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Pharmacy Groups Want to Change the FDA’s REMS Authority

2012-01-24T09:47:00.000-08:00

Pharmacy & Therapeutics Journal...January 2012

Battles Loom as Congress Aims to Pass a Major Bill by September 2012

Congress's return to Washington in January starts the clock ticking on a 10-month deadline for updating the Food and Drug Administration's (FDA) new drug approval and post marketing authorities. Those were last tweaked in 2007, when Congress passed the FDA Amendments Act (FDAAA), a mélange of reforms wrapped around the fourth iteration of the Prescription Drug User Fee Act (PDUFA), the law first passed in 1992. The PDUFA specifies the fees drug companies must pay when submitting applications to the FDA for approval of a new drug or biologic. The fees supplement--in fact the user fees exceed--annual congressional appropriations and help underwrite the salaries for staff the FDA needs to comb through those applications, and help both speed up FDA approval times and prevent backlogs.

Back in 2007, Democratic titans Rep. Henry Waxman (D-Calif.) and former Sen. Edward Kennedy (D-MA) were ascendant, and pushed a wheelbarrow of post-marketing safety reforms through Congress. Drug companies agreed to pay higher user fees for faster FDA approval times, and agreed, for the first time, that user fees--to the tune of $225 million over five years--could be used for the new safety programs.

What a difference half a decade makes. Republicans now essentially dictate congressional action. The FDA, well aware of the GOP's anti-regulatory bent, has produced a PDUFA V proposal heavily weighted toward "process" improvements in assessing new drug applications and cautious commitments to consider taming some of the unruly aspects of some of the 2007 safety measures, such as Risk Evaluation and Mitigation Strategies (REMS) which the 2007 law allowed the FDA to require for drugs whose risks are higher than what the FDA might otherwise like to see in a new drug. A REMS might require just distribution of a MedGuide or can be much more complicated forcing physicians and pharmacists to follow numerous "elements to assure safe use (ETASU)."

The REMS that drug companies have produced--the FDA has not established a standard format--have come in different sizes and colors, making life difficult for pharmacists. The drug companies haven't been much happier with the FDA's unfocused administration of its REMS authority, which the agency, in its PDUFA V proposal, admits needs to be clarified.

That will be the big issue for the pharmacy community as Congress begins to fashion the 2012 version of FDAAA, which will be wrapped around PDUFA V, which will specify higher fees for drug companies. But revamping REMS won't be the only issue. Pharmacists are concerned about another FDAAA provision: the FDA creation of an active Sentinel adverse reaction alert system, meant to supplement its existing passive MedWatch system, which has been roundly criticized for its shortcomings. In fact, expect both Democrats and Republicans, often at the behest of interest groups, to toss all sorts of proposals in what will a stew pot of FDA reform, simmering all year on the congressional front burner.

The FDA got the reform process started in late August when it published a draft commitment letter which outlined the kinds of process changes it wants to make to improve the current drug approval and post-marketing programs. The agency aired those proposals at a public meeting at FDA headquarters on October 24. The guts of that initial effort are an increase in drug company user fees to $712 million in fiscal 2013, which starts October 1, 2012. The fees amounted to $672 million in fiscal 2012. In exchange, the FDA essentially retains the PDUFA IV timeframes of approving 90 percent of priority applications for new drugs and biologics within six months and 90 percent of standard applications within 10 months. There is no proposed change here, which isn't all that surprising, given the fact that the FDA, once it digested some of the FDAAA required reforms, has done a good job of approving new drug applications.

The guts of this program is additional meetings the FDA promises to hold with an applicant prior to submission of a new drug application, and during the application process. In addition, with an eye to helping drug companies speed up clinical trials, the FDA will develop a dedicated drug development communication and training staff focused on "enhancing communication" between FDA and sponsors during drug development. Other improvements are development of staff capacity to review submissions that contain complex issues involving pharmacogenomics and biomarkers and advancing development of patient-reported outcomes (PROs) and other endpoint assessment tools.

With regard to REMS and Sentinel, the FDA made some vague commitments to hold workshops and listen to complaints.

The FDA put together its PDUFA proposal after hearing ideas from all interested parties starting in early 2010. The agency winnowed that "wish list" down, dropping numerous proposals, and then submitted the ideas to the pharmaceutical industry, seeking its buy-in since the drug companies pay the user fees.

At the October 24 meeting, representatives of consumer and patient groups gave the PDUFA V proposals mostly lukewarm praise, but highlighted ideas that had not been included, criticized the fuzziness of the REMS and Sentinel enhancements and generally complained that the issue of drug "safety" was being made a handmaiden to the issue of easing the path to approval of new drugs. Celia Wexler, Washington Representative for the Union of Concerned Scientists, says she was surprised by the "tone" of the FDA's PDUFA V proposals. "I don't have any problems with improving the FDA's new drug review process, but this proposal is so wedded to timelines that it sends the message that promptness trumps all."

Janet Woodcock, M.D., Director of the FDA Center for Drug Evaluation and Research (CDER), says she hopes that "PDUFA can go through Congress cleanly." By that she means she hopes there are no policy initiatives tacked on to the process improvements the FDA proposed in the draft commitment letter. The FDA will deliver a formal PDUFA V proposal to Congress in January, and may make some changes to reflect some of the criticisms heard on October 24. Whatever its final shape, expect members of Congress to attempt to graft on policy initiatives in the areas of drug advertising, off-label use, conflicts of interest at FDA advisory committees, drug recall authority, inspection of foreign facilities and much more.

There is a good reason why the FDA's PDUFA V "process improvement" proposals are so unambitious. Jeff Allen, PhD, Executive Director, Friends of Cancer Research, says the FDA approval process is working fine as is. The FDA is approving new cancer drugs twice as fast as the European Union does. Of the 27 new cancer drugs that came on the market since 2003, all have been available in the U.S. before they were available in Europe. Allen says the "unsustainable crisis we are nearing" is the 15 years and $1 billion it takes to bring a new drug to market. "The FDA part of this is such a small component of the problem," he adds.

"My hope is that as this discussion moves ahead that all stakeholders will acknowledge that there are challenges to new drug development that are much bigger than just FDA review," says Allen of the Friends of Cancer Research. "As other components of a resulting bill are mulled by Congress and others perhaps some attention can be given to elements that could go after addressing the 15year/$1B challenge drug development challenge."

But the key objective for pharmacy groups is a revision of the REMS provisions of the 2007 FDAAA. "That is our key priority," says Marcie Bough, Senior Director, American Pharmacists Association (APhA).

The good news here is that almost all stakeholders, including the drug companies, think that the 2007 REMS provisions have been troublesome. The pharmaceutical companies complain that the FDA has no black-and-white criteria for determining when a REMS is necessary, that the FDA requires them willy nilly. Pharmacy groups complain that the REMS the FDA has approved have been all over the place, in terms of their provisions, complicating life for pharmacists, both in retail, hospital and nursing home settings. Not only have the REMS had workflow implications for pharmacists, they have, at least in the hospital setting, added to confusion and opened the door to potential medical mistakes.

Kasey Thompson, Vice President, Office of Policy, Planning and Communications, American Society of Health-Systems Pharmacists, says, "It is not clear that REMS are being created for patient safety." He said some drug companies are creating REMS as marketing tools. REMS which include ETASU requirements have in some instances led to a problem the ASHP calls "brown bagging." That describes a situation where a patient has to obtain an injectable product from a specialty supplier and then bring that product with them for administration in the hospital.

The FDAAA essentially substituted REMSs for the Risk Minimization Action Plans (RiskMAPs) the FDA had been requiring of some new drugs since PDUFA III. After 2007, those RiskMAPs were automatically converted into REMSs, and new first- time REMSs were issued. Many of these essentially required only that pharmacists provide a patient with a MedGuide when he or she picked up his or her prescription. In some other instances, REMSs include ETASU which the FDA, in a Federal Register notice previewing the October 24 public meeting, admitted "can be challenging to implement and evaluate." The agency acknowledged: "Our experience with REMS to date suggests that the development of multiple individual programs has the potential to create burdens on the health care system and, in some cases, could limit appropriate patient access to important therapies." REMS are designed from scratch by the pharmaceutical manufacturer and then subject to negotiations with the FDA during the new drug approval process. They can require such tools as prescriber training or certification, pharmacy training or certification, dispensing only in certain health care settings, documentation of safe use conditions, patient monitoring, and patient registries. Through March 2011, according to the APhA, the FDA had approved 177 drugs which included REMS, some of them converted from RiskMAPs. The majority of these, 123, were MedGuide-only. Of the remaining 54, 37 included a communications plan and 17 included ETASU (12 approved since passage of FDAAA, five being RiskMAPs converted to a REMS).

In terms of impact on a pharmacy, a REMS can involved a number of administrative, training/education, registration, monitoring or other restricted distribution elements. that can strain workloads, and thus may encourage prescribers and dispensers to do such things as seek alternative drug products that may not be as effective or require a REMS, or limit patient access by not prescribing, distributing or dispensing the drug.

FDAAA authorized the FDA to require a REMS when one was necessary to "ensure that the benefits of the drug outweigh the risks of the drug.” In making that decision, the FDA has to consider several factors, including: (1) the estimated size of the population likely to use the drug involved;” (2) the seriousness of the disease or condition that is to be treated with the drug; (3) the expected benefit of the drug with respect to such disease or condition; (4) the expected or actual duration of treatment with the drug; (5) the seriousness of any known or potential adverse events that may be related to the drug and the background incidence of such events in the population likely to use the drug; and (6) whether the drug is a new molecular entity.”

On the issue of standardizing REMS, the FDA has already taken a step in that direction by seeking to develop an industry-wide REMS with all brand-name and generic manufacturers of long-acting and extended-release opioids. An Industry Working Group submitted a proposed opioids REMS to the FDA in August. The agency has not approved it yet. The agency originally proposed an opioids REMS in 2009, but the industry balked, arguing it was too detailed, prescriptive and onerous, and would incent physicians to avoid prescribing the drugs. The FDA then loosened its terms, which formed the skeleton on which the industry put the meat in its August 2011 submission.

The PDUFA V proposal does not mention all that spadework done on the opioids REMS as a basis for standardizing REMS going forward. The draft commitment letter simply includes a commitment to develop and issue guidance by the end of fiscal 2013 on how to apply the statutory criteria (i.e. in the FDAAA) to determine whether a REMS is necessary to ensure that the benefits of a drug outweigh the risks. The FDA also promises to explore strategies to standardize REMS, where appropriate, with the goal of reducing the burden of implementing REMS on practitioners, patients, and others in various healthcare settings. Wexler of the Union of Concerned Scientists says, "There is almost nothing there on how the FDA plans to accomplish its goals."

Moreover, the intentions don't go nearly far enough, given various criticisms, such as those voiced by the American Society of Health System Pharmacists (ASHP). ASHP and the APhA, the latter of whom held a workshop on REMS in July 2010 and has produced two detailed White Papers, the latest in May of 2011. The APhA would like to see, for example, an improved FDA website on REMS and, perhaps more importantly, some mechanism for reimbursing pharmacists for the time they spend implementing their part of a REMS. The APhA's Bough suggests, for example, some part of the user fee pool could be used to reimburse pharmacists.

Other than unspecified changes to REMS, the only other post-marketing safety change the FDA has talked about deals with its Sentinel system. That is the "supplement" adverse reaction system to MedWatch, which has, up until now, been the data repository for admittedly incomplete and sometimes unclear reports from physicians, pharmacists, patients and others on adverse reactions caused by drugs already on the market. The idea behind the Sentinel system is that the FDA, after getting some inkling of problems with a new drug just on the market, perhaps from initial results of a post-marketing survey, could "query" a data bank containing health records of millions of Americans to see whether that adverse reaction was frequent enough for the FDA to take remedial action. "It is very important to our membership," explains Marissa Schlaifer, Director, Pharmacy Affairs, Academy of Managed Care Pharmacy.

The FDA's PDUFA V proposal on changes to Sentinel, as is the case with its approach to REMS improvements, sticks to vague process clarifications which would come out of public meetings in the fiscal 2013-2017 time period. Here is what the draft commitment letter published in September says: "FDA will use user fee funds to conduct a series of activities to determine the feasibility of using Sentinel to evaluate drug safety issues that may require regulatory action..."

The FDA is now using a pilot "mini-Sentinel" system with data from 17 "data partners" who control health information for 25 million-plus individuals. The first real test was done last July when over a period of two days the FDA queried mini-Sentinel on myocardial infarctions suffered by individuals who were taking the smoking cessation drugs varenicline and bupropion. Varenicline is a new drug, and the FDA wanted to see whether it was causing more myocardial infarctions than the long-time drug used for that indication, bupropion. The answer was "no," there was no difference between the two. However, one academic who works on mini-Sentinel noted the query on varenicline was "quick and dirty" and "not a full epidemiological study." Asked what the FDA was going to do next, he said he did not know.

Amy Allina, Program Director, National Women's Health Network, complains the FDA has no specific plans for pushing Sentinel forward. "The agency has only vague statements in its PDUFA V plan," she states. "Sentinel has been tested, and it is working in a limited way. It is time to move forward. At some point, the rubber has to meet the road. If the FDA only uses Sentinel to find risks it expects to see, instead of broader data on unexpected adverse reactions, it will have missed a huge opportunity."

Talking about missed opportunities, every representative from every consumer and pharmacy group who spoke at the October 24 meeting advocated broader authority for the FDA so it could review drug ads on TV, in print and on the Internet more thoroughly than it does now, which is to say not thoroughly at all. The FDA draft commitment letter says nothing about drug advertising. Additional authority provided by Congress in 2012 would be the kind of "policy initiative" Janet Woodcock opposes. Sally Greenberg, Executive Director of the National Consumers League, says, "It is imperative that the FDA review ads for accuracy before they reach the consumer." Companies can now voluntarily submit their ads to the FDA for review. In some instances they wait to get a green light, in some instances they air the ads before hearing from the FDA. Greenberg and others think all ads should be reviewed before they are disseminated. She advocates a moratorium on ads for all new drugs where there are unanswered questions about the drug's safety, questions that could be answered via post-marketing surveys. "User fees should be allocated for advertising reviews so that the FDA can hire additional staff," she states.

The FDA's failure to include any proposed drug advertising changes and the general timidity of its PDUFA V proposal probably are no accident. No federal agency in its right mind would have the temerity, in this anti-regulatory political climate, to suggest expansion of its regulatory reach. Janet Woodcock and her FDA colleagues are not blind. They can read the tea party leaves.

Does the U.S. Really Need An Energy Policy?

2012-01-13T12:08:00.000-08:00

Financial Executive Magazine...January/February 2012

Sen. Joe Mancini (D-W. Va.) was frustrated. Mid-way through a two-hour hearing in the Senate Energy and Natural Resources Committee on November 8, Mancini was taking out his ire on Chris Smith, Deputy Assistant Secretary for Oil and Gas in the DOE Office of Fossil Energy. The hearing was held to discuss whether the Department of Energy should approve applications for U.S. companies to export liquid natural gas (LNG). Just half a decade ago, LNG import terminals were popping up like dandelions in American coastal ports amidst spreading industrial user panic over sky-high domestic prices and disappearing supplies.

But toward the end of this century's first decade, that gas gloom lifted without warning and with nary an assist from the U.S. government. Because of an innovative technology called horizontal drilling or fracking, natural gas started flowing from the Marcellus and Barnett shale plays like Champaign from bottles uncorked at the Ritz on New Year's Eve. Gas prices dropped precipitously. The Energy Information Administration (EIA) now estimates the U.S. produces 5 billion cubic feet a day of natural gas more than what consumers can use, with the result that prices have dropped from a high of $12.69 per million BTUs in June 2008 (the average for that year was $8.94) to $3.60 m/BTUs in October 2011.

Mancini had just asked Smith a question about whether foreign ownership of wells in the Marcellus formation lapping across Pennsylvania and New York could impact the domestic price of natural gas if those foreign owners decided to sell "their" gas overseas. Smith tried to answer. But an impatient Mancini interrupted. "It is shame this country doesn't have an energy policy, that is all I am saying," sputtered Mancini.

