Aggregate Spend Laws: Here Comes the Sun

There appears to be a slow-moving train collision looming for the US pharma industry over aggregate spending rules, for which data collection is supposed to begin on January 1. Having been called “the most disruptive force affecting pharma sales and marketing today,” according to Eric Newmark, research director for IDC Health Insights’ Commercial Life Sciences Practice (Framingham, MA), the Physician Payments Sunshine Act, enacted in March 2010 as part of the federal Patient Protection and Affordable Care Act, or PPACA—goes into effect in less than six months.

The “agg spend” rules of PPACA require drug and med-device manufacturers to report expenditures or other “transfers of value” paid to healthcare professionals and hospitals—and sets some limits on how much can be spent on specific individuals. Data capture is set to begin in January 2012 and annual reporting to the government begins in March 2013.

There is a glimmer of a silver lining in the effort to collect all these data: Once they’re in one place, business analysts can attempt to measure spend data and compare it to the business value obtained—something that has rarely been attempted outside conventional advertising/promotion activities. But getting there will require a long slog through data capture and standardization processes. Meanwhile, the first few rumblings of the impact of publicly available agg spend data on physicians have already occurred: ProPublica, a New York nonprofit investigative-journalism group, has a running “Dollars for Docs” survey on its website, which identifies payments from a handful of pharma companies that have begun reporting some agg spend data; commentators on the site who are physicians are generally not happy with the exposure.

Given the complexity of the undertaking, “It’s surprising how many providers do not yet have a complete understanding of the pending federal legislation, or systems and a process infrastructure in place to readily support those requirements,” says Thomas Hannigan, practice leader at The Knowledgent Group (Warren, NJ). “Many assume that the federal Sunshine legislation is merely ‘state-level Spend reporting for more states,’” he says. “We are seeing a false sense of security that the processes and technologies already in place will scale appropriately to support federal Sunshine reporting, and in many cases, they may not.”

As of now, nine states and Washington, DC, have passed legislation requiring drug and medical device companies to disclose data about different types of compensation paid to healthcare providers (HCPs) and healthcare organizations (HCOs), and an additional nine states have introduced similar legislation, according to William (Bill) Buzzeo, VP and GM, Global Compliance Solutions, at Cegedim Relationship Management (Bedminster, NJ). “The current state-level reporting requirements are not consistent from state to state and cannot be broadly interpreted regarding the definitions of terms, reportable entities or types of transactions,” adds Michael Johngren, managing partner of Parallax Consulting (Princeton, NJ). Once the federal agg spend rules are layered on top of the patchwork of state regulations, it becomes clear that reliance on a manual or spreadsheet solutions to track acitivity will no longer be sufficient. Rather, experts agree that the use of an enterprise-wide IT solution, supported by appropriate changes in business rules and processes, will be necessary.

This will create both challenges for life sciences companies and opportunities for the third-party vendors and service providers specializing in the agg spend arena. For instance, according to an industry survey (entitled Trends in Aggregate Spend and Disclosure Reporting Compliance) published in March 2011 by Cegedim Relationship Management, of those respondents who mentioned that they currently use a manual/spreadsheet solution to satisfy state-level requirements, 77% plan to move to an automated solution in response to the federal law (up from 64% in 2010).

Meanwhile, PPACA does not preempt existing state laws and does not prevent individual states from adding additional reporting requirements; it merely serves as a nationwide baseline. This creates considerable amount of complexity to the disclosure and reporting requirements drug makers and medical device manufacturers must manage.

And to date, HHS has not set clear policies or issued standards to guide companies. This lack of guidance is hampering the efforts of many companies as they approach the March 2013 deadline for reporting to begin.

“Companies have to start collecting data this coming January, yet there are still a lot of details that need to be resolved about the precise information that companies will be required to collect,” says Kyle Sampson, JD, partner at Hunton & Williams LLP (Washington, DC).

“It’s always surprising to me how long it takes the government to turn a basic principle into law and yet not provide any details about how the law should be followed,” says Parallax’ Johngren. “A big question is whether there will be a reasonable amount of time for companies to react once the government issues its standards for submitting the data.”

