New Congressional Bill Attempts to Aid Pharmacy Response to Drug Shortages

P&T Journal
January 2014 - for a PDF copy of the published version go HERE.

Compounding and Tracing Provisions Seek to Improve Quality of Drug Supply

The major drug-safety bill that President Barack Obama signed on November 27 attempts to remediate two specific problems concerning pharmaceutical distribution. The Drug Quality and Security Act (H.R. 3204)1 is intended to prevent the sale of contaminated compounded drugs such as the steroidal injections sold by the New England Compounding Center (NECC)—which caused 64 deaths—and the diversion of legitimate drugs into unsafe gray market channels, from whence they infiltrate legitimate hospital and retail pharmacies.

The compounding half of the bill is more important for pharmacists, and for those in hospitals doubly
so, because they do much of the purchasing of outsourced products from companies such as NECC,
which is now out of business. Hospitals are also increasingly performing a sizable amount of compounding.

To the extent the bill attempts to improve the quality of outsourced compounded drugs, it is a potentially significant piece of legislation. Hospital compounding is unaffected by any new regulations, despite a push from the compounding industry. The drug-tracing provisions force hospitals to pay more attention to transaction statements (outlining terms of the agreement) that they receive from wholesalers, which will be either paper documents or electronic e-mails or web-based transmissions. The information in those statements will have to be  verified if questions arise about the provenance of a shipment. Hospitals were specifically excluded from the requirement to “tag” repackaged drugs.
 
The bill started out as two  separate pieces of legislation and was eventually combined in to H.R. 3204. Its intentions are good, but weaknesses and half-measures threaten the effectiveness of both halves. Large “anticipatory compounders” can voluntarily choose to be regulated by the FDA (earlier versions of the bill made federal registration mandatory). The inspection standards for the new “outsourcing facility” category are clear. Also, there is no additional funding for state boards of pharmacy, which will continue to inspect hospital pharmacies and local compounding pharmacies. There are some new requirements for communication between the state boards and the FDA. Miscommunication was an issue in the NECC disaster. Overall,the compounding provisions are fairly toothless, and they may do little more than complicate the problem.
 
The bill does not mandate “track and trace” at the item or drug-package level as did the California law, which is scheduled to go into force in January 2015. The California law is now pre-empted by this new federal law. The new federal standard requires drug manufacturers, with some exceptions, to put two-dimensional (2-D) DataMatrix bar-code product identifierson salable units of packages after 4 years. Those bar codes must contain a Standardized Numerical Identifier (SNI), the lot number, and the expiration date on every medication package and case. For the next 4 years, however, tracing will be accomplished primarily via “Stone Age” transaction statements and information on paper.
 

Skeptics Worry About Bill’s Compromise Provisions

The many compromises that were made to achieve a passable bill dimmed enthusiasm for it in some
key quarters.“Although it is a scaled-back version of earlier legislation, this bill is an important first step in assuring that compounded sterile products are prepared safely,” says Paul Abramowitz, Chief Executive
Officer of the American Society of Health-System Pharmacists (ASHP).3 This year, the Department
of Health and Human Service’s Office of Inspector General reported that nearly all of the hospitals it surveyed use compounded sterile drugs and about 75% have purchased some compounded drugs from an external pharmacy.

Edith A. Rosato, RPh, IOM, Chief Executive Office of the Academy of Managed Care Pharmacy, is more specific in her criticism. She is concerned that the bill’s voluntary registration scheme in the compounding section will not achieve the main goal (i.e., protecting the public from the unauthorized compounding of drugs). She adds: AMCP is also concerned about another regulatory wrinkle in the bill.

A licensed pharmacy (which is already regulated by state pharmacy boards) that registers as an ‘outsourcing facility’ will then be subject to FDA regulation. We believe this dual regulatory scheme will lead to administration and regulatory confusion, creating opportunities for gaps in responsibility and accountability.
 
The FDA moved quickly to implement the compounding provisions. The requirements as to which drugs can be compounded by outsourcing facilities and how these facilities will be regulated are subject to a fast, one-year rule-making process. On December 2, the agency published some guidance documents.

The specter of drug shortages hung over both original bills. Hospital pharmacists in particular opted either to compound their own drugs if a manufacturer’s product suddenly became unavailable or to turn to large compounders, such as NECC, when a shortage developed. Similarly, when confronted with a particular shortage, gray-market wholesalers have come out of the woodwork to offer hospital pharmacists the short-supply drug, which might not have been properly stored since leaving the packaging line of its legitimate manufacturer, or it couldeven be a counterfeit item.
 
