade. However, the defining line for exclusion or inclusion within these categories is not spelled out with absolute precision. Furthermore, as of now, the rule is only “proposed” and a final one is still in the making. This lack of specificity leaves room for interpretation as manufacturers try to establish best practices regarding these calculations, which Alliance Life Sciences helps to implement.
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