Just half an hour earlier, though, at the very same hearing, from the very same dais, Sen. Lisa Murkowski (R-AK), the top Republican on the panel, had made the opposite point. Naming Marcellus, Utica, Barnett and other shale plays, she emphasized, "I don't think we should fool ourselves. The government didn't make this happen. The natural gas resource is proving out without any mandate, without any tariff or moratorium, without so much as a tweak in any law or regulation."

Ever since the Arab oil embargo of 1973, U.S. president after U.S. president has paid at least rhetorical attention to the need for the federal government to develop an energy independence policy. Last March 30, in a speech at Georgetown University, President Obama announced his Blueprint for a Secure Energy Future. He said: "We’ve known about the dangers of our oil dependence for decades. Richard Nixon talked about freeing ourselves from dependence on foreign oil. And every President since that time has talked about freeing ourselves from dependence on foreign oil. Politicians of every stripe have promised energy independence, but that promise has so far gone unmet."

But it is highly unlikely that Obama's Blueprint will lead to a firmer footing for U.S. energy security than past Blueprints from other presidents, or, perhaps more importantly, whether a Blueprint is even necessary. Obama's Blueprint policy is a loosely knit set of policies which focus on producing more oil at home and reducing dependence on foreign oil by developing cleaner alternative fuels and greater efficiency. The Blueprint is not the result of any particular deep thinking or strategy. The President's Council of Advisors on Science and Technology (PCAST) called for the development of such a strategy in its November 2010 Report to the President on Accelerating the Pace of Change in Energy Technologies Through an Integrated Federal Energy Policy. The PCAST called for a Quadrennial Technology Review (QTR) as the first step in preparing a Quadrennial Energy Review. The DOE completed the QTR in November 2011, six months after Obama published his Blueprint.

Steven E. Koonin, Under Secretary for Science, DOE, says the QTR is limited in scope and all the DOE felt it could get done given budget and time. "Technology development absent an understanding and shaping of policy and market context in which it gets deployed is not a productive exercise," he states. At this point there is no indication that the DOE will even undertake the much more important QER, much less complete it any time soon.

The larger reality is that any energy independence plan proposed by any U.S. President--whether based on a QER or not--has as much a chance of coming to fruition as Washington's hapless Redskins have of getting into the Super Bowl. In any case, the rhetoric of President after President aside, maybe the U.S. doesn't even need an energy independence or energy security policy.

The biggest energy input for industrial and commercial business users is natural gas. Natural gas prices are incredibly important, both because the fuel is used directly to run industrial processes, heat facilities and commercial buildings, and make products such as fertilizers, pharmaceuticals, plastics and other advanced materials. Thanks to the Shale Revolution, the Energy Information Administration (EIA) forecasts natural gas prices will stay low for the foreseeable future, rising to $4.66 m/BTU in 2015 and $5.05 m/BTU in 2020. That is good news for the owners of 15,000 to 17,000 industrial boilers in this country, most of which use natural gas (and many of those who still use coal are switching to natural gas). In addition, companies such as Dow Chemical are restarting operations at facilities idled during the recession, Bayer is in talks with companies interested in building new ethane crackers at its two industrial parks in West Virginia, and Chevron Phillips Chemical and LyondellBasell, are considering expanding operations in the U.S.

Fracking has also had a much less remarked-upon effect on petroleum prices, which are important to businesses with transportation fleets. New oil sources are spurting from the Bakken and Eagles Ford shale plays. U.S. oil prices have fallen from $133.88 a barrel of Texas intermediate crude in June 2008 to $86.07 today. The EIA predicts oil prices will rise to $94.58/bbl in 2015 and $108.10/bbl in 2020.

Beyond the flood of natural gas washing over them, U.S. companies are also benefitting from three decades of investments--most of which made without federal subsidies or support--into facility energy efficiency. Ralph Cavanagh, Co-Director, Energy Program, Natural Resources Defense Council, member of Electricity Advisory Board at the DOE, says the most important single solution for U.S. businesses worried about energy prices and energy access is aggressive energy efficiency. "Energy independence is the wrong issue," he says. "It is reducing the cost of energy services and improving energy security. "U.S. business has done a tremendous job in energy efficiency over the past three decades," he states. "It takes less than one-half of a unit of energy to create $1 of economic value than it did in 1973. Industry has done that by upgrading the efficiency of process equipment and upgrading lighting."

Others may well argue that the U.S. needs, and has always needed, an energy policy, but one narrowly targeted. Kenneth B Medlock III, PhD, Deputy Director, Energy Forum, James A Baker III Institute for Public Policy at Rice University, notes that the DOE and the Gas Research Institute helped develop, with federal funding, the horizontal drilling (i.e. fracking) technology that Mitchell Energy (now a part of Devon Energy) pioneered. "Government ought to be focused on research & development," he states. He also is a supporter of loan guarantees to promote investment activity in frontier technologies, and argues that as long as there are more good bets than bad bets in that kind of portfolio, the funds committed in total are a good investment.

But spectacular failures like Solyndra and other less publicized busts such as Beacon Power's Chapter 11 filing kill the prospect of any additional congressional funding for energy loan guarantees of any kind. That is true even when legislation has bi-partisan support, which is the case for the Energy Savings and Industrial Competitiveness Act of 2011 (S. 1000) which would, among other things, provide grants for a revolving loan program designed to develop energy-saving technologies for industrial and commercial use. The bill passed the Senate Energy Committee by a vote of 18-3 in July. However, the Congressional Budget Office has pegged the cost of the bill's provisions at $1.2 billion over five years. That is a serious barrier to passage. And in any case, even if it did pass, the bill would simply authorize funding. Congressional appropriations committees would have to approve the money as part of the DOE's budget, which would be highly unlikely, Solyndra aside, since similar programs authorized by the 2005 and 2007 energy bills are still begging for appropriations.

Besides impact on the federal deficit, politics, too, often impede progress on otherwise sensible policies. Politics clogged up the Keystone XL oil pipeline extension from Canada. Environmentalists, a Democratic constituency, oppose the project, arguing it would created more greenhouse gas emissions than necessary and pose a potential drinking water danger for Nebraska residents because it passed over the Ogallala Aquifer, a view held, too, by Nebraska's Republican Governor Dave Heineman, who took the opposite position from all Republican presidential candidates, who supported U.S. approval of Keystone XL. Labor unions, another key Democratic constituency, support the project which TransCandada, the project sponsor, says will bring more than 118,000 person-years of employment to workers in the states of Montana, South Dakota and Nebraska.

If the Keystone debate features Democrats v. Democrats and Republicans v. Republicans, efforts to substitute domestic natural gas for foreign petroleum features business v. business. Obama in his Blueprint speech at Georgetown mentioned legislation supported by both Republicans and Democrats called the New Alternative Transportation to Give Americans Solutions Act of 2011 (H.R. 1380), called the NAT GAS Act. The bill has 180 co-sponsors ranging from Rep. Joe Barton (R-Texas) on the right and Rep. Barbara Lee (D-Calif.) on the left. The bill seeks to provide federal support for a natural gas fueling structure for autos thereby reducing gasoline demand. However, 65 manufacturing and agricultural organizations sent a letter to the House Ways & Means Committee in September opposing the bill, fearing a diversion of natural gas to transportation--even give the 5 b/cu/ft/day overage in supply at the moment--would increase domestic costs of natural gas. Calvin M. Dooley, President & CEO, American Chemistry Council, calls the NAT GAS Act, an "ineffective, inefficient proposal." Supporters of the bill include local and interstate natural gas companies, bus and taxi companies, food companies and the National Beer Wholesalers Association.

Regardless of whether Americans start driving natural gas fueled vehicles, dependence on Middle Eastern oil for gasoline to fuel autos has dropped dramatically since 1973, without much U.S. government intervention, making the U.S. much more energy secure than ever before. Our number one import source is Canada, from whom we get about twice as much crude oil, according to the EIA, as Saudi Arabia, the number three source, and the only Middle Eastern source besides Iraq in the top 10. Mexico is number two.

Given the new domestic sources of natural gas and crude oil, important strides in industrial energy efficiency and the shift away from imported Arab oil, the U.S. has made considerable progress toward energy independence or security, whatever term one wants to use, without an "energy policy." That doesn't necessarily mean we don't need a policy. But it does mean that U.S. companies do not have to panic about the absence of one.

Obama Signs New Pipeline Safety Bill

2012-01-03T15:19:00.000-08:00

Pipeline & Gas Journal...January 2012

The new pipeline safety bill President Obama signed in December gives PHMSA new latitude to expand integrity management requirements to new areas and require new industry safety measures such as automatic or remote-controlled shut-off valves. But the Pipeline and Hazardous Materials Safety Administration (PHMSA) will have to jump through more flaming hopes than a circus performer before it can issue final rules. The new Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (H.R. 2845) requires PHMSA to first do a number of studies and reports, submit them to Congress, meet congressional thresholds for enacting any new standards and in one important instance gives Congress an opportunity to forestall any new standard.

The final bill generally pleased all industry groups, including INGAA. INGAA is already voluntarily extending integrity management procedures beyond what are called High Consequence Areas--deemed areas with high population density. The bill gives the PHMSA authority to require extension of IM processes. But first it must make an evaluation of whether extension of IM procedures is necessary and economically justified, based on criteria the bill lays out. The PHMSA has two years to make that evaluation. It must then submit its thoughts to Congress. Then Congress has one year to pass legislation based on the PHMSA report, or pass legislation prohibiting PHMSA from acting. If Congress does nothing, PHMSA is free to act on its own.

PHMSA also has to jump through numerous hoops before requiring interstate pipelines to install automatic or remote-controlled shut-off valves. It can only do so two years after the bill's passage and after determining such a requirement is "economically, technically, and operationally feasible" and can require installation only on new pipelines.

The bill uses identical language with regard to any PHMSA rule requiring distribution pipelines to install excess flow valves (EFVs) on lines serving apartment buildings, commercial and industrial facilities. The current PHMSA rule, enacted as a result of a provision in the last (2006) pipeline safety bill, limits installation of EFVs to new, single family homes. The National Transportation Safety Board (NTSB) has a long-standing recommendation (see item below) to require EFVs for all residential, commercial and industrial buildings.

Among the more significant of the bill's 31 sections is the one related to maximum allowable operating pressure (MAOP). MAOP, like remote-controlled shut-off valves, was the subject of recommendations from the NTSB as a result of its investigation of the PG&E gas pipeline explosion in San Bruno, California. The NTSB recommended that Congress remove the provision in current law that exempts gas transmission pipelines constructed before 1970 from hydrostatic testing to determine the line's maximum allowable operating pressure; and require post-construction hydrostatic pressure tests of at least 1.25 the maximum allowable operating pressure in order for manufacturing- and construction-related defects to be considered stable.

The bill does remove that exemption; it requires PHMSA to publish within 18 months rules for testing "the material strength" of previously untested pipelines within HCAs. But it goes further by saying PHMSA must require interstate and intrastate pipelines to verify that the MAOP of pipelines in class 3 and class 4 locations and class 1 and class 2 HCAs accurately reflect their physical and operational characteristics. Pipeline owners would have to submit to PHMSA within 18 months of the bill's passage documentation where their records are "insufficient" to confirm the established MAOP. Any time pressure on a pipeline exceeds MAOP the company would have to report that to PHMSA within five days.

The bill also addresses the issue of excavation damage. It requires states to eliminate current exemptions for certain participants in one-call notification systems if that state wants to get federal excavation damage prevention grants.

ACO Final Rule Acknowledges Medication Concerns

2012-01-02T10:46:00.001-08:00

Pharmacy & Therapeutics Journal...December 2011

The final rule published by the Centers for Medicare and Medicaid Services (CMS) at the end of October mostly simplifies and improves the financial aspects of the Accountable Care Organization (ACO) program in an effort to convince physician groups and hospitals to participate. It doesn't change the rules on who can share in any savings to Medicare produced by an ACO, a new form of integrated health care organizations, formed by physician groups and in some cases hospitals with staff physicians, aimed at providing comprehensive care to Medicare patients, and thus lowering the costs of that care, producing savings for Medicare. The Affordable Care Act (ACA) specifically states that only physicians and hospitals can share in the savings. The proposed rule followed that edict; pharmacists, chiropractors, nurses...all were deemed "out of the money." The final rule sticks to that decision.

That said, the medication management provided by pharmacists in large physician practices and hospitals will be critical to the success of any ACO. Dave Rhew, MD, CMO of Zynx Health, a provider of evidence-based and experience-based clinical decision support (CDS) solutions to hospitals, says physicians basically prescribe medications they have traditionally prescribed, and can sometimes be behind the curve, because of time constraints, on current changes in drug profiles. It will be up to a pharmacist to update physicians and hospital formularies, for example, when a drug like Xigres (Drotrecogin Alpha), for severe sepsis, is voluntarily recalled by its manufacturer, here Eli Lilly, because of FDA concerns about the drug's effectiveness, in this case a concern that the drug does not reduce mortality.

With regard to pharmacist interventions in ACOs, they only come into play where drugs are supplied to a Medicare fee-for-service patient by a physician in the physician's office (Part B) or in a hospital (Part A). An ACO participant's Part D drug costs will not be part of the "shared savings" calculations. This may turn out to be problematic in a number of instances, for example, in certain clinical areas such as cancer care and cardiac ablation for atrial fibrillation where ACOs may have an incentive to move patients from appropriate treatments or procedures reimbursed through Parts A or B to Part D therapies. The CMS acknowledged these are "important concerns" but the program's quality measurement and program monitoring activities "will help us to prevent and detect any avoidance of appropriately treating at-risk beneficiaries. Furthermore to the extent that these lower cost therapies are not the most appropriate and lead to subsequent visits or hospitalizations under Parts A and B, then any costs associated with not choosing the most appropriate treatment for the patient would be reflected in the ACO's per capita expenditures."

It is impossible to know now whether this concern--medication cost shifting from A or B to D--will bear factual fruit going forward. But the CMS will apparently be looking over the shoulders of ACOs on this issue. "The financial incentives could cause physicians that are part of ACOs to increase the use of Part D medications to decrease the use of Part B medications or appropriate medical procedures," says Marissa Schlaifer, the Academy of Managed Care Pharmacy's (AMCP) Director of Pharmacy Affairs. "The Academy shares this concern."

Of course, the program integrity watchdogs at the CMS and other federal health agencies are getting fewer and fewer, federal budget cuts being the order of the day, and even in the halcyon days of federal spending with bigger staffs Health and Human Services were rather passive policemen. The office of pharmacy affairs, which administers the 340B drug program, is a good example of a department where, according to a recent Government Accounting Office report, the department detectives have had their feet up on their desks.

We mention the 340B program here because it, too, comes into play with regard to concerns about medication cost shifting in ACOs. The 340B program allows safety net hospitals with high Medicaid populations to buy discount drugs, and it restricts whom those hospitals can give those drugs to. Recipients have to be patients of the hospital, seen by a hospital physician, and the drugs must be purchased at an out-patient (not in-patient) pharmacy. The drug manufacturers hate the 340B program, which requires them to sell drugs more cheaply than they would otherwise have to. Their concern is that safety net hospitals who join an ACO will expand their purchases of 340B drugs and provide those drugs to perhaps a medical group with whom it has partnered in an ACO. That allows the physician to substitute a cheaper drug (at 340B price) for the more expensive one he would have used, thus reducing the ACOs costs, since drug costs within Part B are calculated in the ACO equation.

Hospital pharmacists are knee deep in the 340B program. So while they and their brethren stationed in physician offices will not be able to share in ACO savings, it looks like they will have their hands full preventing ACO headaches.

Obama Phase II CAFE Proposal and the Aftermarket

2012-01-02T10:44:00.001-08:00

Aftermarket Business World...December 2011

You'd have to be a college math professor to understand the formulas and factors the EPA and NHTSA propose to use in determining whether autos and trucks meet Corporate Average Fuel Economy (CAFE) standards during 2017-2025. The Obama administration released its proposed rule covering those years in mid-November, and three hearings are scheduled around the country for the month of January. Major auto manufacturers, labor unions and environmental groups already signaled their support back in July for the general concepts back in July; so the proposed rule is likely to become final with only some changes made around the edges.