The FDA has been trying to eliminate shortages administratively. Its latest step came at the end of October, when it issued a proposed rule that would require manufacturers of valuable drugs to notify the FDA within 60 days of a permanent discontinuance or an interruption that is likely to be serious. But if a 60-day advance is not possible, the manufacturer must do so within 5 days after the supply disruption. The proposed rule doesn’t provide the FDA with any additional tools with which to prevent or mitigate a drug shortage.

Compounding Provisions Are a Wing and a Prayer

In the case of a drug shortage, the congressional bill does nothing to limit the compounding that hospitals can perform themselves, nor does it place limits on the outsourcing facilities from which the hospitals can purchase products. All out-sourcers in business today can stay in business tomorrow. The hope is that a large number of major outsourcing anticipatory compounders will voluntarily register for FDA regulation. If they pass muster during an FDA inspection, they will have an informal seal of approval and theoretically can be the compounders that hospital pharmacies turn to during a shortage.

However, it is not clear how big this new class will be. To begin with, the cost of entry is a minimum $15,000 annual fee. Each outsourcing pharmacy must then meet standards to be hammered out by the FDA. For a company to even be able to compound a drug, the FDA must first certify that there is a clinical need for a drug to be produced by an outsourcing facility or that it is a drug in short supply. The drug has to be compounded according to the U.S. Pharmacopeia, the National Formulary, or another compendium or pharmacopeia recognized by the FDA. This means that the FDA will be inspecting these outsourcing facilities to determine whether they comply with USP chapters 71, 795, and 797.

There is a long list of disclosures that the outsourcing pharmacy must provide on the drug’s label. The bill sets no specific schedule for inspection of these compounding facilities. The agency is supposed to come up with a risk-based schedule for inspection, which takes into account the facility’s history, the inherent risk of the drugs it is compounding, and whether the premises have been inspected within the previous 4 years. No minimum time between inspections has been established. In fact, the guideline could even be read to imply that the FDA generally doesn’t have to inspect more frequently than once every 4 years.

The final bill is silent on the current Good Manufacturing Practice (cGMP) requirements that this new category of outsourcing pharmacies will have to meet; no quality standards are mentioned. The absence of specific information about inspection was an issue during the Senate’s consideration of its bill. The industry complained that when the FDA inspected its facilities, which wasn’t very often, the FDA sought compliance with the cGMP standards written for conventional drugs.

In a May 2013 letter to the two Senate committee chairmen who were key authors of that body’s compounding legislation, Michael A. Koch, RPh, MBA, Vice President of Marketing and Support Services, Central Admixture Pharmacy Services, Inc. (CAPS), argued that companies like his are not “manufacturers,” such as the Pfizers and Eli Lillys of the world. He wrote[The] FDA has recognized that a compounding pharmacy does not perform many of the operations of a manufacturer of finished pharmaceuticals. However, in many cases, the FDA has claimed that particular cGMP obligations apply to particular compounding operations, and these claims have varied widely depending on the particular views of the specific FDA investigator conducting an inspection. The result has been confusion in the regulated industry and an unfair and uneven enforcement environment.

As a result of that complaint, the Senate included a provision in its version of the compounding bill that would require FDA to promulgate a new set of cGMP regulations applicable specifically to “compounding manufacturers.” The final bill dropped that provision.

Joseph M. Hill, Director of Federal Legislative Affairs at ASHP, said, “Our expectation is that the FDA will be inspecting based on cGMPs, and if it has to develop new ones for out-
sourcing compounders, it will do so.” David G. Miller, RPh, Executive Vice President and Chief Executive Officer of the International Academy of Compounding Pharmacists (IACP), explains that the final bill falls short in another area.

It’s important to note that the new ‘outsourcing facility’ is not only voluntary in nature; it does not have to be a pharmacy. In fact, one of IACP’s primary concerns is that because anyone can establish an outsourcing facility, so long as they have a pharmacist compounding or supervising the compounding of medications, there may be new entities emerging which are not required to be overseen or comply with the laws and regulations of a state board of pharmacy. Because the wording of H.R. 3204 in this section is so broad, there is no way to know which pharmacies may pursue becoming an outsourcing facilities or how many physicians, clinics, health systems, pharmaceutical companies, etc., may decide to establish and operate an outsourcing facility.

Richard Kruzynski, RPh, President of PharMEDium, a large-scale anticipatory compounder, says his company will register in the new category.6 In the past, PharMEDium as a “traditional compounder” had to obtain licenses from both state boards of pharmacy and one as a “manufacturer” from the FDA. The requirements in either case did not quite fit PharMEDium, which is neither a corner pharmacy nor a major pharmaceutical manufacturer. The “outsourcing facility” category fits PharMEDium’s operations more precisely. As a result of becoming an outsourcing facility, PharMEDium will have to submit reports to the FDA regarding production volumes and adverse events; it will also have to meet new labeling requirements.