To meet the complex requirements of the state and federal agg spend rules, “Life sciences companies must establish cross-functional sponsorship and governance, engaging people with skills in compliance, R&D, commercial ops, medical affairs, IT and operational change, says Tom Schwenger, global managing director for Accenture’s Life Sciences Sales and Marketing Practice (Philadelphia). “They must also educate senior leaders from business, legal and regulatory functions on the implications of the resulting solution options, and get their buy in for the compliance strategy.”

Specifically, the appointed stakeholder group should bring these critical skills to the table:

* Knowledge of the state and federal agg spend requirements (and related regulations related to fraud and abuse)

* Organizational change expertise and effective business sponsorship, and

* Strong IT capabilities (either internal or third-party) related to financials/procurement, data integration, analytics and reporting to the multiple government agencies.

Many agree that common standards for data definition and exchange protocols would allow everyone involved to better integrate their systems and would improve the quality of the reported information. However, waiting for guidance from the government is not an option.

“Unfortunately, the lead time and investment required by companies to prepare their systems, processes and teams to meet the data-capture and reporting timelines has forced companies to each pursue its own solution,” says Henry Burgess, executive director in Ernst & Young’s Advisory Services Practice (New York). In the absence of final requirements published by HHS, many third-party consultants have developed legal interpretations of the state and federal legislation, to enable companies to get started.

“Since the final regulations are still in development and HHS has the authority to change them, most companies are taking an expansive view in preparing for their reporting requirements, logging all interactions with their key opinion leaders (such as physicians, medical investigators, medical experts and other advisors), so they will be prepared to report based on the final requirements once they are known,” says Schwenger of Accenture. “Where interpretations have been difficult, our clients have made individual business decisions on what data will be captured based, in part, on state regulations and PPACA,” adds Burgess of Ernst & Young.

What’s at stake

The types of expenditures that must be reported include any “transfer of value” (in cash or in kind) between a drug or medical device manufacturer and any HCP or HCO. Reportable items — take a breath here! — include consulting fees, compensation, honoraria and expenses related to particularly on advisory boards, gifts, entertainment and meals, travel expenses, educational support, fees for research, charitable contributions, royalties or license fees, current or prospective ownership or investment interests, direct compensation for serving as faculty or as a speaker for a medical education program, medical education grants and contributions, educational items (such as anatomical models), fees and expenses related to research services, unblended market research, publication support (including payment to a third party to support an HCP in drafting an article or data analysis), and other payments or transfers of value as defined by HHS.

To date, the value attached to consumer-oriented coupons given to physicians (to allow patients to sample a given medication) is not included in the Sunshine Spend law. However, at least one state to date (Vermont) currently requires companies to track and report the distribution of coupons, vouchers and samples to physicians. “It appears that Vermont’s reasoning for this requirement is that providing coupons and vouchers to an HCP creates a relationship that may affect his or her prescribing habits, even though the end benefit is provided to the consumer,” explains Benjamin Carmel, manager, Polaris Management Partners (New York).

As for drug samples, Vermont already requires disclosure, and starting next April, per PPACA, the quantity of drug samples given to physicians must be reported to the Secretary of HHS as well.

Wanted: A master agg spend database

One of the most challenging aspects of the Sunshine Spend law is that it will require companies to integrate all such value transactions across the entire enterprise—whether the payments are made by individual business domains related to R&D, medical affairs, manufacturing, others. The need to capture and aggregate so much variable data from so many difference sources is creating a tall order for life sciences companies.

Having a robust master customer data file to support agg spend reporting requirements — both state and federal — will be the linchpin of any successful compliance effort. “Building a good customer master database is difficult, which is why most companies have not already done it, despite its obvious benefits,” says Johngren of Parallax Consulting. “Traditionally, individual companies have not integrated all agg spend transactions across the enterprise — for instance, R&D information was not integrated with commercial activities, specialty units such as oncology or vaccines were not integrated with primary care units,” adds Accenture’s Schwenger.