But even a fifth-grader can understand how the aftermarket will change as a result of these standards, once they go into effect. It goes without saying that CAFE standards affect vehicle manufacturers first and foremost. The only mention of the "aftermarket" in the mammoth, eye-splitting, 700-plus page proposed rule issued in November is with regard to aftermarket conversion companies, some of whom will apply for and be granted what are called small entity and/or small business exemptions. But the aftermarket will be affected indirectly and undoubtedly heavily by the development of technologies by manufacturer suppliers, who will distribute those technologies, be they low-friction lubricants, low-resistance rolling tires, air conditioning refrigerants with a lower global warming potential (GWP), to aftermarket retailers soon after they deliver them to the OEMs.

Of course, there are, for example, low-resistance rolling tires already available in the aftermarket. But this Phase II CAFE proposal (Phase I will cover 2012-2016, and its rule is already final) will birth, for example, a second generation of low-resistance rolling tires with a 20 percent improvement in fuel economy and GHG emission reduction over those expected to be sold in Phase I.

Another aftermarket product line likely to see innovation is high-efficiency exterior auto lighting. It will be in the spotlight because OEMs will use new lighting technology to reduce vehicle electric loads, which will earn them GHG "credits" which lower the CAFE number they would otherwise have to meet. The EPA would extend credits for lighting that reduces the total electrical demand of the exterior lighting system by a minimum of 60 watts when compared to conventional lighting systems. To be eligible for this credit the high efficiency lighting must be installed in the following components: parking/position, front and rear turn signals, front and rear side markers, stop/brake lights (including the center-mounted location), taillights, backup/reverse lights, and license plate lighting.

The Obama administration proposal envisions a CAFE average per fleet in 2025 of 54.5 miles per gallon, an increase from the 35.5 mpg average expected in 2016, the last year of the Obama administration's Phase 1 plan. The Obama administration's 2017-2025 proposal is based on assumptions that plug-in electric and electric vehicles will become staples of the roads over the next decade and a half. Setting aside for a moment the high cost of electric batteries and the potential consumer resistance to the technology because of its cost, EVs also suffer from recent reports of battery blow-ups and fires in the weeks following collisions.

Despite support from a number of groups, not everyone thinks the Obama proposal is hunky dory. Jeff Breneman, Executive Director of the U.S. Coalition for Advanced Diesel Cars, says the proposal favors hybrid technology in some instances over advanced diesel internal combustion technology, whose mpg/GHG performance is about equal. Moreover, he points out, advanced diesel engines can go 300,000 miles easy, meaning the autos in which they are installed can be kept longer, sending their owners more frequently to aftermarket retailers.

SEC Examining Financial Statement Measurements

2012-01-02T10:43:00.000-08:00

Strategic Finance Magazine...December 2011

Are financial statement requirements up for review? It is not clear based on the a public roundtable discussion the Securities and Exchange Commission (SEC) held on November 8. The roundtable focused on financial statement measurements and associated disclosures that incorporate judgments about future events. It was the first in a series of an indeterminate number of roundtables which will be part of the Financial Reporting Series, instituted by SEC staff to assist in the proactive identification of risks related to, and areas of potential improvements in, the reliability and usefulness of financial information provided to investors. It is not clear what precipitated this initiative. It was not the Dodd-Frank law. It contains nothing on financial reporting "reforms," either in the financial services sector or anywhere else. In fact the SEC has done very little on financial reporting issues generally during Mary Schapiro's tenure as chairman. Jeff Mahoney, General Counsel, Council of Institutional Investors, says he suspects the SEC's action is related to the issue of fair value for financial instruments.

There is a considerable amount of enthusiasm among statement preparers for the SEC effort here. "Determining the right level of disclosure requirements for measurement uncertainty will not be an easy task, but we are encouraged that the FASB has a Disclosure Framework project on their agenda and the prospect that guidance may be provided for disclosures on estimates that require assumptions, judgments, or other internal inputs that could reasonably have been materially different," says Bob Laux, Senior Director, Financial Accounting and Reporting, Microsoft Corp.

While the SEC hasn't said much about "why" it is undertaking these roundtables, it has been pretty specific about the kinds of topics it wants input on. These include: 1) where the extent of

uncertainty in an accounting measurement is less (or even more) useful to investors and why a more certain measurement would be preferable; 2) where uncertain measurements are useful to

investors, how should the uncertainties be incorporated into the measure; 3) What information do investors utilize to understand uncertainty?

Tightening of Chinese Mineral Exports Worry U.S. Manufacturers...and Congress

2011-11-21T14:17:00.000-08:00

November 2011...The Fabricator magazine

As if U.S. manufacturers don't have enough China-related manufacturing barriers, here is another: China's stranglehold on the production of rare earth minerals. That was the subject of a recent hearing in a House Foreign Affairs subcommittee. We are talking here about arcane minerals such as cerium, neodymium, and dysprosium which are critical to the manufacture of advanced manufactured goods, such as cell phones, fluorescent lights, hybrid engines, airplanes, wind turbines, and defense guidance systems. China controls 97 percent of the manufacture of those minerals, and, according to testimony recently given at those House hearings, China is dramatically reducing its exports of rare earth minerals and expanding its supply of the same to its domestic manufacturers.

"Since July 2010 China has cut export quotas by 40% compared to 2009," says John Galyen, President, Danfoss, North America, a leading global manufacturer of compressors, controls and variable frequency drives for high efficiency air-conditioning, refrigeration, heating and motion systems. The company has 12 U.S factories. "Their reported purpose to do so was to protect the environment and licensors," Danfoss told the Foreign Affairs Asia and Pacific Subcommittee in September. "It is evident that in doing so they preserve the resource for their future internal use--to preserve it for the Chinese economy."

Rep. Donald Manzullo (R-IL), chairman of the Subcommittee, says, “The U.S. Department of Energy is conducting cutting edge research into rare earth alternatives, but a more comprehensive effort is needed." He has co-sponsored a bill by Rep. Mike Coffman (R-CO) called the Rare Earths Supply Chain Technology and Resources Transformation Act of 2011(H.R. 1388). That bill was referred to three committees for action last April (Foreign Affairs was not one of them) and none of the three, including Natural Resources, on which Coffman serves, has held a hearing on the bill, much less passed it. Natural Resources did hold hearings last June on another bill, National Strategic and Critical Minerals Policy Act of 2011(H.R. 2011), which essentially requires the Department of the Interior to prepare a report on U.S. mineral production more broadly. A subcommittee passed the bill at the end of July and nothing has happened since then.

Steve Duclos, Chief Scientist and Manager of Material Sustainability at General Electric Global Research told the Natural Resources Committee in June that the National Association of Manufacturers, on whose behalf he was testifying, said the NAM welcomed congressional actions that "not just draw attention" to shortfalls in mineral supplies " but attempt to resolve them as well." He seemed to be damning H.R. 2011 with faint praise. He asked for legislation by Congress that mandates a comprehensive solution that takes into account: (1) the domestic mining and processing of these minerals; (2) strengthening of the workforce; (3) government incentives for creating alternative manufacturing and materials technologies; and (4) recycling of these minerals that we can truly address this current problem with rare earth minerals.

U.S. Trade Policy Impact on Business

2011-11-21T14:04:00.000-08:00

November 2011...Financial Executive magazine

The U.S. Export-Import Bank is on fire. No, not its headquarters in downtown Washington, located on a north side corner of Lafayette Park, catty corner from the White House. It is the Bank's financing of U.S. exports that has helped turn up the flame under U.S. exports during the first half of 2011. In its latest triumph, Ex-Im guaranteed bank loans in September for Canadian firms building solar-energy plants in Ontario. The guarantees of the $226.1 million and $219 million loans will allow the Canadian developers to purchase engineering services and thin-film cadmium telluride solar-PV modules from First Solar of Perrysburg, OH and power inverters from Xantrex Technology USA. in Elhart, Indiana.

That financing and the exports it will support help maintain an estimated 550 jobs at First Solar's manufacturing facility in Perrysburg, Ohio. With job creation the number one U.S. political and economic imperative, the Ex-Im bank has been doing what it can to keep U.S. employment numbers from cooling further. But as the Obama Administration and the Federal Reserve exhaust their stimulative bag of tricks, more aggressive trade policies--including expanding Ex-Im authority--are needed to save the drama around saving American jobs from becoming a tragedy.

"We need an activist trade policy to create good American jobs," says Myron Brilliant, Senior Vice President, International, U.S. Chamber of Commerce. He explains President Obama has done some good things such as enforcing trade agreements and moving toward modernizing and updating an outdated export control regime. "But in some ways he has fallen way short," he adds. "The administration must be actively involved in advocating for American business including in promoting trade agreements and engaging in commercial diplomacy that will open up markets for our companies and create jobs in the US. Look at what the French President does; he gets into deals involving his companies."

Brilliant alludes to the Indian Air Force's winnowing down of contenders to sell it 126 fighter jets to the Eurofighter Typhoon--essentially a NATO product produced by a consortium of three European companies-- and the French Dassault Rafale. The buy is worth $12 billion. Obama had made a visit to India in late 2010 and former Secretary of Commerce Gary Locke followed up with a trade mission in February 2011, a week after the U.S. lifted a 12-year-old export control ban on nine Indian space and defense-related companies. Boeing and Lockheed-Martin, eager bidders for the Indian jet contract--were on that trip with Locke. "That was a good opportunity for the administration to promote exports, but we lost the sale," Brilliant says.

Anyone looking for a list of testosterone injections that could be administered to export policy need reach no further than the syringes lined up by the President's Export Council, a group of business leaders chaired by W. James McNerney, Jr., Chairman, President and Chief Executive Officer, The Boeing Company. Top executives from Xerox, UPS, Walt Disney, Met Life, Dow and other large and small companies sit on the council. The PEC has issued three separate sets of recommendations since it was appointed by Obama in July 2010. That big bundle includes an arm-load of items in the areas of export control, intellectual property protection, getting more small businesses involved in exporting, bringing the Ex-Im Bank up to the level of similar banks in other countries, establishing a single window for exporters at the U.S. Customs and Border Protection and developing export transportation infrastructure. The prime focus of the last March 2011 meeting was getting President Obama to submit Free Trade Agreements with South Korea, Colombia and Panama to Congress, and for Congress to approve them. The FTA with South Korea, for example, would spur $11 billion in U.S. exports, and support some 70,000 jobs in the process, former Commerce Secretary Gary Locke (now ambassador to China) said that day.

But the three FTAs have still not arrived at the Capital for a vote, nor have Ex-Im Bank enhancements passed Congress. And many of the other PEC recommendations are still on the Obama administration's and Congress's "to do" list...maybe.

President Obama did announced an National Export Initiative in January 2010. Its goal is to double U.S. exports over five years. Increases had been more than enough to put that goal within reach, at least they were until May and June of 2011, when exports declined in both months. Francisco J. Sánchez, Under Secretary for International Trade at the U.S. Department of Commerce, says exports were up 17 percent in 2010 and 16 percent year-to-date as of September. "We need to grow at 14.8 percent a year in order to double exports by the end of 2014," he says in an interview. "We are ahead of the curve and I feel good about where we are and where we are heading."

Eric Farnsworth, Vice President, Council of the Americas, is less sanguine. Asked about Sánchez's analysis that the U.S. is ahead of the curve in terms of meeting Obama's goal, Farnsworth replies, "A lot of the growth in U.S. exports is related to the sinking value of the dollar. There are bigger macro things going on."

Sánchez acknowledges that the U.S. does need to do more to back exports. "We need to get the FTAs passed, and get the TransPacific Partnership in place, which, after the FTAs, is the single most important trade policy we have going on." The U.S. is meeting with the eight other TPP nations--some of whom we already have individual FTAs with--in November. A multilateral TPP would further stimulate trade with those countries.

While the TPP negotiations are of recent vintage, the FTAs with South Korea, Colombia and Panama have been aging since they were corked by President George W. Bush. Passage of the three FTAs has been held up by partisan differences over the Trade Adjustment Assistance (TAA) program, which provides payments to U.S. workers who lose their jobs because of imports. The program was expanded as part of the 2009 stimulus bill, and now costs approximately $1 billion a year. The Obama administration and congressional Democrats had wanted to include extension of the TAA in the U.S.-South Korea FTA. Republicans balked, questioning the value of the program, especially at a time when the federal deficit had become a marquee issue.

While there has been substantial bi-partisan bickering over the FTAs, Democrats and Republicans seem to be of one mind about changes to the statutes governing the Ex-Im Bank, which despite its successes still lacks the punching power of other countries' export financing agencies. "Notwithstanding the efforts of its leadership team and staff – Ex‐Im unfortunately remains among the world’s least competitive export credit agencies (ECAs)," Karan Bhatia, Vice President & Senior Counsel, International Law & Policy, General Electric, told the House Subcommittee on International Monetary Policy and Trade last March. "Ex‐Im dramatically trails other countries’ ECAs in total funds authorized. For example, Canada – a country less than a tenth the size of the United States – has more than triple the amount of export financing as the U.S.; Japan more than five times; and China an estimated eleven times. Moreover, Ex‐Im is forced to labor under restrictions and processes that lessen its attractiveness and discourage many U.S. companies from accessing it."

In an interview, Fred Hochberg, Chairman and President of the Export-Import Bank, says Ex-Im only finances foreign exports which create jobs in the U.S. "The Canadian export credit agency furthers Canadian business interests, whether in Canada or overseas, and it doesn't matter where the jobs are created," he explains. "We are limited by a more rigorous domestic content policy."

The House and Senate are currently considering very similar Ex-Im Bank reauthorization bills which, most notably, increase the bank's current $100 billion exposure limit to $140 billion in the House bill and $160 billion in the Senate bill. The PEC recommended $200 billion. The exposure limit is the total level of financing currently allotted by the bank. It has about $87 billion worth of active projects on its books. Neither bill appears to make major changes in current domestic content restrictions.

The Ex-Im Bank focuses on exports to nine emerging markets: Brazil, Colombia, India, Indonesia, Mexico, Nigeria, South Africa, Turkey and Vietnam. The U.S. number one and two export markets, Canada and Mexico, aren't on that list. They are already fully open for business due to the North American Free Trade Agreement. Neither is the number three country, China. The U.S. doesn't have a FTA with China. Numerous companies in numerous industries complain they can't get their foot in the door there, and if they do, the door gets slammed on their toes because of insufficient intellectual property protection and other discriminatory policies.

"We should be exporting more in China and Asia," acknowledges Sánchez. "But there are challenges in that market." The U.S. China Joint Commission on Commerce and Trade, established in 1993, met in December 2010 and agreed to a number of policies that both countries would implement. "We have made progress, and we expect to make more progress by the time of the next meeting at the end of this year," states Sánchez, who co-chairs the commission on the U.S. side.

Sánchez also highlights the importance of the Trans-Pacific Partnership, a trade grouping which includes the U.S. and Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. Negotiations are now ongoing to create a Free Trade Agreement among the TPP partners. The next step on the TPP is a ministerial meeting in Honolulu in November.

The Chamber's Brilliant says the U.S. has made some progress negotiating acceptable language for the treaty but has also had some setbacks. "We are not there yet where we feel comfortable that the text is to the satisfaction of American business," he explains. "It is important that the intellectual property chapter be right, that regulatory coherence chapter be right and that state-owned enterprises are dealt with in these negotiations in appropriate ways since this agreement will set the bar for future agreements and must be of the highest international standards possible."

Of course Congress' record on passing pro-export legislation leaves something to be desired, too. The Senate Banking Committee approved its version of a pallid Ex-Im Bank reauthorization bill on September 8, taking about 10 minutes during a 40-minute committee session devoted to a number of other issues. The only discussion over the Ex-Im bill had to do with an amendment denying Ex-Im guarantees to any foreign company doing business with Iran, a reference to a 2008 Ex-Im loan to an Indian refinery which supplied refined gasoline to Iran. The bank's role as a job creator came up for not a moment's discussion.

Pharmacists Push for More Explicit Role in Accountable Care Organizations

2011-10-06T08:43:00.000-07:00

Pharmacy & Therapeutics...October 2011

When CeutiCare, LLC, a Cleveland-based pharmacy management company, began its experiment with an Ohio Medicaid HMO in 2008, Allen Nichol, Pharm. D., the company’s Vice President of Clinical Operation and COO, had a strong hunch. It was that the HMO’s pharmacists using CeutiCare’s proprietary smart algorithm, could help physicians target the most effective medication for their patients and save the HMO big bucks in avoided hospital readmissions. One year later, Nichol had proof. Over the course of a year, treatment costs for patients seen by pharmacists wielding CeutiCare software were lower by $5500 per patient than for patients in a control group. "The glaring thing was that hospital readmissions for the treatment group were down 29 percent," explains Nichol. "For the control group they were up 200 percent." Those results were computed by the Pfizer pharmacoeconomics division.