Mr. Kruzynski says that he has no problems with those requirements but hopes that FDA inspections in the future will differ in nature from previous inspections. He expects the FDA to develop cGMPs that recognize the differences between major drug companies, which can produce 50,000 doses of a standard dose premixed drug using large mix tanks, and an anticipatory compounder like PharMEDium, which produces small batches (e.g., 10–20 units) for each hospital it works with. PharMEDium’s model is “sterile-to-sterile”; the drug vials arrive sterile from pharmaceutical manufacturers. This practice is consistent with 99% of hospital needs for anticipatory-classcompounds, does not include a big mix tank, and does not
create sterile water.

Drug-Tracing Provisions Exempt Hospitals as
‘Repackagers’
The drug-tracing portion of the Drug Quality and Security
Act has a much less significant impact, both immediate and
long term, on pharmacies. Drug manufacturers are its sole,
near-term target, and even there, the final bill appears to relax
even the already diminished requirements in the bills that
Congress passed earlier in the year.

Starting in January 2015, manufacturers must provide the
subsequent owner of a “lot” of product with a transaction’s history,
information, and statement in a single paper document or
in electronic format. Four years after passage of the bill, that
information must be transmitted electronically in the form of a
product identifier regarding the individual salable units of the
drugs, with some exceptions. The electronic identifier will be
specific to the individual salable package. It will have to include
the lot number; the expiration date; and the National Drug Code
(NDC), a unique alphanumeric serial number containing up to
20 characters (the SNI). This identifier will be printed as both
a 2D bar code and in “human-readable” form.

There was some concern that hospital pharmacies would
be classified as “repackagers” under the law. In some circumstances,
repackagers must put product identifiers on small
packages; however, the bill calls pharmacies “dispensers” and
relieves them either of having to pass transaction information
when they relabel products or of having to place product identifiers
on salable units.

Manufacturers have already moved, albeit in small numbers,
to label individual drug packages with electronic SNIs. The
FDA has produced guidance on how those SNIs should be
displayed, and almost all major companies are following the
guidelines published by GS1 Healthcare, the international
standards organization.

The key initial responsibility of pharmacists is to obtain
transaction data and statements from wholesalers. The pharmacy
can sign an agreement with its wholesaler to allow the
wholesaler to store this information. The following details are
required to be included:

• proprietary or established name or names of the product
• strength and dosage form of the product
• National Drug Code number of the product
• container size
• number of containers
• lot number of the product
• date of the transaction
• date of the shipment if it occurs more than 24 hours after
the date of the transaction
• business name and address of the person from whom
ownership is being transferred
• business name and address of the person to whom ownership
is being transferred

A pharmacy cannot accept any product after January 1, 2015,
unless it comes with this transaction information and a transaction
statement.Verifying the Key Responsibility of Pharmacies
In many cases, wholesalers will be handing over transaction
information and statements (the latter must contain some
specific elements too) in paper form, as they have been doing
for some time. However, some wholesalers may begin sending
that information in electronic form, and some may already be
doing so.

“The electronic data could be provided to the hospital pharmacy
as a B2B [business-to-business] data transaction to the
pharmacy system or potentially though a web portal,” says
Brian Daleiden, Vice President of Marketing at Tracelink.
Some hospitals will have to make hardware, software, and
process changes starting on January 1, 2015. Any changes will
be dedicated to allowing them to verify and reconcile received
product shipments against transaction data received from the
supplier during pharmacy receiving operations. Hospitals will
also need a repository to store transaction data records, documents,
and other information about investigations of “dubious”
products for 6 years after the date of the transaction (e.g.,
purchase of the product) or at the investigation’s conclusion.

The hospitals, though, can contract with their wholesalers to
establish that repository. Brian Daleiden explains:
For the receipt, storage, and update of paper-based transaction data,
the relative changes to current hardware and software systems
might be relatively minor outside of modifications to the document-
management system. For the receipt, storage, and update of
electronic transaction data, I expect that the typical hospital pharmacy
system was not designed to manage the product, production,
transaction, and attestation statement information [that] they will be
required to receive for Drug Quality and Security Act compliance.
Four years after the bill becomes law, manufacturers will have
to put an electronic product identifier on each salable package,
printing the SNI in human-readable form as well. At that point,
pharmacies will be able to verify individual items instead of lots.
During the first 4 years, the transaction statement includes only
the lot. The promise of electronic verification of the individual
salable unit, instead of the multiproduct lot, is great. Recalls
will be cheaper and faster, and there will be gains for pharmacy
inventory management—but only if pharmacies buy 2D barcode
readers. There is no requirement that they do so; they
will not have to, because the item-level product identifier will
also be printed in human-readable form on the salable package.
Verifying an individual unit, based on ostensibly humanreadable
product identifiers, could turn out to be an exercise
of looking for a needle in a haystack. If a pharmacy receives a
recall notice or a similar request from a state or federal official,
the pharmacy must quarantine the product and conduct an
investigation. There are specific requirements for what this
investigation must entail and how quickly it must be done,
generally within two business days.

