Regulatory Market Update

Updates for Pharma Manufacturers

This month, we offer updates on three significant regulatory topics and our advice to manufacturers on steps they should consider now and in the coming months. As always, if you have questions on any of the content found in this market update, please reach out to your IntegriChain Consulting Lead or and we would be happy to talk you through it.

FDA Proposes Rule to Revise the Current National Drug Code Format

The FDA has proposed a new rule to revise the current 10-digit national drug codes (NDCs) to a single, uniform 12-digit format to minimize the risk of exhausting 10-digit NDCs. The FDA assigns NDCs to uniquely identify drugs marketed and sold in the United States. These NDCs are used throughout the pharmaceutical industry, and these changes would have major impacts for all drug manufacturers, pharmacies, healthcare practitioners and facilities, federal agencies, and any other stakeholders. The new NDC format would be 12 digits long with 3 distinct segments and 1 uniform format. The first segment would be the 6-digit labeler code, the second segment the 4-digit product code, and the third segment the 2-digit package code.

This proposal includes a delayed effective date to ease the transition period in converting from 10-digit to 12-digit NDCs as the FDA expects that HIPAA standards and other systems will need to be updated. If finalized, this rule would benefit stakeholders by taking on a single NDC format and eliminating the need to convert NDCs from one of FDA’s recommended formats to different format standards used by other healthcare sectors.

The proposed changes would take effect five years after the final rule is published to allow stakeholders to develop and update their systems. The transition period will last three years from the rule effective date. During this transition, manufacturers are encouraged to begin utilizing the 12-digit NDCs as soon as possible to avoid confusion. Once the rule is made effective, the FDA will assign new NDCs and require these 12-digit NDCs to be used for drug listings on or after this day. For existing NDCs, the FDA will convert these to the new format by adding leading zeros to applicable segments. The FDA has also proposed updating current product labeling requirements to allow use of either linear or nonlinear barcodes meeting the FDA standards as these product labels would also need to be updated from the 10-digit NDC to the new standard 12-digit format. The FDA is also considering further revisions to accommodate any potential technological advances and necessary system updates to avoid subsequent revisions to this regulation. 

Our advice to manufacturers: During the proposed rule development, most stakeholders were in favor of the FDA adopting a single standardized format and setting a specific date by which stakeholders would be required to have their systems ready for the new format. We advise manufacturers to continue monitoring this proposed rule and consider any potential impacts and updates that would be necessary for their systems and processes.


Proposed Rule on Revising the National Drug Code Format

FTC Investigates PBMs

Due to recent criticism, the Federal Trade Commission (FTC) launched an investigation into pharmacy benefit managers (PBMs) and their potential influence in drug pricing. This investigation will include the six largest PBMs in the United States including CVS Caremark, Express Scripts, OptumRx, Humana, Prime Therapeutics, and MedImpact Healthcare Systems. These PBMs must provide business information – including the impact of rebates and fees from drug manufacturers on formulary design and the costs of prescription drugs to payers and patients. – from the past five years.

Originally, PBMs were meant to negotiate down expensive pharmaceutical prices for the pharmacies and patients; however, over time, pharmacy groups, federal regulators, and politicians have noticed the PBMs power has expanded. Many are concerned about PBMs’impact on rising health spending, complicated contracts, and their consolidation with the largest PBMs integrating with the largest health insurance companies.

The FTC ordered the six PBMs to provide information in the next 90 days including: how PBMs determine payments to companies, how participation is limited in pharmacy networks, how formulary lists are decided for the plans they administer, annual pharmacy reimbursement data, and every rebate contract they have.

According to FTC Commission Chair Lina Khan, “Although many people have never heard of pharmacy benefit managers, these powerful middlemen have enormous influence over the U.S. prescription drug system. This study will shine a light on these companies’ practices and their impact on pharmacies, payers, doctors, and patients.”

Our advice to manufacturers: PBMs are a very important entity in pharma gross-to-net and this FTC ruling will bring clarity and answers to all the pharmacies, payers, and patients involved. We advise all manufacturers to monitor this as it will affect the entire industry. Please reach out to us with any questions regarding the FTC’s ruling on PBMs.


FTC Launches Investigation into PBMs

False Claims Act Continues to Be An Area of Regulatory Focus 

Regulators continue to focus on pharmaceutical manufacturers and government pricing. Recently, an Illinois federal jury found a manufacturer guilty of defrauding the Medicaid program by leaving retroactive drug price increases out of the metrics it was required to include for Average Manufacturer Price (AMP) calculations reported to the government. The False Claims Act fine exceeds $183 million in damages plus penalties.

Earlier this year, another manufacturer agreed to a $900 million settlement to resolve a whistleblower lawsuit accusing it of paying doctors kickbacks to prescribe multiple sclerosis drugs. The lawsuit accused the manufacturer of paying millions of dollars in kickbacks for “sham” consulting deals and speaker programs, lavish dinners, and entertainment to prescribe its drugs. This was the largest recovery of False Claims Act cases to be secured by a whistleblower without the intervention or participation of the government.

Our advice to manufacturers: IntegriChain recommends that, to continue to remain compliant with the False Claims Act and Anti-Kickback Statute provisions, manufacturers have in place complete, approved, detailed, and up-to-date policies and procedures documents. Additionally, manufacturers should perform periodic internal audit reviews of government pricing functions to ensure compliance as well as have established practices related to monitoring commercial marketing and sales activities, as they may affect Government Pricing reporting. Having a multi-departmental pricing committee structure, including contracting, sales, marketing, legal, and government pricing will also help manufacturers remain compliant with the regulations.

    About the Author

    Olivia Nweze

    Olivia Nweze

    Senior Consultant, Advisory Services Team

    Olivia Nweze is a Senior Consultant on IntegriChain's Operational Consulting team specializing in state price transparency, healthcare compliance, and government pricing. She has worked with a wide variety of pharmaceutical manufacturers to establish state price transparency infrastructure, evaluate compliance with state reporting obligations, perform compliance assessments, billing audits, and policy documentation reviews. Olivia earned her Bachelor of Science and Master of Science in Global Health degrees from the University of Notre Dame.

    About the Author

    Darren Schneider

    Darren Schneider

    Senior Consultant, GTN Operational Consulting

    Darren advises Pharma manufacturers on gross-to-net, pricing compliance, commercial contracting, revenue analytics, data integration, and associated systems implementations. Darren received his Master of Science in Accounting from Ramapo College in May 2019. He spent two years in Public Accounting as an auditor working with financial statements, control testing, and employee benefit plans.

    About the Author

    Michael Gorokhovsky

    Michael Gorokhovsky

    Manager, Operational Consulting

    Michael has over seven years of experience in life sciences and healthcare consulting, working with small startups and single-physician offices to some of the largest manufacturers and health systems in the US. Michael began his career at Deloitte Risk and Financial Advisory, specializing in Bona Fide Service Fee and Fair Market Value analyses. Michael also has experience working with manufacturers, payers, and providers on various finance, M&A, systems implementation, and change management projects.