Flash forward to September 2011. The Centers for Medicare and Medicaid Services (CMS) is weeding through applications from physicians' groups around the country who want to participate in the CMS's ACO program. Accountable Care Organizations (ACOs) were mandated by the 2010 Affordable Care Act, the health care reform bill passed by Congress and signed by President Obama. They aim to reduce Medicare spending—now a cause célèbre thanks to the debt ceiling debate--by forcing groups of physicians to collaborate more closely among themselves, in out-patient and in-patient settings, so as to provide patients in five high-cost chronic categories higher quality care at a lower cost. These ACOs will function much like HMOs, assuming risk for the comprehensive care of seniors and pocketing some of the savings ostensibly accruing from coordinated care. The ability of an ACO to reduce hospital readmissions will be a key to generating those savings. The new program is supposed to premier on January 1, 2012.

So one would think, given the CeutiCare results with the Ohio HMO and numerous verified, reports of health plan savings generated by medication therapy management (MTM) services, that pharmacists would be to ACOs what baseball slugger Reggie Jackson was to the Yankees at World Series time..."the straw that stirs the drink." Think again. Pharmacists aren't even in the dugout.

Only providers who bill Medicare directly for Part A hospital and Part B physician office services can participate directly in ACOs and share savings. That means physicians and hospitals. Pharmacists, except in one very narrow instance, are MIA from ACOs; pharmacists may be able to direct bill from for Diabetes Self-Management Training services because those services are provided under Part B. Part D out-patient drug costs do not get computed when totaling ACO savings to Medicare.

So ACOs will depend on pharmacists stationed in hospitals and physician offices--but not in community pharmacies--to help generate savings; they just can't make pharmacists risk and profit sharing "partners" in the experiment which, if it achieves some success, will become the model for a radical change in the way health care is provided and reimbursed, by the federal government and private payers, in the United States.

Given the fact that pharmacists already account for significant federal and private health care cost savings, there has been a lot of unhappiness about their omission from the ACO experiment. "I am in utter disbelief that since there are 130 colleges of pharmacy in the U.S. and licensure requirements in all 50 states and US territories that the U.S. government continues to ignore the clinical contributions that are documented in thousands of peer review journal articles," says Nichol.

Unfortunately, it does not appear that the Center for Medicare and Medicaid Services (CMS), which is administering the ACO program, has much leeway to bring pharmacists in from out of the cold. The language of the Affordable Care Act only allows providers defined as such under the Social Security Act to participate directly in ACOs, meaning share in their risks and rewards. Christopher Topoleski, Director, Federal Regulatory Affairs, the American Society of Health System Pharmacists (ASHP), says he understands that the CMS is limited in terms of allowing direct participation of pharmacists. What the ASHP and other pharmacist groups would like to see is CMS recognize the significant contributions pharmacists make in caring for patients, and for the ACOs to be able to pass some of those savings to pharmacists, be they situated in in-patient, out-patient or retail pharmacies.

Again, pharmacists in hospitals and physician offices will have a direct role in helping ACOs meet their two prime objectives: achieving quality benchmarks and saving money. ACOs will have to meet 64 quality indicators (that number may change in the final rule) before they can share in any savings. Many of those benchmarks require careful attention to medication handling. Those benchmarks include: In the area of care coordination/transition, Measure Number 10: Medication reconciliation after discharge from an inpatient facility and Measure Number 11: Care transition measurement (including the medication therapy management component). Preventive health measures include influenza immunization, pneumococcal vaccination, and cholesterol management for patients with cardiovascular conditions. There are separate measures for individual "At Risk" populations. For those with coronary artery disease, measures include oral anti-platelet therapy prescribed for patients with CAD, drug therapy for lowering LDL-cholesterol and beta-blocker therapy for CAD patients with prior myocardial infarction (MI).

To the extent that quality benchmarks are based on evidence-based protocols, they presumably lead not only to healthier patients but to fewer adverse drug reactions and shorter hospital stays as well. Helping hospitals adhere to those protocols is where hospital pharmacists make their contribution, and it leads to significant cost savings. Once a patient leaves the hospital, a pharmacist working in a physician's office helps reduce hospital readmissions. "Hospitals have their own formularies and they differ from the formularies used by a patient's health plan which comes into play when the patient goes home," says Mike Edbauer, Chief Medical Officer, Catholic Medical Partners in Buffalo, N.Y. "The medications in the medicine cabinet at home can be different than the medications the patient comes home with, such as two different statins, or two different blood pressure medicines. Or maybe the hospital drops an ACE inhibitor the patient was taking prior to being hospitalized. These are fairly significant errors we have been able to identify." Catholic has been using pharmacists to reduce hospital readmissions.

Excluding pharmacists from sharing risk and rewards in ACOs, the language of the Accountable Care Act aside, makes as much sense as the Medicare program throwing money out the window. There are indications that the ACO concept works. In creating them, Congress used the Physician Group Practice Demonstration (PGPD) established by Medicare in 2005 as a model. It was the first pay-for-performance initiative for physicians under the Medicare program, and it ran for five years. It offered “performance payments” to participants that met most of 32 measures of quality — half as many as in the proposed rule — and spent at least 2 percent less for Medicare patients, compared with a group of similar Medicare patients outside the experiment who lived nearby. Results from the five-year-demonstration program were published in December 2010, and to outsiders they didn't look all that good. That was because the data on cost savings appeared to be unconvincing. But most of the10 participants did save money, just not enough to get over the percentage hurdle the CMS had established before the physicians could share those savings.

The University of Michigan Faculty Group Practice was one of the 10 participants in the PGPD. David Spahlinger, M.D., Senior Associate Dean for Clinical Affairs, University of Michigan Faculty Group Practice, explains that 5 of 10 groups earned money back from Medicare, his included. The UM practice has 30 sites, some of them huge, as large as 400,000 sq. ft, containing more than one clinic. Spahlinger explains that there are five pharmacists spread over those 30 sites. "If a patient has a complex pharmaceutical problem, we hand it off to the pharmacist," he states. "The faculty group practice organization implemented a transition of care program and complex care management program. Pharmacist played an important role in our management of patients with multiple medical problems with complex medication regimens."

Other physician groups outside the PGPD have also inaugurated coordinated care models. One of them is Catholic Medical Partners in Buffalo, N.Y., an independent practice association which includes five hospital out-patient clinics and about 200 physician offices. Edbauer says the IPA's clinical integration model added pharmacist participation a few years ago. CMP employs three pharmacists full time and four others do per diem work. Those pharmacists are assigned to the larger clinics and physician practices, with additional sites being added to pharmacist coverage throughout 2011. Typically, a pharmacist spends four hours at one site, seeing patients with complex medication issues and chronic diseases.

But Edbauer says the biggest impact the pharmacists have had is in the CMP's Care Transitions Program. When high-risk patients leave the hospital, they go into the program, which provides nurse visits within 48 hours to the exiting patient's home. The nurse, among other things, checks the medications in the released patient's medicine cabinet and sends that list to one of the seven pharmacists, who has access to the patient's electronic medication record, whether the pharmacist is at a clinic or not. Pharmacy students sometimes accompany the nurse to assist with the medication collection as well as provide additional information to the patient. Edbauer points out that the drugs a patient received off the hospital's formulary may have been different than the drugs the patient had been receiving at home, prior to hospitalization, through his or her health plan.

When Edbauer met this past January with members of the CMS Administration, he shared that virtually 100 percent of the patients in the Care Transitions Program had at least one medication changed when they arrived home. "When we started the program, we weren't anticipating that volume of opportunity," Edbauer emphasizes. "It has shown a positive return on investment. Both the insurance companies we work with and we have been satisfied with pharmacist collaboration so much so that we are growing the program." CMP has also applied to participate in the pioneer ACO, the pilot model the CMS is now trying to get off the ground prior to finalizing rules for the entire program.

Neither Edbauer at Catholic nor Spahlinger at the UM have comprehensive, public data about how much money their groups are saving because of pharmacist intervention in health care. But that data exists elsewhere. In its comments to the CMS on the ACO proposed rule, the National Community Pharmacists Association (NCPA) pointed to a 2010 study by Oliveira and others which examined MTM outcomes over a ten year period in a large integrated health care system. (1) Among positive results from the study, for a subset of diabetes patients, the study showed that 42.7% reached all diabetes goals through MTM and that over the 10 year study there was a pharmacist-estimated cost savings to the health system of about $86 per encounter. Stated differently, there was an estimated return on investment of $1.29 per $1 spent in MTM costs.

1 De Oliveira, DR, Brummel, AR, Miller DB. Medication therapy management: 10 years experience in a large

integrated healthcare system. J Manag Care Pharm. 2010:16(3):185-195. (April 2010)

While MTM services are and can be provided in a hospital, and can come into play in an ACO environment, narrower medication adherence programs are probably prevalent in Part D. These have shown the ability to reduce hospital readmissions, too. A 2007 study by Murray and others revealed that during a nine month pharmacy intervention period, direct health care costs were lower for the intervention group by $2,960 per person. There were also less adverse drug events and medication errors in the intervention group.(2)

2 Murray M, Young J, Hoke S et al. Pharmacist intervention to improve medication adherence in heart failure. Ann Intern Med. 2007;146:714-25.

However, community pharmacists are excluded from ACOs since Part D costs are not part of the savings calculations authorized by Congress. Spahlinger thinks it would make sense to include Part D costs in ACO savings calculations, although he says there are problems in doing so since those Part D costs will be going up, through no fault of the ACO, given the congressional decision in the ACA to fill in the Part D "doughnut hole."

The exclusion of Part D costs may have something to do with pharmaceutical company opposition to their inclusion. Steve Phillips, director of health policy at Johnson & Johnson, says his company supports the CMS proposal not to include prescription drug expenditures from Medicare Part D in either the historical benchmark calculation or the performance period expenditures. J&J contracted with The Moran Company (TMC) to conduct an analysis of the potential impacts to Part D plans and to overall Medicare spending if ACOs move their patients to Part D drugs rather than drugs or biologics paid under Parts A or B. TMC analyzed the top 50 Part B drugs (by spending) and identified 23 as having a Part D drug counterpart. If Part B spending for these 23 drugs in 2009 had been completely replaced by branded Part D drugs reimbursed at prevailing Part D reimbursement levels, Part D spending would have increased by $10.0 billion in 2009. Because base Part B spending for these drugs was only $5.7 billion in 2009, Medicare gross drug spending would, in this scenario, have increased by $4.3 billion, or by 76%.

Having successfully kept Part D costs out of the ACO calculation, drug companies are now focused on making sure that ACOs provide costly, new "breakthrough" drugs to their Medicare participants even if those participants do not run up Part A or B charges. Phillips from J&J, by way of an example, suggests that Medicare ought to include costs of providing a new Alzheimer's drug if and when such a drug is approved by the Food and Drug Administration. Alzheimer patients do not receive Part A or Part B services, for the most part, at least not those contemplated by the ACO program. "In this case, an ACO would be 'penalized' for providing the new treatment to its patients," he states.

Not only are pharmaceutical manufacturers worried about ACOs walling themselves off from expensive new drugs, they are also concerned that federal health centers or hospital partners of the ACOs, where they qualify for the federal 340B discount drug program, will improperly provide ACO patients with 340B drugs, which brand name companies have to sell at a discount. The purpose of the 340B Program is to enable federally-qualified health centers, disproportionate share hospitals and a couple other categories of hospitals that are safety-net providers to stretch scarce federal resources. They may purchase discount brand-name drugs which manufacturers must provide if they want to sell non-discounted pharmaceuticals to Medicaid programs.

Lynda Bryant-Comstock, Director, HHS Government Relations, GlaxoSmithKline, says the proposed rule provides a five percent bonus to ACOs that include a federally qualified health center or a rural health center, both of which are 340B eligible entities in their networks. "We are concerned that without specific guidance there may be an attempt to require all patients enrolled in the ACO to fill prescriptions in an outpatient pharmacy of a 340B entity, which would subvert the intention of the program," she states. "Furthermore, absent such guidance, there is the possibility that ACOs may change their treatment protocols in a way that would move a patient from an inpatient setting to an outpatient setting in order to have access to 340B pricing discounts."

Another ACO issue that will touch hospital pharmacies is electronic health records (EHRs). The CMS proposed rule requires at least 50 percent of an ACO’s primary care physicians be meaningful EHR users by the start of the second performance year, and that ACOs have a mechanism in place to electronically exchange summary of care information when patients transition to another provider or setting of care. The CMS has already established a meaningful use (MU) definition as required by the Health Information Technology for Economic and Clinical Health Act (HITECH), part of the American Recovery and Reinvestment Act of 2009. Physicians and hospitals who meet the meaningful use standard will be eligible for incentive payments in calendar 2011.

The MU requirements touch on many services that in-patient pharmacists are involved in. But the actual technical specifications are not robust enough to account for pharmacist intervention. Specifically, the MU standard addresses only electronic prescribing and does not incorporate pharmacy quality measures approved by the Pharmacy Quality Alliance (PQA). An example would be medication reconciliation. The MU standard does not square with the more expansive definition supported by members of the Pharmacy e-Health Information Technology Collaborative, the Joint Commission, and the Agency for Healthcare Research and Quality.

The gold standard EHR, in the view of pharmacy groups, would include the Pharmacist/Pharmacy Provider EHR (PP-EHR) functional profile. The PP-EHR was developed by a joint Health Level Seven (HL7) and National Council for Prescription Drug Programs (NCPDP) work group and has been approved through the balloting process of both groups. But the PP-EHR has not been blessed by either an HHS-designated certification organization--there are three of these--nor has it been incorporated into EHR software. So in essence the CMS cannot require docs and hospitals to use this more pharmacy-rich EHR, at least not yet.

Shelly Spiro, RPh, Director, Pharmacy e-Health Information Technology Collaborative, says she hopes the HL7 Pharmacists EHR functional profile (PP-EHR) obtains ANSI accreditation this fall. But many of the pharmacy management software vendors who would be expected to include the Pharmacist EHR profile functionality in their systems are focused on HIPAA 2 (NCPDP D.0), the new requirements that pharmacy software vendors must comply with starting January 1, 2012. Moreover, she adds ruefully, "The system vendors have no incentive to incorporate Pharmacist EHR functionality into their software."

ACOs do have an incentive to incorporate pharmacists into their coordinated care model. That is true. But whether pharmacists have much of an incentive to make ACOs work, that is a totally different question.

EPA Considering Changes to Certification Standards for Diesel Exhaust Fluids

2011-10-06T08:38:00.000-07:00

Aftermarket Business World...September 25, 2011

The Environmental Protection Agency wants to make some changes to its certification program for reducing agents, and they aren't talking about chemicals used by weight-loss companies such as Jenny Craig or in saunas at health clubs. The July 7 draft guidance from the agency concerns the reducing agents that are an integral part of a NOX emission control technology called selective catalyst reduction (SCR) used in light- and heavy-duty trucks.

These are not solely commercial trucks, but include trucks below a gross vehicle weight rating (GVWR) of 19,500 lbs. which are used for personal and business work. The reducing agents, also referred to as diesel exhaust fluid (DEF), are used up just as the fuel is. Replacing the fluid is regulated by the EPA under allowable and necessary maintenance and adjustable parameters. These regulations also apply in the case where inadequate quality DEF could be used or where the SCR system may be subject to tampering.

The EPA draft guidance tightens up prior guidance which mostly, for the moment, affects original equipment manufacturers, in terms of how Low-DEF warning systems work and when inducement--where the engine slows down in response to dwindling DEF levels--kicks in. But the draft guidance illuminates aftermarket issues, too.

The key problem, from the EPA's standpoint, is that truck owners run out of DEF and don't refill the tank, leading to emissions violations. Maybe it is a case of a faulty warning or inducement system. The draft guidance aims to prevent this from happening by setting out engine indicator capabilities which truck and engine manufacturers must meet in order to self-certify their engines. The draft guidance doesn't directly get into aftermarket issues, although to the extent a truck owner can't find a DEF refill while on the road, that, too, could be a major emissions problem.