Bob Celeste, Senior Director of Health Care for GS1
Healthcare, explains that not all human-readable SNIs are
understandable. The GS1 put out guidance earlier this year on
that subject, urging, for example, that manufacturers not mix
numbers and letters in any alphanumeric coding.

“Sometimes zeroes can be mistaken for the letter ‘O,’ ” he said.
There has also been some uncertainty in the industry aboutwhether to put the code “(17)” in front of the numeric representation of the expiration date, as recommended in the GS1 guidance, or whether to simply use the letters “exp” before the expiration date. These kinds of matters relating to the understandability of SNIs need to be resolved and ideally will be, through the FDA rule-making process.

The legislation is confusing. When it mentions an “investigation” that a pharmacy must conduct, it specifies additional steps that must take place after 7 years, including verifying that the product identifier (and the SNI) of at least three packages, or 10% of such suspected products (whichever is greater), or all packages (if fewer than three), corresponds with the product identifier for the product.
Presumably, by this time, manufacturers will have electronic databases that list all of their SNIs so that they can quickly respond to a request for verification. However, there is no requirement that a manufacturer must develop a database. It is possible that even after 7 years, some pharmacies will be verifying products using the human-readable SNI.

Conclusion

The drug-safety bill may be envisioned as a full-scale, inter-operable, electronic item-level track-and-trace system, like California’s, after 10 years, but only if a number of conditions are met. Along the way, the FDA will have to hold numerous public meetings, issue multiple guidance documents, and initiate various rules, including one to allow dispensers, such as hospital pharmacies, to receive exemptions for any final interoperable tracking system. Thus, the package-tracking provisions of the Drug Quality and Security Act shouldn’t keep any pharmacists up at night. For the next 7 years, they simply have to make sure that they and their wholesalers are providing correct transaction information and statements, which they may already be doing.

The bill’s provisions may lead to a shakeup of the anticipatory compounding industry, with the cream rising to the top as the most credible pharmacies seek and gain FDA registration. Hospital pharmacies will vie to skim that cream, but will there be enough of it?

EPA Opens Door to Consumer Use of New, Eco-friendly Refrigerant

Aftermarket Business World
December 23, 2013

In November, the Environmental Protection Agency (EPA) continued to clear a path for use in the U.S. of the new motor vehicle air conditioning refrigerant HFO-1234yf.

The agency said that states could not consider the refrigerant, which OEMs have started to use, a volatile organic chemical (VOC). That means states cannot limit HFO-1234yf’s use as part of an ozone/smog reduction strategy.

A Honeywell petition submitted to the EPA in 2009 led to the EPA decision. Honeywell and DuPont, the other major marketer of HFO-1234yf, are selling it as a replacement for HFC-134a in motor vehicle air-conditioners (MVAC). HFC–134a has been used in automobile MVAC systems across the industry since 1993. But HFC-134a has a global warming potential (GWP) of 1430, much higher than HFO1234yf's GWP of 4.

Car makers selling into Europe already face a European Union Directive mandating OEMs use AC refrigerants with a GWP below 150 starting last January. Use of HFO1234yf in the U.S. is being spurred by the EPA/DOT car mileage/greenhouse gas (GHG) requirements, which give automakers credits for use of green air conditioning refrigerants.

At about the same time the EPA was excluding HFO1234yf as a VOC, it was publishing final rule making changes in the Significant New Use Rule (SNUR) for HFO1234yf. These SNURS dictate what hoops manufacturers have to jump through before selling a new chemical. In many instances, distribution is limited. That was the case with the original SNUR for HFO1234yf issued in 2010.

According to Michael Conlon, the outside counsel for the Automotive Refrigeration Products Institute (ARPI), that 2010 SNUR effectively banned sales of HRO1234yf in the aftermarket. The new SNUR the EPA issued on November 1, 2013 took an important first step toward reversing that decision. "It was important to get this new SNUR because we could not have gone for a new SNAP rule without it," he explains.

SNAP stands for the EPA's Significant New Alternatives Policy (SNAP) program. It tells users of new refrigerants exactly how they can be used. In the case of the SNAP for HFO1234yf issued in March 2011, the EPA restricted its use to OEMs and service stations that comply with certain conditions, such as using containers that are over 20 pounds and have fittings that comply with SAE standards. The updated SNUR now gives the aftermarket retail market standing to expand that March 2011 SNAP to consumer use of HFO1234yf. The EPA is waiting for DuPont and Honeywell to come up with the proper fittings for containers below 20 pounds before approving consumer uses.
 