To date, in the process of becoming ready for compliance reporting, “the challenge of maintaining data quality across the enterprise has exposed some very deep holes in the data-management and business-analytics practices of companies that were once considered the best in class,” says Burgess of Ernst & Young.

Building a robust master database creates a two-fold challenge: All sources of upstream data must be funneled into the centralized agg spend system, and the data must be cleansed and de-duped to ensure that it is as complete and accurate and in as standardized a format as possible. In an ideal world, every localized agg spend system would capture complete information related to HCP identity, dates, product, activity type and purpose for every single payment or transfer of value. But the world is rarely ideal. Rather, localized efforts often fail to capture the required level of granularity or attributes that are necessary to meet the current spend reporting requirements, says Polaris’ Carmel. This creates a nightmare when it comes to aggregating enterprise-wide spend data. “The old adage of garbage in, garbage out is extremely applicable to the agg spend environment. The key to solving the dilemma is to have comprehensive and standardized spend-capture workflows. This should be the focus across the entire organization,” he adds.

With data being collected and managed by so many different groups, it is an enormous challenge to ensure that recipients of reportable payments are properly identified in each of the data sets collected by each division or functional group, and accurately linked across the various systems and departments where different types of spend activities are occurring.

In typical life sciences company, sales reps incur meal expenses, which are processed through the company’s travel & expense (T&E) department, while the financial IT system or Accounts Payable department elsewhere in the enterprise tracks payments made to HCPs for services related to marketing, medical and clinical affairs, and so forth. In many cases, individual HCPs or HCOs may be receiving payments from more than one department within the same life sciences company.

A robust master dataset needs to be more than a name and address; it should include other identifiers like NPI or DEA number, state license number and so on. According to the recent Cegedim survey, the ability to establish unique identifiers for HCPs and HCOs ranked as “the most challenging” aspect of compliance among respondents.

“Since the information will be publicly accessible, it is of paramount importance to ensure that all spend data is allocated to the right individual, and that there is clear traceability back to the origin of the transaction,” says John D’Urso, managing partner at Knowledgent. “This will both ensure the validity of the posted information and allow compliance and spend personnel to respond to prescriber disputes.”

Manage your expectations

When evaluating possible systems and solutions for creating a master customer database, Johngren of Parallax notes that no off-the-shelf solution will necessarily be able to capture all sources of spend data right out of the box, so users should evaluate the core feature set and plan for enhanced integration later. “The data integration challenges, while not trivial, should be seen as a standard part of the implementation, and either your internal IT team or your external integration partner should have the skills to develop a robust data-integration pathway that works with the chosen system.”

Cegedim Relationship Management’s Buzzeo says that a best-in-class solution should be able to accept agg spend data in three ways:

* From multiple upstream data feeds (from CRM or other enterprise systems)

* As data entry via a flexible user interface (ensuring secure access for internal users or third parties to capture low-volume transactions)

* From spreadsheet uploads using standard Excel templates (ensuring secure access for internal and third parties to capture higher-volume transactions).

Similarly, once an appropriate aggregation and reporting system is in place, it is important for companies to review their ability to prevent compliance infractions through proactive monitoring and alert measures. “This is generally achieved through a combination of alerts built on programming logic, workflow and approval mechanism,” says Newmark of IDC. “Reverse integration with CRM or sales force automation (SFA) systems may prove to be among the most valuable prevention mechanisms companies can implement.” For example, he suggests that when certain thresholds are reached (for instance, 50% of annual spending limit for an HCP), email alerts can be sent to applicable sales reps, district managers, marketing personnel and other stakeholders.

Newmark also suggests that because sales reps typically have the most frequent interaction with HCPs, it is important that they have good visibility into other forms of compensation that their HCPs may receive through other channels of interactions (speaking engagements, consulting and clinical arrangements), so they can ensure that spending limits are not exceeded. “There is no better place for an agg spend dashboard to appear than within the SFA profile of each HCP,” he says.