Truck owners have to either buy 2.5 gallon jugs of DEF in the aftermarket or pull in to a truck stop and pump fresh DEF into what is conventionally a 20-gallon tank located on the vehicle. More than 100 truck stops in the U.S. and Canada now have DEF available at the pump. There are also over 3,000 locations that have packaged DEF, and a majority of the locations are in the U.S. As truck stops such as Travel Centers of America roll out on-island DEF dispensers, they usually incorporate technology which allows for single transaction fuel and DEF filling.

But Navistar Inc, which has been locked in a battle with the EPA and CARB over SCR/DEF issues, thinks aftermarket sales are a problem. Navistar's MaxxForce Advanced EGR engines use advanced fuel injection, air management, electronic controls and proprietary combustion technology to cut NOx emission. Competitors such as Cummins use DEF in their SCR engines. Navistar argues that the draft guidance will allow truck drivers to continue to drive “dry” DEF tanks, and spew big amounts of NOx, because DEF refills “are both expensive and inconvenient for the customers of SCR engine makers—assuming DEF is even available,” according to Patrick Charbonneau, Vice President, Government Affairs, Navistar. He calls the draft guidance "a major step backwards" and says it lets SCR manufacturers get away with murder, allowing them to self-certify liquid, urea-based SCR technology--first allowed by the EPA for model year 2010--without full scale testing.

So even though this draft guidance does not touch directly on aftermarket sales of DEF, it could end up spurring more aftermarket locations to carry DEF. That would certainly be the hope of companies such as Cummins, which says only 30 percent of retailers who normally supply parts and equipment for light-, medium- and heavy-duty diesel vehicles have DEF available.

NTSB Recommendations on San Bruno Put Pressure on Congress and Obama Administration to Act on Gas Pipeline Safety

2011-10-06T08:32:00.000-07:00

Pipeline & Gas Journal...October 2011

The pipeline safety recommendations issued by the National Transportation Safety Board (NTSB) on August 30 puts significant pressure on both Congress and the Obama administration to respond to the problems discovered as part of the NTSB investigation of the PG&E San Bruno explosion in December 2010. Eight persons were killed and many others injured as a result of that accident. The NTSB recommendations go way beyond the legislation Congress has begun to pass through committees and in the advanced notice of proposed rulemaking (ANPR) the Pipeline and Hazardous Materials Safety Administration (PHMSA) issued on August 24.

The House Transportation and Infrastructure Committee passed a pipeline safety reform bill on September 8 a few days after returning to Washington from the summer recess. Called the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011(H.R. 2845), the bill came a week after the NTSB released its final conclusions on San Bruno. The explosion was caused by escape of gas from a fracture in a defective piece of pipe installed in 1956. PG&E's integrity management program, which the NTSB called "deficient and ineffective," should have caught the defect, but did not.

The NTSB was also sharply critical of the PHMSA which released an ANPR on August 24 which sets the stage for possible regulatory changes to the transmission integrity management program (TIMP) authorized by Congress in 2002 and put in place by PHMSA in 2003. The TIMP requires interstate pipelines to test segments running through “high consequence areas” (HCAs) and repair any potential problems.

The NTSB recommendations focus on PHMSA supervision of the TIMP but also push enhancements of many other pipeline safety rules, such as exemption from hydrostatic testing for pipelines built prior to 1970. The defective PG&E segment which ruptured in San Bruno was exempt from hydrostatic testing, which would have probably found the defect. The NTSB recommended that the Department of Transportation provide considerably more oversight to PHMSA supervision of the TIMP in addition to directives to PHMSA itself in the areas of control room operation, supervisory control and data acquisition (SCADA) systems, installation of shutoff valves, provision of pipeline data to local emergency responders, expanded inline testing, drug and alcohol programs and on other topics. The Board also asked for elimination of the pre-1970 pipeline exemption from hydrostatic testing.

Damon Hill, a PHMSA spokesman, did not respond to an e-mail asking whether the agency had any comment on the NTSB recommendations, or whether those recommendations would affect the limited scope of the ANPR the agency issued on August 24.

INGAA CEO Don Santa says his association's Pipeline Safety Task Force’s Integrity Management Continuous Improvement (IMCI) team is implementing action plans that address NTSB’s recommendations.

The bill passed by the House committee on September 8, a second House bill in the Energy & Commerce Committee and a third bill passed in May by the Senate Commerce Committee respond to only a handful of the NTSB recommendations, and partially at that. The House Transportation Committee bill is very similar to the Energy & Commerce bill, which is called the Pipeline Infrastructure and Community Protection Act of 2011. INGAA prefers the House E&C bill to the Senate bill, called the Pipeline Transportation Safety Improvement Act of 2011(S. 275).

In its San Bruno report, the NTSB criticized the PHMSA for inadequate TIMP inspection protocols and for not incorporating the use of effective and meaningful metrics as part of its guidance for effective performance-based pipeline safety management programs. Neither the House nor Senate bills require upgrading PHMSA standards or inspection of transmission company implementation of the TIMP. The bills do charge PHMSA with making recommendations whether to expand the TIMP to areas not now considered HCAs.

The House and Senate bills do cover some of the ground in the NTSB recommendations but stop short of requiring most of what NTSB recommends, such as automatic shutoff valves. The bills, for example, require shut off valves if they are "economically, technically and operationally feasible" and then only for new pipelines. The NTSB wants automatic shutoff valves or remote control valves in high consequence areas and in class 3 and 4 locations.

A House staffer explains that widespread use of remote control valves "which run in the hundreds of thousands of dollars – in every transmission line in every HCA would place an impossible burden on industry and consumers alike."

The House and Senate bills have no provisions related to SCADA, for example. The House Energy & Commerce bill does end the grandfathering of pre-1970 pipelines from maximum allowable operating pressure requirements. "Closing this loophole will help prevent accidents like San Bruno in the future," says the House staffer. She adds, "Also, as part of expanding integrity management programs into transmission lines located outside high consequence areas, we are starting the process of requiring inline inspection of many more miles of gas transmission lines."

The NTSB investigation also determined that a sewer line installation in 2008 near the rupture did not damage the defective pipe. Nonetheless, the House Transportation bill requires PHMSA to conduct a study of third-party excavation damage, a provision missing from the Senate bill. Both bills eliminate current exemptions for local government civil works arms from state "one-call" notification systems. Andy Black, President and CEO of the Association of Oil Pipelines, singles out the removal of exemptions from one-call programs for praise. But he adds, "We encourage Congress and PHMSA to remove additional exemptions for mechanized excavation, in order to eliminate the safety gap they cause."

The PHMSA ANPR issued in August focuses on integrity management standards inside HCAs and whether to include pipeline segments, currently outside HCAs, in them. Terry Boss, Senior Vice President for INGAA, says the group does not support expanding HCAs but does want to bring ASME (American Society of Mechanical Engineers) protections to areas outside HCAs. In its detailed submission in July, INGAA committed to "coverage of affected population as the basis for extending integrity management principles of B31.8S to at least 70% of the population within the PIR by 2020." B31.8S is an ASME standard on which most of the TIMP regulatory program is based. However, the ASME standard does not include, for example, a requirement that companies reinspect pipeline segments in HCAs every seven years. That has been a TIMP provision which INGAA has tried, unsuccessfully, to convince Congress to alter.

Boss explains that gas transmission pipelines have already done much more than what is required by the TIMP, in terms of protecting non-HCAs, but have done a poor job of communicating their extra efforts to PHMSA. That said, he adds that the PHMSA ANPR "pretty well matches"--in terms of what could become potential new requirements--what most pipelines are already doing. So there were no big surprises in the document.

Pitting the FDA Against CMS

2011-09-13T11:10:00.000-07:00

Biotechnology Healthcare...Fall 2011

The good, the bad, and the ugly about “parallel review.”

BY STEPHEN BARLAS

When the Food and Drug Administration (FDA) approved Dendreon's novel prostate cancer vaccine in April 2010, the company believed PROVENGE® (sipuleucel-T) would lead it to the financial promised land. After all, the drug was a novel treatment, the first autologous cellular immunotherapy for the treatment of prostate cancer. Medicare's regional contractors quickly fell in behind the FDA, agreeing to pay for the drug.

But Dendreon hit a speed bump on its fast track to fortune later in 2010. That is when federal Medicare, under the aegis of the Centers for Medicare and Medicaid Services (CMS), announced it would issue a National Coverage Determination (NCD) on Provenge, whose price is pegged at about $90,000 per treatment. Federal Medicare rarely questions the coverage decisions of its contractors, much less the quality of clinical trials ordered by the FDA as part of the approval process, although it has done so more frequently, and in high profile cases, in the past few years. Subsequently, a Medicare Evidence Development & Coverage Advisory Committee met in November 2010. It blessed coverage of the FDA approved use of Provenge with faint praise and threw icy water on off-label use.

"For Medicare to take on a new cancer drug, that is pretty unusual," states Steve Phurrough, Chief Executive Officer of the Center for Medical Technology Policy. Phurrough served in executive positions at the CMS coverage and analysis division during the terms of Presidents George W. Bush and Barack Obama.

Medicare's decision to undertake a NCD probably cooled the ardor of oncologists and urologists who might have been expected to prescribe the expensive new drug. Decision Resources, one of the world’s leading research and advisory firms for pharmaceutical and healthcare issues, released a survey in mid-June 2011, two weeks before the CMS published the final NCD, which ratified the recommendations of the November Advisory Committee. The Decision report said that over the next 12 months, according to surveyed physicians’ estimates, only 15 percent of patients eligible to receive Provenge would get prescriptions for it, despite the views of many surveyed physicians that the launch of Provenge represents a breakthrough in the treatment of prostate cancer.

Provenge is a prime example of what can happen when the FDA approves a new drug it deems "safe and effective" based on clinical trials it prescribes, clinical trials which do not answer Medicare's questions about whether reimbursing for that drug is "reasonable and necessary." That FDA/CMS dissonance was examined at one session at the BIO convention in Washington, D.C. on June 28. The panel was called "Common Needs and Uncommon Cooperation: The State of Joint FDA and CMS Initiatives." The panel focused on a joint FDA/CMS proposal in the Federal Register in September 2010 to conduct "parallel reviews" of some drugs and/medical devices. The idea is to prevent FDA/Medicare "disconnects" such as the one caused by Provenge.

The agencies are concerned that new drug applications have fallen off because brand name companies fear spending millions on clinical trials necessary to get FDA approval only to find that the FDA gift wrapping provides only " limited predictability of market access" and for that reason may "hinder investment in the development of innovative therapies and diagnostics."

Drug companies, patient advocacy groups, physician professional organizations and others all sent in comments to the agencies with varying viewpoints. The agencies have been sifting through those comments and are apparently preparing a guidance document, whose publication may be imminent. Peter C. Beckerman, Senior Policy Advisor, FDA Office of Policy, says the agencies plan to announce a pilot program for medical devices. "Subsequently, pending our experience with the pilot, we would consider additional steps or public communications, he adds.

Michael McCaughan, senior editor of the RPM Report, a newsletter which covers federal drug regulatory issues, and who spoke during the BIO panel, explained that the reaction from the pharmaceutical industry to the joint review proposal was "an almost hyperbolic fear."

"Fear" may be a bit too strong a description. But many trade associations such as BIO and pharmaceutical companies have nonetheless clearly voiced strong reservations about the concept of parallel review. In a letter to the CMS, Evan L. Morris, Vice President, Government Affairs, Genentech, Inc., wrote: "At this time, Genentech does not feel that the current system, under which Medicare initiates national or local coverage analyses/determinations only after FDA has approved a drug or biologic, has resulted in significant delays in post-approval coverage. Therefore, we do not see the need for the proposed parallel review process with respect to drugs and biologics."

Patricia DeSantis, Vice President, Global Regulatory Policy and Intelligence, Johnson & Johnson, thinks collaborative review might make sense for some subgroups of drugs such as theranostics (e.g., therapy-related biomarkers) and regenerative medicine. But in the main, she states that if FDA trials were able to be used by the CMS toward a NCD, "the benefits of early discussions with CMS may be overcome by the disadvantages of premature initiation of an NCD that could lead to high risk of a negative coverage decision due to the paucity of clinical data."

In fact, one pharmaceutical industry executive, who asks not to be identified, says the FDA is grasping for the wrong straw. He says, "It is more important for the FDA to get its house in order, as we move toward personalized health care, so that drugs and diagnostics get approved at the same time."

Of course health insurers have a stake in the debate, too. They are somewhat unenthusiastic, but for the opposite reason drug companies have voiced. Allan M. Korn, MD, FACP, Senior Vice President, Clinical Affairs and Chief Medical Officer, the Blue Cross and Blue Shield Association (BCBSA), is concerned that parallel review, rather than keeping the FDA "honest," in a sense, by allowing Medicare some say in clinical trials, might end up watering down Medicare's coverage standards. "Assessments by the BCBSA Technology Evaluation Center over the course of two decades have identified numerous instances where the science supporting new devices cleared by the FDA did not also demonstrate improved clinical benefit or safety relative to existing covered products," says Korn. "In light of this, the establishment of parallel review must not allow a foregone conclusion that products evaluated through parallel review will be covered by Medicare if cleared for market by the FDA."

Provenge is just the latest in some notable differences of opinion which have split the FDA and CMA over the years. Phurrough cites Erythropoiesis Stimulating Agents (ESAs) such as Epogen, Procrit and Aranesp, the hemoglobin boosters manufactured by Amgen. They were approved starting in 1989 by the FDA for use in cancer and kidney patients. Medicare undertook an NCD nearly 20 years after their approval and in July 2007 restricted use of ESAs to cancer patients with hemoglobin levels below 10 and to treatments of no more than 150 micrograms three times a week. "That was a reasonable decision," states Phurrough, another speaker at the BIO seminar. The FDA subsequently adjusted the label indication for cancer to comply somewhat closely, but not exactly with the NCD.

Subsequently, three years later, Dennis Cotter, president, Medical Technology & Practice Patterns Institute, submitted a request to CMS to issue a NCD for ESAs for chronic kidney disease (CKD). On June 16, 2011 Medicare declined to issue the NCD for chronic kidney disease. "This was despite the fact that the agency found no evidence of benefit and evidence of harm," says Phurrough, who suggests the Obama administration may have applied political pressure to the CMS. "The decision was incongruent with the evidence." Amgen did not respond to a request for its view of the CMS decision.

But when the FDA in 2011 looked again at ESAs and CKD, it took the opposite tack from the CMS deciding on June 24, 2011 to revise the Black Box warning that had previously been required for ESAs with regard to CKD. Cotter worked for the U.S. Public Health Service for five years advising Medicare on which drugs to cover. With regard to ESAs and CKD, he argues that for two decades no one has done a clinical trial to identify the appropriate hemoglobin target, a fault of Amgen, the FDA and the CMS.

Phurrough thinks it is unlikely that the FDA and Medicare will begin a robust parallel review process in the near future simply because the CMS is constrained by its legal authorities. However, he notes that the Affordable Care Act, the health care reform bill passed by Congress, established an Independent Payment Advisory Board (IPAB) with authority to make changes in Medicare payment procedures. The IPAB could clear the way for Medicare to work more closely with the FDA. "If the IPAB survives, it has significant potential for allowing there to be greater cooperation between the two agencies," Phurrough says.

New Proposed HIPAA Disclosures Vex Healthcare Players

2011-09-07T14:21:00.000-07:00

P&T Journal...September 2011

Pharmacists are already concerned about various new federal requirements coming down the pike which would complicate pharmacy software systems. We're talking about things such as potential drug package verification and electronic health record (EHR) entries. Now there is another software hurdle appearing on the track: compiling audit records of people inside the pharmacy and outside who take a peak at a customer's personal medical and pharmaceutical information.

That is one of the looming new requirements for both in- and out-patient pharmacies stemming from the 2009 Health Information Technology for Economic and Clinical Health (HITECH) Act. Some HITECH provisions made changes to the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule. Players throughout the pharmacy industry will be affected by the new HITECH requirements when they come into play. No word yet on when the final rule with compliance deadlines will be published.