It is true that aftermarket sales of HFO1234yf, after an expanded SNAP approval is secured, will ramp up slowly. That said, General Motors is already using the refrigerant in the Cadillac XTS and in the European version of the Chevrolet Malibu. Over the next five years or so, GM will convert most of its models sold in North America to the new refrigerant, Curt Vincent, GM’s engineering manager for new refrigerants, has said.

Service stations are already set to perform aftermarket refilling. "There are at least 1,200 service centers in the U.S. that are currently equipped to service vehicles that have 1234yf, and we expect that to double over the next year as additional automakers, such as Chrysler, adopt the product," says DuPont spokeswoman Janet Smith. She adds the Obama administration is also considering the possible future delisting of 134a from the SNAP list as an option to reduce greenhouse gas emissions under the Obama administration’s Climate Action Plan.

But the biggest stimulus in the U.S. for use of HFO1234yf by OEMs is the EPA/DOT car mileage standard for model year 2017-2025 light duty vehicles, which gives automakers "credits" against CO2 tailpipe emissions when they use green AC refrigerants.

SEC's White Pushes for Disclosure Relief

Strategic Finance
December 2013

The SEC is readying a congressionally-authorized study looking at potential financial reporting requirements which can be eliminated. Securities and Exchange Commission Commissioner Mary Jo White has been talking up the notion of relieving corporations of having to disclose information no longer deemed "material" so that investors have an easier job of understanding 10ks and other financial reports. Congress included Section 108 in the JOBS Act in 2012 which requires the SEC to comprehensively analyze the rules that form the underpinnings of the SEC's disclosure regime. The JOBS Act included provisions aimed at making it easier for emerging companies to go public, in part by reducing their disclosure requirements, such as those having to do with reports on internal controls. The SEC Division of Corporation Finance is finalizing this report and White says the agency expects to make it public very soon. The odds are that those recommendations will focus on going beyond the JOBS Act provisions for "emerging" companies; but reporting relief for big corporations may be in the offing as well. Of course, Congress would have to turn any SEC recommendations into legislation, which would have to pass both houses.
     
White has been talking up the need for corporate reporting simplification and slimming. In a speech in mid-October to the National Association of Corporate Directors, White said: "But the study is only the first step in any potential review effort. Such a review will need to be guided by answers to a host of questions that will move us forward on the path to more optimal disclosure. It is an important priority for me."
    
She singled out the Industry Guides the agency issues for various sectors as being ripe for review. The oil and gas industry guide was updated in 2008. But those pertaining to the mining industry, bank holding companies--that one originally published in the 1960s--and others are in the on-deck circle. "An update to these guides could take a variety of forms," White explained in her NACD speech. "We could merely update them as guidance, or we could adopt actual rules.  We would need to consider whether and how companies and investors would benefit from these options."

      

White's intentions are hardly revolutionary; but she has also been sounding something of a radical notion in another area, to a polite degree decrying congressional mandates which seem more directed at exerting societal pressure on companies to change behavior, rather than to disclose financial information that primarily informs investment decisions. That soft criticism refers to a Dodd-Frank mandate that companies disclose involvement in extracting "conflict minerals" that originated in the Democratic Republic of the Congo (DRC) or an adjoining country. She added, " I must question, as a policy matter, using the federal securities laws and the SEC’s powers of mandatory disclosure to accomplish these goals."

Capitol Connection: The Financial Impact of the MU Stage 2 Extension

Healthcare Finance News
December 19, 2013 - for the online version go HERE.

The decision by the U.S. Department of Health and Human Services to push back by one year the deadline for compliance with meaningful use stage 2 is good news for hospitals and physician practices. Many providers have had trouble marshalling adequate financial resources toward meeting even the stage 1 deadline on implementation of electronic health records.

It has been slow going even for large hospital systems such as Catholic Health Initiatives (CHI), which established a $2.2 billion OneCare capital budget in 2011. Those funds go, in part, to reaching stage 1 meaningful use compliance by the July 1, 2014 deadline. About 20 of CHI’s 87 hospitals will not make that deadline, incurring millions of dollars in penalties.

About 15 of the company's 87 hospitals will be entering stage 2 in 2014, which began, for hospitals, on Oct. 1, 2013. The start date for physician practices is January 1, 2014. Hospitals initially had two years to complete stage 2. But in December, HHS officials announced a one-year extension to October 2016.

“The extension of the stage 2 deadline for us is great,” said Ann D. Shepard, RN-BC, MSN, Vice President and Chief Nursing Informatics Officer at CHI. Shepard pointed out that the extra breathing room is doubly important because CHI hospitals and every other hospital in the country has to switch over to the ICD-10 coding system by October 1, 2014. Hospitals may now be able to reallocate stage 2 “dollars” to ICD-10 efforts. The American Hospital Association told the Senate Finance Committee last July that a survey it completed found that the vast majority of hospitals are on track for the transition to ICD-10, but see meaningful use as the single most challenging competing priority.