Seeking third-party assistance

When it comes to evaluating potential packaged agg spend IT solutions from software or third-party service providers, “a fair amount of due diligence is required, from a total cost of ownership, vendor lock-in, and IT architecture standpoint,” says Burgess of Ernst & Young. IT managers will need to evaluate the pluses and minuses of a tight, point-to-point integration with the enterprise IT architecture, thus locking in both the agg spend solution and the enterprise system, versus a “simplified” integration that allows data to move from one area to the other.

Cegedim Relationship Management’s Buzzeo says that leveraging a customer master data management (cMDM) technology as a service, together with a high-quality, healthcare reference data source, is emerging as a best practice. The cMDM service, which facilitates and centralizes the assignment of a unique customer identifier (ID), together with required identifiers for reporting (such as NPI, Vermont licensure numbers, and Massachusetts IDs) supports the cleansing and augmentation of data. During data aggregation, this unique ID provides a cross-reference that can be used by upstream data-capture systems, to assist in the standardization of data capture across the enterprise and the de-duplication of the data within the master agg spend database.

“State legislatures and Congress really were naïve about the complexity of drug and device companies when they enacted these marketing disclosure laws,” says Kyle Sampson of Hunton & Williams. “Pulling together the information that these laws require really has been a monumental and expensive undertaking for many companies. And the shifting legal requirements, year after year, have not made it any easier.”

PPACA requires that the transactions between HCPs and manufacturers be published on a searchable government website by September 30, 2013, and gives HCPs right to review (and either validate or dispute) all value transactions that will be publicly disclosed about them before the official report is sent to the government.

Toward that end, “many companies and technology firms are attempting to be proactive and design online portals with routing and review functionality so that inquiries can be quickly and easily routed, reviewed, reconciled and in certain instances set for adjustments and resubmissions of data,” says Carmel of Polaris.

“It’s a good idea to give HCPs a chance to review charges attributed to them before the data are reported to the government and published for the general public,” says Johngren of Parallax. “Nothing is served by having misleading information posted and then retracted or corrected after it has already done its damage with the physician and his or her patients or peers.”

Commercial analytics

When state-level agg spend compliance reporting was first mandated, many in the legal and compliance communities felt this information should be used for compliance reporting only. However, many observers believe that beyond compliance, a well-designed approach to managing enterprise-wide agg spend activities also has the potential to support other strategic objectives. “As companies prepare for Sunshine, we hear more of them asking the question ‘What can we learn from these data?’” says D’Urso of Knowledgent. “We are seeing many companies reevaluating their approaches to spend compliance reporting, and taking real steps toward using this information to gain competitive advantage in other areas.”

“Companies are surprised at how little they actually know about their interactions and spend with HCPs and HCOs. As a result, they will be able to make better decisions on how and where they allocate their spend,” says Carmel of Polaris. “This is apparent even within larger companies that tend to have well-developed processes and systems, and it is vividly apparent in the R&D space, showing how compartmentalized that portion of the organization can be.” Others note that better agg spend data transparency also tends to highlight the lack of comprehensive awareness of HCP/HCO utilization across different areas of the business, and differing payments made for similar activities across the enterprise.

“The greater transparency, and increased granularity of data collected by recipient and by spend activity should allow life sciences companies to run a focused ROI analysis allowing for more targeted allocation of resources in the future,” adds Burgess of Ernst & Young.

However, at this point, many industry observers agree that the potential goals seem to be more aspirational than actual, and there are risks in damaging relationships with key opinion leaders, and others, by driving the analysis too heavily in the direction of ROI.

While the state and federal Sunshine laws aim to bring greater transparency to the financial transactions between life sciences companies and HCPs and HCOs, the resulting disclosures will inevitably invite questions from the public and from the media, and criticism from those looking to expose impropriety. “Such a transparent, online system that is publicly accessible will inevitably be mined for pattern of payments to doctors that can then be mischaracterized or worse,” says attorney Sampson. “Companies will have to be ready for this.” Experts agree that communications and public relations plans should be developed to reinforce the benefits of legitimate interactions between the industry and HCPs/HCOs.