The HIPAA Privacy Rule requires covered entities such as physicians, health plans, hospitals and pharmacies, and their business associates--pharmacy benefit managers, for example. When a patient makes a request, the entity must disclose which third parties it sent that individual's protected health information to. There has been an exemption since 2000 for disclosed information pertaining to "treatment, payment, and health care operations (TPO)."

The proposed rule the Department of Health and Human Services issued on May 31 suggested one expanded and one new disclosure covered entities and business associates would have to make, both stemming from HITECH requirements: (a) the currently required accounting of disclosures (AOD) would have to include TPO information for the first time, where the AOD was made via either electronic or hard copy-- and (b) individuals could, for the first time, request an access report of electronic-only disclosures of that person's designated record set (DRS) information. An access report would include the date and time of the access, the identity of the person accessing the information, and, if available, a description of the information that was accessed and what actions were taken while in the system (e.g., create, modify, view, print, etc.).

The expanded AOD and new access report requirements have earned numerous detractors. The HHS views compilation of an access report as a relatively easy, automated process, and thinks it will contain more useful information than an AOD, which would be more detailed, and would also have to be done manually. So it will be expensive.

The College of Healthcare Information Management Executives (CHIME) disputes the notion that access reports will be quick and easy to assemble. “CHIME is extremely concerned about the entire concept of access reports,” said Pam McNutt, Senior Vice President and Chief Information Officer at Dallas-based Methodist Health System and chair of CHIME’s Policy Steering Committee. “We believe the access logs, report filters, and other technical specifications needed to generate an access report would be inconsistent or nonexistent across many clinical data sources that might be considered part of a DRS.” For these and other reasons, CHIME is urging rule-makers not to include access report requirements in the final rule. If rule-makers include access reports in the new rules, CHIME believes that only data gathered through certified EHRs, not the full array of designated record sets, should be expected to populate such reports.

There are numerous critics, too, of the HHS's conception of an expanded AOD. Daniel C. Walden, Senior Vice President, Corporate Compliance and Privacy Officer, Medco Health Solutions, Inc., says, "Accounting of Disclosure provisions and ensuing proposed regulations if applicable to PBMs would impact Medco’s ability to utilize patient-specific information and as such could delay access to care and create an unnecessary increase in our paperwork burden."

Rebecca Carlson, General Counsel Assistant and Privacy Officer, Dean Health System, says her hospital assembled a trial AOD for a patient, and it was 46 pages long. It took somewhere between 40-50 hours to assemble the data required currently in an AOD. And Dean did not compile the additional information which would be required under the proposed rule, including pharmacy information.

Another problem with the potential AOD requirement is that the EHRs currently on the market do not account for TPO within a personal medical record, nor does the HHS stage 1 meaningful use requirement--tied to the eligibility of physician practices and hospitals for federal HIT incentive payments--require EHRs to do so. Moreover, only a handful of people have ever asked for the existing AODs established by the 2000 HIPAA Privacy Rule requirement. Since 2003, Medco has captured over 13.6 million records in its accounting of disclosures database. How many requests has Medco received for AODs in the past eight years? Thirteen!

One wonders why Congress even expanded the requirement as part of the HITECH Act. But these days, many of the things Congress does raises questions about its ability to formulate sound public policy.

Real-Time Reporting of Swaps Could Disadvantage End-Users

2011-08-16T09:46:00.000-07:00

Strategic Finance Magazine...August 2011

With the CFTC and SEC having pushed back to December 31 the date by which Dodd-Frank final rules have to be published, the focus of the business community now returns to convincing the agencies to make changes to some of the proposed rules whose provisions have left a bad taste. CFTC Chairman Gary Gensler who in mid-June announced that the original Dodd-Frank July 16 deadline for final rules was being delayed about six months noted that the effective dates of some of the derivatives provisions in Title VII could be staggered. Title VII includes provisions on swaps trading, repositories and margin requirements for companies who trade swaps simply to manage risk, companies called--in the argot of Title VII--end users, meaning manufacturing, transportation, energy and other companies who don't trade swaps in the manner of AIG and Lehman Brothers. Gensler told the Senate Agriculture Committee on June 16 that staggered dates would mean "those rules that could be implemented sooner should be so as to lower risk." He wasn't clear what he meant by that. In a similar vein, he noted that clearinghouses, for example, may be required to be registered and provide for client clearing at an effective date in advance of any determinations of clearing mandates.

End-users won't have to clear swaps, but the banks they contract with for those swaps will have to clear them on a repository and report those swaps in real-time on some sort of public website that may be like the current TRACE website which investors can view to see current trades of corporate and municipal bonds. This second Title VII requirement will, however, affect end-users, but has pretty much been a forgotten provision during debate during the first half of 2011 over the margin requirements for swaps proposed by federal banking agencies. We have discussed these previously, and the issue here has diminished considerably.

With concern over margin receding, reporting of swaps by banks in real-time, and its potential impact on end-users, comes to the fore. It will be a key focus of business groups between now and December 31 as the CFTC attempts to publish final rules. The proposed rule requires all trades, except those that qualify as block trades, to be reported on a real-time basis. Certain larger trades could be reported 15 minutes later. The real-time reporting requirements – when applied to large trades that don’t qualify as blocks – don’t sit well with business end users. "We are concerned that proposed real-time reporting rules could inadvertently jeopardize end user’s ability to secure efficient market pricing in certain situations," says Luke Zubrod, Director at Chatham Financial and an advisor to the Coalition for Derivatives End-Users. "In particular, it is important that large or less liquid transactions be classified as block trades and that the public reporting of such transactions be adequately delayed. If reporting of these types of trades occurs instantaneously, it could provide a roadmap for other market participants to trade on that information – ultimately adversely impacting pricing." Zubrod wants the CFTC to delay reporting for 24 hours. In addition, Zubrod would like to see the CFTC expand the size of the block trading exemption so that a wider array of trades qualify, perhaps by applying block trade calculations to discrete products which would provide a more granular look at the market.

How are Health Care Organizations Saving on Their Prescription Costs?

2011-08-09T14:44:00.000-07:00

August 9, 2011...ASHHRA e-News Brief (American Society for Healthcare Human Resources Administration)

By Stephen Barlas

Bob Melendy, human capital services executive at Scripps Health in San Diego, could not believe what he had just learned. One of the hospital system's 13,000 employees, a member of Scripps’ self-insured health benefits plan, had been filling prescriptions for Factor 8 (an expensive hemophilia drug) at the outpatient pharmacy of another local hospital. That hospital was qualified under the federal government's 340B drug discount program and therefore able to buy Factor 8 at roughly half the average wholesale price. This in turn gave the hospital’s outpatient pharmacy a competitive advantage and significant revenue when it dispensed expensive drugs. Based on usual and customary reimbursement rates, the nearby hospital’s pharmacy was earning about $400,000 each year from this single patient, all paid by Scripps’ health plan. But the real "ah-ha moment" for Melendy came with the realization that two hospitals of Scripps’ five hospital campuses were also 340B eligible and could buy and dispense discounted 340B prescriptions as well.

"We should be keeping those savings," thought Melendy. But while two Scripps hospitals were 340B-eligible, neither had taken advantage of purchasing drugs at the 340B discount rate. Discounts can be 25 to 50 percent off the average wholesale price (AWP) of many drugs including those for treating cancer, arthritis, HIV/AIDS, and other serious conditions.

Back in 2006, when he first ran into the Factor 8 employee's prescription situation, Melendy was only vaguely aware of the 340B program and its possibilities. But after some initial research he quickly realized that if he could start capturing 340B savings for some of the 24,000 employee and family member participants in the Scripps health plan -- especially those with expensive prescriptions for chronic diseases -- he could significantly reduce the corporate health plan's outlays on drugs.

Today, five years later, after fits and starts, Scripps is saving about $400,000 a year with the 340B program; the money it saves remains in the plan in order to cushion premium increases for employees. "And we are just scratching the surface," adds Dayna Pearson, the company's health plan administrator.

About 14,000 hospitals and Federally Qualified Health Clinics (FQHCs) qualify for the 340B program, which Congress established in 1992. Recently, the Affordable Care Act extended eligibility to another 1,500 hospitals, most in low income areas. The savings and revenue they generate as a result of the 340B program is used to help offset the cost of services provided to the underinsured or uninsured population they serve.

However, the 340B program has been on the back-burner for most hospitals. Very few have taken advantage of 340B’s monumental cost savings potential since the program was established two decades ago, as was the case with Scripps in 2006. The underutilization is due in part to the program’s complexities, guidelines and limitations. For example, at the time Scripps began its program, qualified entities could only designate a single pharmacy to fill 340B prescriptions, either an in-house pharmacy or a contracted retail or mail order pharmacy. All inventory dispensed through the program had to be distinguished from other prescriptions filled by the pharmacy.

Once he learned the Scripps plan could save $400,000 on just one employee's annual prescriptions, Melendy was determined to figure out how he could start a 340B program for the plan’s 24,000 covered lives. But when he presented the business proposal, it became clear that the organization did not have even a basic understanding of 340B regulations. "Our legal team had never heard of this," remembers Melendy. "They thought it was too good to be true."

At that time, the pharmacy benefit manager (PBM) that administered the Scripps prescription program was also just coming up to speed on the implications of a 340B program for employees. Melendy was undeterred. He decided to go the mail order route because Scripps did not have an onsite pharmacy at either of its two 340B-eligible hospitals. He also began trying to align Scripps’ mail order pharmacy partner behind the program (unsuccessfully it turned out). At the same time he fulfilled another 340B requirement: setting up a 340B-eligible clinic at Scripps Mercy Hospital where employees would go for care.

Thus began the Scripps Health Plan Care Partner Program, which targets employees and dependents with high cost prescriptions. Employees enter the program with an initial visit and the creation of a medical record. In the early days, they would often arrive at the clinic with the Care Partner brochure in hand. It explained the benefits of the program, including things like co-pay waivers for office visits and prescriptions. Over the course of a year, the co-pay on one prescription can total as much as $1,200, and some employees use more than one maintenance medication. Not only did employees save money, they had continuity of care from a specialist who was, in most cases, a Scripps affiliated physician. A

After getting started in 2007, the Care Partner Program moved forward slowly, weighed down by the lack of enthusiasm of its mail order partner and the need to research and comply with a complicated set of federal regulations. So in 2009, Scripps brought in Wellpartner, a Portland, Oregon, contract pharmacy administrator, to manage its 340B program. "At that time, there wasn't any other pharmacy administrator other than Wellpartner who knew how to structure a 340B program, whether for a hospital's employee plan or for patients of the hospital," explains Corey Belken, a managing consultant at The Burchfield Group, Inc., which was helping Scripps navigate pharmaceutical industry contracts. "Wellpartner was dominant because they were innovative enough to define and start serving this market."

Wellpartner is responsible for administering the Scripps 340B program and for filling qualified prescriptions through its mail order pharmacy. Wellpartner handles all the inventory and payment administration necessary to meet Health Resources and Services Administration (HRSA) and drug manufacturer audit requirements. According to Melendy, Scripps could have undertaken this work itself. But given staffing limitations and lack of internal expertise, this would have been extremely difficult, so it was much better to work with a recognized leader in this highly specialized field.

Today, the Scripps corporate health plan enjoys significant savings from the Care Partner Program. Between June 2010 and May 2011, Scripps employees filled 1,507 prescriptions at 340B prices, the total cost of which would have been approximately $840,000 without the 340B discounts. But Scripps paid only $418,000, saving $423,000 (and that number would have been considerably higher had not the employee with the Factor 8 prescription left the company).

Scripps Care Partner has gained popularity among employees because of the waived co-pays and other benefits of using the program -- so much so that Scripps hired a pharmacist at the Scripps Mercy clinic whose fulltime job is to consult with employees who want to enroll. One indication of the program's increasing attraction is that the number of 340B prescriptions filled in March 2011 was 80 percent more than the previous year.

The 1,507 eligible 340B prescriptions are a tiny percentage of the 230,000 total filled by all 24,000 Scripps Health Plan members over a 12-month period. Those prescriptions cost the plan about $12 million last year. Not all employees are participating in the Care Partner Program, nor does Melendy expect the number to ever approach 100 percent. But if only 10 percent of the total prescriptions covered by the plan were filled through the Care Partner, the savings to Scripps would increase geometrically as the downward pressure on employee health premium increases.

Pearson says that at an open enrollment benefit fair in 2010 at Torrey Pines, one employee told her that "the amount of money we have saved, thanks to my family member being enrolled in the Care Partner Program, has made a big difference in our lives."

Mr. Barlas, a freelance writer based in Washington, D.C., covers issues inside the Beltway.

Disclosure. The author reports that he has received financial compensation from WellPartner, Inc., for writing this article.

Nailing Down Grid Cyber Security

2011-08-03T13:15:00.000-07:00

EnergyBiz Magazine...July/August 2011

The Obama administration's economy-wide cyber security plan presented by the White House in May makes it much more likely that the holes in existing electric utility cyber defense plans will be plugged sooner rather than later.

Legislation passed in 2005 gave the Federal Energy Regulatory Commission (FERC) the responsibility for overseeing cyber security defenses for transmission and generation companies, the only companies for whom there is a national legislative mandate. But recent federal reports have underlined the swiss cheese nature of the standards published by the North American Electric Reliability Corporation (NERC), who FERC designated to produce standards aimed at guarding against computer virus attacks on critical assets.

The Obama legislative initiative would extend the federal mandatory cyber attack umbrella to the steel, chemical and other industries. Sens. Jeff Bingaman (D-N.M.) and Lisa Murkowski (R-Alaska), chairman and ranking member of the Senate Energy and Natural Resources Committee, held hearings on May 5 on a draft bill which would strengthen the original 2005 electric utility provisions; that bill, some of whose provisions are opposed by the industry, would become amendments to a broader bill, based on the Obama initiative, expected to be shepherded through the Senate by Sen. Jay Rockefeller (D-W. Va.), chairman of the Commerce Committee.

The 2005 Energy Policy Act gave FERC authority to designate a private sector group to establish standards for the "bulk power system," which excludes local distribution companies and transmission facilities in Hawaii and Alaska. The FERC designated the NERC as that standards setter. FERC has the authority to review NERC standards, and ask for revisions.

But since August 2006, when NERC submitted its first eight proposed cyber security standards, FERC has repeated directed NERC to fill gaping holes in those standards, which have also been the subject of criticism from the Inspector General at the Department of Energy and the Government Accountability Office (GAO). Joseph McClelland, director, office of electric reliability at FERC, told the Senate Energy Committee on May 5 that the majority of FERC modifications have not been incorporated into the NERC standards. "Until they are addressed, there are significant gaps in protection such as a needed requirement for a defense in depth posture," McClelland stated.

In a January 2011 report, the DOE IG implied that FERC was to blame for not pressing NERC harder and faster. "Although the Commission had taken steps to ensure cyber security standards were developed and approved, our testing revealed that such standards did not always include controls commonly recommended for protecting critical information systems," the report stated. "In addition, the standards implementation approach and schedule approved by the Commission were not adequate to ensure that systems-related risks to the nation's power grid were mitigated or addressed in a timely manner."

The Bingaman/Murkowski draft bill would allow FERC to issue an interim final rule establishing electric reliability standards if it felt NERC had failed to do so, and FERC could do that without the prior notice and public comment period that traditionally accompany federal rulemaking, and issue that IFR with less than 30 days notice. In the event of an emergency cyber threat, the secretary of the department of energy could issue an emergency order forcing the power industry to take certain steps to protect critical electric infrastructure. The order would be effective for 90 days initially and could be extended if public hearings were held. Companies could recover reasonable costs from complying with that emergency order from rate payers.

David K. Owens, executive vice president, business operations, Edison Electric Institute, says any new authority given to FERC or the DOE should be limited to truly critical assets. "Over-inclusion of electric utility infrastructure would be counterproductive," he explained at the hearings.. Critics of NERC's standards say they only cover a limited number of generation and transmission assets. The DOE IG report said: "Even though critical assets could include such things as control centers, transmission substations, and generation resources, the former NERC Chief Security Officer noted in April 2009, that only 29 percent of generation owners and operators, and less than 63 percent of transmission owners identified at least one critical asset on a self-certification compliance survey."

Owens adds that any new DOE emergency authority "should be limited to true emergency

situations involving imminent cyber security threats where there is a significant declared national

security or public welfare concern." The draft legislation is much broader; it doesn't mention that there needs to be an "imminent threat," for example. On the FERC interim final rule authority, he notes, "we are concerned about the lack of due process for stakeholder input.