But, said Russell Branzell, CEO of the College of Healthcare Information Management Executives, “We still believe there's going to be a pressure point in 2014 for ICD-10 and Stage 2.”

Given the extra year to certify all its hospitals to stage 2, Shepard stated that none of CHI's hospitals expect to be penalized for failing to meet stage 2 meaningful use standards in 2016. Most health systems hope they’ll be able to say the same thing.

Capitol Connection is a monthly column looking at the financial implications of healthcare policy.

Qualified Insurance Plans on Health Exchanges May Reduce Drug Availability

P&T Journal
November 2013 - for a PDF copy of the published version go HERE.

Hospital Pharmacies Could Face New Pressures

Hospital pharmacy directors around the country are trying to figure out how their formularies match up with the formularies that will be used by the qualified health plans (QHPs) selling Obamacare policies in their state. "Hospital pharmacy formularies and QHP formularies will probably never be aligned as they have differing financial agendas, costs, etc., due to purchasing differences," says one West Coast pharmacy director who declines to be named given the political sensitivity of the issue. "If the hospital and the plan are aligned it would be best for patient care as there would be no changes between ambulatory care and hospital care and medication reconciliation. But that will probably not happen unless all incentives are aligned or one entity has control of the entire process/longitudinal care."

Of course, differences between commercial plan formularies today and hospital formularies are widespread. But the arrival of QHPs presents a whole new dynamic for hospital pharmacists. That is because QHP formularies must meet minimum federal drug access standards, which commercial, and even Part D, formularies do not. In addition, the QHPs are under intense pressure to reduce premiums, co-pays and co-insurance--again, a challenge of a different order than that faced by employer health plans, for example. Restricting drug access, whether through utilization reviews or off-formulary restrictions--may be the sharpest knife in the QHP apron.

 

But QHP formulary construction is only one of the issues that will be sorted out as the state health insurance exchanges open for business on January 1, 2014. The exchanges were conceived as a way to make health insurance affordable for about 40 million Americans who are without it. They are divided into two groups. The first is the quasi-poor, who earn too much to qualify for Medicaid currently, but would enter Medicaid as a result of what has come to be called Obamacare. The second is the better-off, self-employed and those working for smaller companies, neither of whom currently has health insurance.

The second group will buy their health insurance from the QHPs--the designation under Obamacare--in their state. The roster of QHPs will differ from state to state. All of them will have to provide benefits consistent with the federally-designated essential health benefit (EHB) standard, which is broken down into 10 categories.

One of those categories is pharmaceuticals. It is the only one of the 10 where the Department of Health and Human Services (HHS) established a minimum requirement. The EHB rule on pharmaceuticals says the QHBs in a given state must provide prescription drug coverage that is at least the greater of the following: (1) one drug in every United States Pharmacopeia (USP) category and class; or (2) the same number of prescription drugs in each category and class as the EHB-benchmark plan designated by the state. In most instances, the states chose a small group plan as a benchmark. In California, for example, that is the Kaiser small group plan. 

So for purposes of complying with the EHB pharmaceutical category requirement, every QHP in California must, at a minimum, have a formulary which has the same number of drug categories and classes as the Kaiser small group plan formulary. And the QHP must have the same number of drugs in each class as Kaiser, although they can be different drugs, as well as different formulations.  Or the QHP has to follow the USP option. In fact, almost all, if not every, QHPs will echo the benchmark formulary, a likely scenario given that the trade group for health plans--called America's Health Insurance Plans (AHIP)--tried to convince the HHS to delete the USP option. AHIP was unsuccessful. 

QHPs can have more drugs in a class than their state benchmark plan. The variability of benchmark formularies across the country is pretty striking. Avalere Health, a Washington, D.C. consulting firm, looked at the 50 states and assessed the number of total drugs each state's benchmark plan offered on its formulary. Some formularies were "open" and included 98 percent of the drugs sold today. Others like California were closer to 50 percent. 

Avalere came up with its percentages by looking at all 50 benchmark formularies, and taking the highest number of drugs, regardless of the state, in each category and class. This denominator was 1032. Then it looked, for example, at the Kaiser small group formulary in California and totaled up the drugs it offers in its categories and classes. That number is 644. Colorado is the low state on that totem pole, with 565, and Connecticut is at the top, with 1023.