Critics Assail FDA Medical Device Approval Process

2011-07-26T12:45:00.000-07:00

July 2011...P&T Journal

Slow Review Time and Safety Are at Issue

PRESCRIPTION:WASHINGTON

Stephen Barlas

Mr. Barlas is a freelance
writer based in Washington,
D.C., who covers
issues inside the Beltway.
Send ideas for topics
and your comments
to sbarlas@verizon. net.

The FDA is attempting to respond to
complaints about its procedures for
approving medical devices. Those
complaints come at the agency from different
angles.Medical device companies
say that if the FDA doesn’t speed up the
process, foreign competitors will win the
innovation race and hospitals in the U.S.
will see patients go overseas for cutting edge
treatments that domestic hospitals
can’t offer. The Government Accountability
Office (GAO), on the other hand,
has issued repeated reports criticizing
the FDA’s approval process for various
shortcomings that, hypothetically, could
endanger patients who might receive a
faulty implantable device, for example.
Stephen Ferguson, Chairman of the
Board of Cook Group, Inc., a holding
company for manufacturers of many diagnostic
and interventional devices, says:
“There is a real concern that without
improvement in the current regulatory
system, the role of the United States as
the leader in medical innovation will continue
to decline and [will] result in the
migration of patients seekingmedical intervention
abroad where innovation is
thriving and available.”
Diana Zuckerman, PhD, President of
the National Research Center for Women
& Families in Washington, D.C., takes
the opposing view. She says there are far
too many recalls of medical devices. Between
2005 and 2009, there were 3,510
voluntary recalls, an average of just over
700 per year. The majority—nearly 83%—
were classified by the FDA as Class II recalls.
A Class II recall means that the use
of, or exposure to, these devices could
cause temporary or medically reversible adverse health consequences or that the
probability of serious adverse health consequences
is remote. Class I recalls are
the most serious type, constituting only
4% of the total.
Dr. Zuckerman explains: “The bottom
line is that even ‘moderate-risk’ recalled
devices can sometimes result in death
during surgery and certainly add billions
to Medicare costs when they result
in additional surgery and hospitalizations
from the complications of defective
devices.”
Because of perceived problems with
the approval process, the GAO put the
FDA’s review program on the federal
government’s “high risk” list in 2009,
where it has stayed, as the GAO has
issued successive critical reports,mostly
about the extent of recalls. The FDA
responded by forming some internal
review groups that made recommendations.
In 2011, the agency announced that
it was implementing these recommendations.
To respond to complaints from industry
about the plodding pace of new device
review, the FDA is promoting an “innovation
pathway.” The agency held a
public meeting on that topic in March. Its
initial plan was to pick a couple of medical
devices each year for expedited review;
however, AdvaMed, the medical
device trade group, argues that the FDA
already has such a pathway—its Product
Development Protocol review.
Janet Trunzo, Executive Vice President
of Technical and Regulatory Affairs
at AvaMed, says:
The proposed Innovation Initiative contains
many good ideas, such as early and consistent
interaction and the focus on cooperative
effort, which ultimately should
be applied across the board to all devices to
get safe and effective products developed
and reviewed quickly. The FDA has a number
of tools to achieve these objectives
already available, and it should use them
more broadly and effectively. Minnie Baylor-Henry, worldwide Vice
President of Regulatory Affairs for Johnson
& Johnson Medical Devices and
Diagnostics, notes that the agency has
designated a brain-controlled robotic
prosthetic arm as the first device to enter
this innovation pathway. She agrees it is
a radically different and revolutionary
medical device and ought to be accorded
an expedited review. She adds, however:
“Significantly redesigning a marketed
device to allow it to be used safely and
effectively at home can be an innovative
breakthrough.”
She also says that the FDA should not
focus exclusively on “technologically
radical” developments.
The approval of new medical devices is
not the only pressing issue facing the
FDA—so is the classification of old devices.
Since 1976, the FDA has been
slowly classifying the 140 categories of
devices that were on the market before
that year, when Congress passed the
Medical Device Amendments of 1976.
That legislation, which amended the
federal Food,Drug, and Cosmetic Act of
1938, required the FDA to categorize all
medical devices as Class I, II, or III, with
III representing the most potentially
dangerous class, including, for example,
implantable devices. Manufacturers of
new Class III devices can submit a Premarket
Approval (PMA) application for
an innovative device, in which case a
clinical trial or similar study is required.
Alternatively, a premarket notification
states that the new device is similar to
one that is already on the market. In this
situation, detailed scientific information
about safety and efficacy is not required—
nor is it typically required for
“new” Class I or II devices.
The 140 categories of devices are referred
to as “pre-amendment” devices.
Only 26 categories remain to be classified,
but they include some widely used
devices that, if identified as Class III,
would have to be the subject of first-time
clinical trials. Examples include auto-mated external defibrillators, implantable
hip joints, and electroconvulsive therapy
devices that are used to treat depression.
Manufacturers of these medical devices
have hinted that they cannot afford clinical
trials and would stop manufacturing
the product if the FDA considered the
devices to be Class III. However, patient
advocacy groups counter that some of
these devices are dangerous and should
be banned or should at least be subject to
restrictions imposed on hospitals where
they are used.

Rules for Derivatives: Pit U.S. Business Against U.S. Treasury

2011-07-26T12:37:00.000-07:00

June 2011...Financial Executive Magazine

The Obama administration's implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s provisions on derivatives has set off a political slugfest, with U.S. Treasury Secretary Timothy Geithner and other federal regulators in one corner and business financial executives in the other. What is surprising, and maybe ultimately the knock-out blow, is that despite the sharply partisan atmosphere
on Capitol Hill on many other issues, for this one both Republicans and many Democrats appear to be in the corporate corner.

Sen. Richard Shelby (R-Ala.) highlighted the bout on April 12 at hearings in the Senate Banking Committee when he asked Thomas C. Deas Jr., vice president and treasurer of FMC Corp., a hearing witness that day, whether he agreed with Geithner that derivatives “only benefit Wall Street, not Main Street.”

“No, sir, I don't,” Deas responded. “We are manufacturing goods consumed in theU.S. and derivatives help us offset risks we couldn't otherwise control.” Deas was representing the National Association of Corporate Treasurers and has been a leading lobbyist for the Coalition of Derivatives End-Users, of which Financial Executives International is also a member.

The Obama administration's implementation of Dodd-Frank's exemption for clearing and margin requirements for nonfinancial users of derivatives is a major sticking point with business, especially the margin requirements. The Federal Reserve, Federal Deposit Insurance Corp. and other banking regulators proposed a rule on margins on April 12. It was roundly criticized within the business community.

A week prior to the Senate Banking hearing, Sen. Tim Johnson (D-S.D.) and another Democratic Senate committee chairman had written to Geithner, Federal Reserve Chairman Ben Bernanke and other federal banking regulators pleading with them to prohibit margin set-asides for commercial end users of derivatives who are hedging business risks. But that plea fell on deaf ears.

“The letter sent by Sen. Johnson and others reaffirmed congressional intent and admonished regulators to ensure that end users were not subject to such requirements,” explains Deas. “However, the prudential regulators' proposal indeed subjects virtually all end users to margin requirements.”

The Obama administration, however, did pull its punch on one issue. In late April, the Treasury Department
announced its decision to exempt foreign exchange (FX) swaps and forwards from the definition of “swaps”—meaning they do not have to be cleared, nor is margin an issue. This was welcomed by the mostly large multinationals that do extensive exporting, or that have business units overseas. But according to Luke Zubrod, director of Derivatives Regulatory Advisory service for Chatham Financial, FX swaps and forwards constitute less than 10 percent of the hedging done by most major U.S. companies. Interest rate swaps account for perhaps 80 percent of commercial hedging, with commodities somewhere near FX swaps in terms of percentages. Moreover, FX options, cross-currency swaps, non-deliverable forwards and other FX products will still have to be cleared, and even forwards and swaps remain subject to Dodd-Frank reporting and business conduct requirements.

Congress Listens, Rulemakers
Make Rules

The Treasury decision to exempt FX swaps and forwards does nothing to erase business concerns about having to post margins on interest rate and commodity swaps, one of the issues that
dominated the April 12 Senate hearing. It was the committee's first oversight hearing on the controversial, far-reaching Dodd-Frank act, which requires agencies such as the Commodity Futures Trading Commission, U.S. Securities and Exchange Commission and the federal banking regulators, including the Federal
Reserve Board, to finalize numerous rules by July 2011.

For companies represented by the Coalition on Derivatives End-Users, there are two key rulemakings. The first involves the CFTC and SEC definition of “swap dealers” and “major swap participants.”
Companies that fit those definitions must register with the government and clear their swaps through a central
clearinghouse — two requirements that will add considerably to corporate costs. Commercial end users of swaps —those that are not market makers looking to make a profit but multinationals hedging
the risks arising from price swings in commodities, interest rates and foreign exchange rates — can qualify for an exemption from that clearing requirement. If they do, they would then be subject to margin requirements — if their risk threshold exceeds a certain level — set by the Federal Reserve Board, FDIC, Comptroller of the Currency and other financial agencies.

The second key rulemaking is really the more important of the two, since it affects many more companies, was published by the banking regulators on April 12. It describes how banks should set their risk thresholds below which no margins would be required. Most U.S. companies will not be swept into the “swap dealer” or “major swap participant” definitions, so they will not have to clear swap contracts where they hedge commercial risk. Very large companies such as Kraft Foods Inc. and Phillip Morris International Inc. that
use captive “centralized hedging centers” to hedge foreign commodity, interest rate and currency prices could, under certain conditions, have to work through the new swap clearinghouses, meaning systems and record-keeping costs.

However, the majority of U.S. companies that contract with their commercial lenders to hedge commodities,
foreign currency and interest rates — those are the “Big Three,” although sometimes companies even go so far as to hedge the weather — will not have to clear their swaps. If companies are exempt from clearing for commercial swaps, then the next question is whether their banks should have to collect “margin”
on those contracts. According to Ann Marie Svoboda, author of Actual Cash Flow and member of FEI’s Committee on Corporate Treasury, companies currently with strong credit histories do not have to
post margin on derivatives they buy from their commercial banks. This could change under
the “margin” proposed rule.

The proposed rule says each bank must establish “credit exposure limits” for each customer or counterparty,
based on a computation using a standardized “lookup” table that specifies the minimum initial margin that
must be collected, expressed as a percentage of the notional amount of the swap or security-based swap.
These percentages depend on the broad asset class of the swap or securitybased swap. If a company's risk exposure is below that threshold, the bank would not have to collect margin, as long as the threshold was established under appropriate credit processes and standards.
Zubrod notes that proposed margin
rules allow for margin amounts to reflect
the credit strength of each company.
Although all companies will be
subject to margin requirements, highlyrated
companies may post less collateral
than companies with questionable
credit ratings.
Margins could be doubly troublesome
for companies that ordinarily secure
derivatives transactions with
physical assets — like real estate and
utilities. Such hard assets cannot be
used to satisfy margin requirements under the proposed rule.
Again, the prudential regulators do
not propose a standard method for setting
collateral thresholds. So banks have
some leeway to set thresholds but, because
regulators will be looking over
their shoulders, they could be very conservative
in their approach.
Moreover, Zubrod questions how
regulators will use their supervisory authority.
He notes that “the regulations
require that margin thresholds be ‘appropriate.’
We worry that regulators will require
banks to lower thresholds
during times of market stress —
when preserving liquidity is
most critical for end users.”
Even if regulators exercise
their authority judiciously,
banks may feel limited ability
to negotiate thresholds with
their corporate customers. They
may rebuff corporate efforts to
negotiate more favorable
thresholds, saying, “Sorry, I
can't give you a better deal
because I have the Fed breathing down
my neck.”
Where banks will set risk thresholds
for margin requirements is the big
issue for U.S. companies that use commercial
swaps. Diana Preston, vice
president and senior counsel, Center
for Securities, Trust & Investments for
the American Bankers Association, says
it is too early for ABA to comment. The
comment period for the proposed rule
closed after press time.

Pressing for Changes

While a broad swath of the business
community is pressing the banking agencies
to change some of the language in
the proposed rule on margins, a narrower
group of mostly large companies want
the SEC and CFTC to clarify their definitions
of swap dealers or major swap participants.
The battleground there is a proposed
rule issued on Dec. 9, 2010 by the
two agencies that defines an “end user
exemption” from clearing for companies
that otherwise might qualify as swap
dealers or major swap participants.
That exemption rests on whether the companies use swaps for commercial
operations hedging and whether they are
not a bona fide “financial entity.” Those
two agencies issued proposed rules on
the same day, but in some instances they
define the exemptions in slightly different
ways, which has added to the confusion
over who, in the end, will have to
clear swaps.
This fog covers a number of corporate
entities. Companies such as Kraft
Foods are concerned that their centralized
hedging centers (CHC) could be pulled into both the swap dealer and
major swap participant definitions. Those
two CHCs are Kraft Foods Finance Europe
(KFFE), which acts as in-house
treasury and centralizes global cash
management, and Taloca GmbH, a centralized
procurement unit for globally
managed commodities.
Philip Morris hedges foreign currency
risk through Philip Morris Finance
SA (PMF), a wholly-owned treasury subsidiary
of the parent company. Marco
Kuepfer, vice president finance and
treasurer of Philip Morris, says the company
“is concerned that swap transactions
entered into by PMF and other
wholly-owned treasury subsidiaries of
large nonfinancial companies, with their
affiliates on the one hand and
traditional swap dealers on the other,
will not be considered 'hedging or mitigating
commercial risk' under the proposed
rules.”
Companies that might otherwise fit
the definition of swap dealer or major
swap participant but that use swaps for
“hedging or mitigating commercial risk”
are exempt from clearing. While some large multinationals
worry that their foreign financing arms
will be caught up in the new swaps
clearing regime, other Fortune 500 companies
are concerned about their domestic
captive financing arms. The proposed
rule says captive financing arms will be
exempt from clearing if they use derivatives
to hedge “underlying commercial
risk related to interest rate and foreign
exchange exposures, 90 percent or more
of which arise from financing that facility’s
purchase or lease of products, 90
percent or more of which are
manufactured by the parent
company or another subsidiary
of the parent company.”
In a letter to CFTC at the
end of February, the top executives
of Caterpillar Financial
Services Corp. and counterparts
at Nissan Corp., Toyota
Motor Corp., John Deere Corp.
and American Honda Corp.
wrote: “We do not have a clear
understanding of how this provision
works in practice.”
These concerns over the SEC and
CFTC definitions and the prudential regulators
margin requirements have led Republican
members of the House to
introduce legislation prohibiting the agencies
from issuing implementation dates
for final rules prior to Dec. 31, 2012.
However, the bill, even if it passes
the House, probably would not pass
the Senate, especially since CFTC
Chairman Gensler went to great
lengths at the April 12 Senate Banking
hearings to take the wind out of the
bill's sails. Gensler proclaimed his
openness to a staggered, flexible derivatives
implementation schedule — one
coordinated with international regulators,
and said his agency was conducting
additional outreach hearings.
So readers are advised to stay informed
of current developments that
might impact their businesses.
Stephen Barlas (sbarlas@verizon.net)
is a freelance writer who has covered
Washington, D.C., since 1981 and frequently
writes for Financial Executive.

Track-and-Trace Drug Verification

2011-04-06T08:45:00.000-07:00

P&T Journal ... April 2011

FDA Plans New National Standards, Pharmacies Tread With Trepidation
Stephen Barlas

As if the integration of electronic health records (EHRs) into
pharmacy operations hasn’t been difficult enough, hospitals
will soon face a secondHerculean technology task imposed by
the federal government—a challenge that most medical facilities
and pharmacies don’t even know is coming. A national
requirement to “track and trace” prescription drug packages—
in order to preventing counterfeit products from getting into
pharmacies—is coming down the pike, thanks to California.
That state already has its own deadline in place for January 1,
2015; however, the FDA will almost certainly be replacing the
requirement with a national standard in order to prevent the
drug-supply chain from getting tangled up in 50 different
state laws.

The California 2015 deadline formanufacturers to
apply an electronic pedigree (e-Pedigree) to each
item-level package has been delayed twice before
because of anguished cries from manufacturers,
wholesalers, and pharmacies that were not ready to
comply. The new final deadline is July 1, 2017, for all
California pharmacies to authenticate the e-Pedigrees
of all packages that arrive at their back door.

“The delays in California gave us a little breathing
room,” acknowledges Robert J. Bepko, Jr., RPh,MHA, Director
of Professional Services at Norwalk Hospital in Connecticut.
As a result of those delays, the National Council for PrescriptionDrug
Programs (NCPDP),which develops standards
for the pharmacy industry, set up its Work Group 17.

This group has been tracking the potential impact of a California
e-Pedigree requirement on pharmacies. In December 2010,
Work Group 17 issued a white paper on the topic.Mr. Bepko,
a member of the Work Group, says that even after California’s
deadline for implementation was delayed,Work Group 17 was
made aware of efforts by New York andMassachusetts to develop
their own e-Pedigree laws.

“We are hoping for a national law,” Mr. Bepko asserts.
FDA’s Role and Timetable Are Unclear

It is not clear when the FDA will establish a national requirement
that would brush away the California program or
whether the agency needs authorization fromCongress to do
that. At a suburban Maryland FDA workshop that took place
on February 14 and 15, 2011, Grant Hodgkins, Manager of
Strategy, Standards, and Processes at Alcon’s supply chain,
asked that very question of Ilisa Bernstein, Acting Deputy
Director of the Office of Compliance at the FDA’s Centers for
Drug Evaluation and Research (CDER).
“I will defer answering that,” she replied.

The FDA does have the authority to set national standards
drug packages, as permitted by the 2007 FDA Amendments
Act (FDAAA). The February workshop had been scheduled
to obtain industry input on standards for interoperability,
authentication, and data management that the FDA plans to
write. Many in the audience equated the writing of standards
with the imposition of a national requirement to track pharmaceutical
packages (forward) and trace them (backwards
from the pharmacy). There was also confusion about the
difference between California’s e-Pedigree requirements and
the prospective requirements of a track-and-trace system (to
be imposed by the FDA at a future date).

The confusion is understandable. There are three
major permutations of an item-level drug-tagging
system meant to make it impossible for counterfeiters
to divert products. All three steps start with a
Standardized Numerical Identifier (SNI), as follows:
(1) The SNI is established and printed on item-level;
(2) the SNI is incorporated into an e-Pedigree, which
is passed forward only; and (3) the e-Pedigree becomes
part of a track-and-trace system, with each
person along the distribution channel adding
information and being able to be queried “backwards” to obtain
information or to communicate (e.g., the pharmacy with
the wholesaler or manufacturer).

The SNI is printed in a two-dimensional (2D) datamatrix bar
code—or, alternatively, on a radiofrequency identification
(RFID) tag—on the immediate package as it goes down the
packaging line.

In March 2010, in response to a requirement in the 2007
FDAAA, the agency issued guidelines onwhat to include in the
SNI: a serializedNationalDrug Code (NDC), consisting of the
manufacturer’s NDC, plus a unique serial number generated
by the manufacturer or repackager for each individual package.
Serial numbers should be numeric or alphanumeric. The
SNI conforms to the structure of the serialized Global Trade
Item Number (GTIN), GS1’s standard for trade item identification.
GS1 is a nonprofit organization (formerly called EAN
International) with headquarters in Belgium.
Overseas Requirements Are Simpler Than
California e-Pedigree or Track and Trace
Turkey and France already have requirements for drug
packages to be printed with 2D data matrix codes when they
leave a manufacturer’s plant. In this first iteration of an anticounterfeiting
(“point-of-dispensing”) system, however, the
codes are simply uploaded to a data repository and then sent
down the distribution line to the pharmacy, where that SNI is
authenticated via a 2D data matrix bar-code reader.

The e-Pedigree system endorsed by California goes a couple
of steps further by requiring the creation of an e-Pedigree
manufacturer
to a third-party logistics carrier, through a warehouse,
and to the pharmacy. First, the package is placed at the end of
a packaging line inside a case with similar packages; the case
is also given an SNI. The package and case SNIs are matched
up, forming a “parent/child” relationship.
The information, in the form
of a digital shipping document
tied to a specific customer order, is passed along the distribution
channel and is added to the package every time it changes
ownership. These pedigrees would be formatted based on a
GS1 standard called the Drug Pedigree Messaging Standard,
which was developed in 2007. However, many consider that
standard to be antiquated. GS1 is working, ever so slowly, on
an updated standard.

A track-and-trace system is similar, allowing for communications
to go backward; however, an e-Pedigree can be forwarded
only. In track-and-trace systems, when the product
changes hands, the new data that were entered into the pedigree
are sent back to the repository, which maintains the product’s
travel history. For example, a pharmacy can query a
wholesaler or manufacturer or can send an acknowledgment
that a shipment was received. All participants in a manufacturer’s
supply chain would have some access to that data repository,
although access might be controlled by the drug’s manufacturer
or by a third party, often a government agency.

In both e-Pedigree and track-and-trace systems, theoretically
at least, cases must be opened in a warehouse, and the 2D bar
codes on the packages must be read to ensure that the packages
inside are the ones sent by the manufacturer. This is a
huge problem for manufacturers and distributors, especially
in terms of the time it is expected to take and the associated
costs. California allows inference, whereby wholesalers and
others would not have to pull the cases apart to check SNIs or
affirmthe parent/child relationship between each package and
the case.

Dirk Rodgers of RxTrace.com explains that California’s
Board of Pharmacymust draw up rules so that companies will
know how they can make use of inference. He says:
“It is possible that the Board could create rules that define
the concept so narrowly that it will be a far cry from what the
industry means when they use the term. We’ll have to see
where they take it.”

Costs Rise as Requirements Expand

There are also broader implications formanufacturers stemming
from requirements for repositories, inference, and the
like. Steve Drucker, Director of Global Pharmaceutical Commercialization
in Packaging Technologies and Compliance at
Merck, explains:

In a full track-and-trace system, you have to make changes to your
manufacturingmanagement systems, warehousemanagement systems,
and order-to-cash systems to track item-level SNIs andmaintain
the parent/child data instead of simply tracking lot numbers,
which is what we do now. It is a huge endeavor, and the complexity
is far beyond anything we have tried before, as are the costs.
He says that the estimated costs for full track-and-trace compliance
are as high as $100 million.

The challenges and costs for pharmacies mount as one
moves up from a point-of-dispensing system (the main requirement
is to verify the SNI), to e-Pedigree (pharmacists
must decommission the pedigree), to track and trace (pharmacists
must communicate with physicians as well as manufacturers).
These possibilities raise all sorts of questions for hospital
pharmacists such as Robert Bepko, Jr. He already has a
pharmaceutical inventory system that he purchased from
McKesson, his wholesaler. In addition, his hospital is in the
process of installing an electronic health record (EHR) system
from Cerner in order to qualify for Medicare incentive payments
for capital costs—and to avoidMedicare penalties for not
implementing an EHR system. He says:
If we knew what was going to be expected of us, we would work toward
that end. If the Joint Commission, the Drug Enforcement
Agency, or the FDA comes in to a pharmacy and asks a pharmacist
to showthempedigrees for themonth ofMarch, the pharmacist can
pull up that list from McKesson. But what if they want to see the
pedigrees for patientMr. Jones?Does that default to the Cerner system?
So you can see the difficulty we have here—preparing for what
we don’t know.

Each additional responsibility adds pharmacy costs, and a
full track-and-trace requirement is likely to be very costly to all
pharmacies. ChrissyKopple, Vice President ofMedia Relations
at theNational Association of ChainDrug Stores, says that proposals
that would mandate the tracking and tracing of prescription
drugs are faced with complexities, technical and
feasibility issues, and substantial costs for all drug supply
chain stakeholders. She says that these systems have not been
developed or fully tested yet and have not been evaluated in
pilot programs; they also lack uniform national standards and
patient privacy safeguards.

So far, wholesalers such as McKesson haven’t focused on
helping their pharmacy customers get ready for e-Pedigrees,
much less track and trace. Ron Bone, Senior Vice President of
Distribution Support at McKesson, explains:
Once we have established a process to quickly on-board manufacturers,
we will then be able to use this as a basis for on-boarding our
pharmacy provider community.With the California pedigree deadline
for the provider community at July 2017, we have not engaged
with this segment as yet.
Pharmacies Are Particularly Vulnerable
Pharmacies, to a large extent, have been at themercy of the
drug manufacturers, which have been driving the drug package
identification process through their involvement withGS1,
the global standards group. The FDA’s designation of an SNI
in March 2010—based on a GS1 standard—illustrates why
pharmacies in particular are worried about the FDA’s next
steps—establishing standards for interoperability, authentication,
and data management.
The FDA’s SNI guidance prescribed an identifier that contains
the National Drug Code and a second 20-digit alphanumeric
code that a company would choose and that would be
unique to a particular drug package. (There is no require-
Track-and-Trace Drug Verification
2 P&T® • April 2011 • Vol. 36 No. 4
continued on page 208

ment that the SNI guidance must be followed, but it is, in
essence, a de jure standard.) Pharmacy data systems, however,
use a field that allows for only 19 characters. That field is set
by a standard fromthe NCPDP, and pharmacies use it to send
data to health insurers when a patient comes in to fill a prescription.
“We would have to make changes to our data systems to
accommodate the FDA’s SNI,” says John Klimek, RPh, Senior
Vice President of Industry Information Technology at the
NCPDP.
Part of the concern within the pharmacy community is that
the FDA relied too heavily onGS1 in writing the SNI guidance,
and the agencymight do so again when it writes the new standards.
Phillip D. Scott, Senior Vice President of Business and
Development at the NCPDP, explains that GS1, which is
dominated by large drug manufacturers, has “owned” the
e-Pedigree space, but its initiatives essentially stop when the
package gets to the pharmacy back door.
“We have felt for some time that we need to make sure that
any transaction could translate once it got inside the pharmacy,
to the physical transaction of filling the prescription,” he
says.
The NCPDP set upWork Group 17 partly as a watch group
to provide information to the FDA, which would counterGS1’s
Big Pharma slant.
The formation of the NCPDP Work Group, as well as the
issuance of its December 2010 white paper, is just one indication
of the pharmacy industry’s interest in what the FDA is
doing. Companies represented at the FDA workshop on February
14 and 15 included Walgreens, Osborn Drugs, CVS
Caremark,Wal-Mart, Rite-Aid, and several pharmacy associations,
such as the American Society of Health-System Pharmacists.
Swedish Pharmacy Pilot Program Provides Hints
So far, almost nowork has been performed in theU.S. on the
potential impact of pharmacy authentication of drug package
pedigrees. The only pilot program ever instituted was in
Sweden under the auspices of the European Federation of
Pharmaceutical Industries and Associations. In this point-ofdispensing
pilot program, which took place in September 2009,
25 of Sweden’s Apoteket AB retail pharmacies verified 2D
datamatrix bar codes on 95,000 drug packages supplied by 14
drug manufacturers. All par ticipating pharmacies were
equipped with new scanners that could read these codes to
verify the products. Existing point-of-sale software was also
amended to include the necessary extra functionality. Product
verification and dispensing operations were fully integrated
into the ordinary pharmacy workflow.
Although each pharmacy in the pilot program received the
new camera-based scanning equipment, the pilot report does
not indicate that cost or the cost of software upgrades. The
pharmacies were basically able to integrate package verification
via the new bar-code readers into the everyday workflow
with little difficulty; however, this was possible only because
of the high rate of e-prescriptions already coming through the
pharmacies, the quality of the Apoteket point-of-sale systems,
and the standardization of systems within the Apoteket pharmacy
network.

Turkey already imposes a point-of-dispensing requirement
on all incoming drug products; thus, Americanmanufacturers
packaging products for Turkey are now serializing drug packages
for that country. These companies includeGEHealthcare,
which packages contrast media products used in conjunction
with x-ray and magnetic resonance imaging (MRI) devices at
its manufacturing facility in Cork, Ireland. Those products go
to Turkey, theU.S., and elsewhere.GEHealthcare hiredOptel
Vision of Canada to serialize that packaging line; as products
move down the line, each one is given a differentGlobal Trade
Item Number.
When the Cork packaging line becomes fully operational,
perhaps by the end of 2011, GE Healthcare will serialize 12
other lines in Norway, Ireland, and Shanghai, says Gordon
Glass, Director of Manufacturing Project management. He is
now deciding between two vendors for an Electronic Product
Code Information System (EPCIS) for data management.
EPCIS is a GS1 standard that allows “event” data on the packaging
line to be uploaded to a data repository and to be shared
with other company data systems as well as systems outside
the company.
Turkey uses GS1 standards (mainly the Global Item Trade
Number unique numbering scheme), as does France; other European
countries that are working on their own requirements
will probably also use it. That puts the pressure on the FDA to
also pay close attention to standards of interoperability, authentication,
and data management that GS1 is developing.
The FDA, however,will have to consider the needs of all players,
not just Big Pharma. That probably will force the agency
to make some tough choices. For example, according to Bill
Fletcher, Managing Partner of Pharma Logic Solutions, the
larger pharmaceutical companies favor a distributed database,
which each company controls, instead of a central data clearinghouse,
which is run by a third-party chosen by the FDA.
“Small pharmacies at the end of the supply chain will likely
not be able to support costly distributed systems and will likely
require faster authentication response times than largerwholesalers,”
he said.
How Heavily Will the FDA Lean on GS1?
Mr. Fletcher and others have argued that GS1 functions as
a “Big Pharma boys club.”Multinational companies can pay upwards
of five figures formembership in GS1, and they, for the
most part, “pay the bills,” sinceGS1 is a nonprofit organization.
Jon Mellor, a spokesman for GS1 Healthcare U.S., explains,
though, that more than 80% of GS1 members are small to
mediumbusinesses spending in the three or four figures. Bill
Fletcher is a member, but he has mixed feelings about GS1.
He says:
They are open to new ideas, but it would be easier to develop standards
for Pharma if we didn’t have to contend with their bureaucracy.
The weekly participants in the work groups are fromvery Big
Pharma, wholesalers, and a handful of solution providers. In fact,
my joining, because I aman unbiased subjectmatter expert and consultant,
required special approval.
Apart from questions about how representative the organization
is, GS1 has had some issues with the standards it has
already developed. Right now, even the e-Pedigreemessaging
standard that GS1 adopted in 2007 is under fire; it was rushed
into final formtomeet the needs of a Florida law that was going
into effect at the time.
Ruby Raley, Director of Health Care Solutions at Axway,
explains that the document pedigree-management system
standard adopted by GS1 focuses on collecting data on a package’s
chain of custody. The system does not provide information
about the physical location of the package at a particular
moment in time, based on an SNI.
Bob Celeste,Director ofGS1HealthcareUS, admits that the
current data-messaging standard is ill-suited to an e-Pedigree
system. He explains that it was developed in 2006 to meet the
requirements of a Florida law that required the passing of
master data, which every participant in the distribution chain
adds to, resulting in considerable redundancy of information.
However, he admits that there is not much going on with that
standard.
GS1 is now in the process of developing new standards that
could be used by the FDA as the basis for a robust track-andtrace
system, in which data would flow forward from the
manufacturer; the pharmacy could also query back to the
wholesaler andmanufacturer. For example, a pharmacy could
send a receipt back to a trading partner to acknowledge that
the pharmacy received a shipment or even a particular package.
To accommodate the needs of pharmacies for this type of
reverse data transmission, GS1 is developing a discovery
service standard.
Whether or not the FDA leans on GS1 as heavily as it did in
coming up with SNI guidance, the agency will be under pressure—
in an antiregulatory environment—not to go overboard
in terms of the complexity of the standards it writes. At its
February workshop, the FDA presented some preliminary
thoughts on its forthcoming standards.McKesson’s Ron Bone
says:
Authentication, as the FDA defined it at themeeting, is slightly different
than how the industry has been looking at it. Now that we
have insight into what the FDA is proposing, the industry can discuss
the ramifications and effectively address it in our responses to
the docket due on April 16.
The FDA is likely to be inundated with various entreaties.
Wholesalers such as McKesson and the large, multinational
drugmanufacturers will dominate the chorus. The question is
whether the pharmacy industry’s voice will be drowned out.