Most QHPs will not supplement the benchmark because limiting drug access will be one of the few levers plans have to control plan costs. "Plans have significant flexibility on formularies," says Caroline Pearson, Vice President at Avalere. "That is something we will have to watch." The QHPs will use that formulary flexibility when setting drug deductibles, tiers and the exact drugs they will cover. Most commercial plans today charge dollar co-pays in higher drug tiers. However, based on some initial submissions from some states, QHPs could charge co-pays in the 30 percent to 50 percent range for their tier 4 drugs, especially in "bronze" plans. "That is just not done today," notes Pearson.

Conventional wisdom says formulary restrictions will have their biggest impact on out-patient access at retail pharmacies, and be of only limited concern to in-patient pharmacies, since drug costs for in-patients are bundled into the diagnosis related groups (DRGs). Moreover, the final EHB rule from the HHS said not a word about whether drugs on an in-patient pharmacy could count toward the QHPs "counts" in each category and class.

The Centers for Medicare and Medicaid Services (CMS) did attempt to clarify that question  after the final rule came out. "The CMS did say it would allow medical benefit drugs to count toward minimum requirements on pharmacy, but I don't think they realized the full implications," says a drug company policy expert. "There could be some gaming. Allowing medical benefit drugs to count toward the minimum requirements for pharmacy benefit drugs is like comparing apples to oranges."

Here is how that might work. Take the case of QHP A operating in a state with a benchmark formulary requiring 10 drugs for a chemotherapy "class." One class can cover multiple conditions. Further assume that the typical benchmark formulary today includes 10 oral drugs, perhaps the most recently-approved ones. If a hospital in that QHP's network instead uses five IV chemotherapy agents for that particular class, those five would count toward the 10 on the QHP formulary, and knock off the QHP formulary five of those other orals, some of which might be the only oral agent available for that condition. 

The second potential impact affects a hospital serving numerous QHPs. What if each of those QHPs uses a slightly different formulary? Would the hospital in-patient formulary be compelled to carry all the drugs on all the formularies of the, for example, 12 QHPs currently operating in California. 

Greg Low, RPh, PhD, Program Director, MGPO Pharmacy Quality & Utilization Program Performance Analysis & Improvement, Massachusetts General Hospital in Boston, thinks there may be a potential impact on MGH from that scenario, but he believes it will be very small. "The inpatient P&T does consider how frequently its formulary is causing switches and non-formulary requests," he explains. "The hospital does make some effort to align with ambulatory insurer’s formularies, but this is a tertiary concern to safety, efficacy, and economics."

Low illustrates a common situation. "For example, Nasonex (mometasone) is a formulary product for many of our local payers, but is not on the hospital formulary," he states. "A patient who uses Nasonex who is admitted will either use MGH’s formulary nasal steroid (fluticasone), go through MGH’s non-formulary process, or if the drug is unnecessary during the admission it would simply be restarted at discharge."

Ah, but for both in-patient and out-patient pharmacies, there is the rub: non-formulary process. The EHB final rule is unclear as to when QHPs have to pay for a non-formulary product. Drug companies wanted the HHS to lay out specific requirements such as more specific appeal rights for EHB pharmacy benefits, which should include shorter timelines for appeals determinations. The HHS did not include any additional safeguards in the final rule, or alter its proposed rule language in the slightest on that score. Instead, it said "additional guidance regarding our expectations for the required exceptions process is forthcoming in sub-regulatory guidance." It added that its research shows that a large number of plans already offer this option (i.e. access to non-formulary drugs) in the market today. "It is expected that plans that currently have such a process in place will not be expected to modify their existing process."

Besides HHS requirements for formulary coverage within the "pharmaceuticals" category under the EHBs rule, insurance plans will also have to meet anti-discriminatory standards which apply to all 10 categories, but have unique relevance when applied to pharmaceutical access. The big issue here has been whether plans can use utilization management techniques to tamp down unnecessary or overly-expensive drug costs. 

The final rule simply states the Affordable Care Act's prohibition against discrimination in formulary design and drug access but goes on to approve the use of "reasonable medical management techniques." It explicitly endorses the use of prior authorization, but a plan could not implement prior authorization in a manner that discriminates on the basis of membership in a particular group based on factors such as age, disability, or expected length of life that are not based on nationally recognized, clinically appropriate standards of medical practice evidence or not medically indicated and evidence-based. The final rule states: "For example, a reasonable medical management technique would be to require preauthorization for coverage of the zoster (shingles) vaccine in persons under 60 years of age, consistent with the recommendation of the Advisory Committee on Immunization Practices."

It is clear that QHPs will be relying on medical management and utilization reviews to keep patient drug costs under control. Molina Healthcare, Inc. will be offering a QHP in nine states. Like many of the other QHPs operating across the country, Molina has had a low profile. Companies such as United Healthcare, Cigna, Aetna and the other "big boys" have been missing from almost all states. Molina, started in California as a clinic in 1980, has had a thriving Medicaid managed care business in nine states. It is using those platforms to establish QHPs serving primarily lower income but not poor individuals looking for individual or family insurance on an exchange. In California, Molina will be offering exchange policies in Los Angeles, San Diego, and San Bernadino/Riverside areas where its Medicaid business is currently located, for the most part.

California has established different requirements for the QHP drug benefit than most other states. In the Golden State, all  QHPs must offer the same benefit structure with regard to co-pays and deductibles in each of the four health insurance categories. The least expensive, and therefore least expansive, is the bronze plan. Moving up the ladder is silver, gold and then platinum. So, for example, all QHPs in California must assess a 30 percent co-pay for tier 4 drugs in a bronze plan. For a bronze HSA, the co-pay is 40 percent. In a platinum plan that slides down to 10 percent. That is different in other states where QHPs have flexibility on co-pays as long as they meet an "actuarial value" for that level plan. In the case of bronze, that means the insured--on average--must pay 40 percent of the costs of coverage.

In California, because the pharmacy benefit structure is prescribed by the state, the QHPs try to keep premiums low by keeping costs low. Hashim says the key will be keeping administrative costs low, getting discounts from hospitals for medical charges and then "doing a great job in medical management," which will include prior authorization for off-formulary drugs which physicians may prescribe for patients. 

Besides carefully watching drug utilization and probably restricting off-formulary drug access, QHPs have also been careful in establishing hospital networks. "Where you can get the most competitive hospital contract is a big driver on how you can price your product," explains Hashim. "We have a Medicaid plan in the Sacramento area, but we couldn't get good rates from the providers up there so we aren't offering a QHP there." New Mexico is the only one of the nine states Molina is operating in which requires a QHP to serve the entire state.   

  

Molina, for example, is including about 80-90 percent of the physicians in its Medicaid networks in its QHP networks and 65-75 percent of its physician specialists. But only 40-50 of its Medicaid hospitals have been included in its QHP networks. Molina is not alone, not in California nor in any state, in picking and choosing the hospitals it wants in its networks. In some states, where there is a dominant hospital provider, the hospital has all the leverage, and can force Molina or any other QHP to pay commercial rates, somewhere around twice Medicare rates. That might be the case in eastern Wisconsin, for example, where Aurora Health Care has 15 hospitals and sits astride the health care delivery system like a colossus. In Los Angeles, where there might be much more hospital competition, Molina might get away with paying a hospital five percent above Medicare. 

Whether Molina or any other QHP in Wisconsin or any of the other 49 states survives is dependent not only on getting reasonable hospital rates but also getting a steady flow of new, profitable patients sent their way via Obamacare. The president and the Democrats in Congress who wrote the ACA, felt that if they "built it"--to parrot a famous line from the movie Field of Dreams--"they will come." But it isn't clear new patients are going to stream in the doors of QHPs starting January 1, 2014. The standoffishness of the major health insurance companies would seem to indicate some healthy skepticism about the profitability of the exchanges. United Healthcare, Aetna, Cigna and other majors have been standoffish. The health plans chosen for the state run plans such as Covered California and New York Health Benefit Exchange are a mishmash of companies, and the list rarely includes the "big guys." The California list of QHPs includes Blue Shield of California, Anthem Blue Cross and Kaiser Permanente. But the remainder of the list is filled in with what appear to be local and regional plans such as the Chinese Community Health Plan, Contra Costa Health Plan, Molina and Valley Health Plan, to name a few of the "no name" entrants. New York's players have a similar cast. Empire Blue Cross and Empire Blue Shield are the only known entities among that state's 12 QHPs.

Early indications are that there will be fewer uninsured signing up on exchanges than originally expected, at least at the start. During a webcast on September 16 hosted by the three major hospital trade groups, Dr. Mandy Cohen, senior adviser to the CMS administrator, told the participating hospital officials that HHS continues to focus its outreach efforts on the “younger cohort”—the 17.8 million uninsured individuals between the ages of 18 and 35—of whom more than 90 percent will be eligible for some sort of financial benefit for health insurance. Meanwhile, Cohen said, HHS continues to concentrate on eight states where more than 50 percent of the nation's uninsured individuals reside: California, Florida, Georgia, Illinois, New York, North Carolina, Ohio and Texas.

    

Hospitals are supposed to help with the education and sign up of prospective health exchange entrants. But a report published on September 18, 2013 by PwC's Health Research Institute (HRI) concludes that while the new customer base could provide a much-needed financial boost, few hospitals have developed comprehensive strategies to identify, educate and help enroll people in health plans sold through the new exchanges.

HRI  interviewed executives from major health systems that collectively represent more than 150 hospitals across 25 states, as well as national hospital associations and patient advocacy groups to understand their plans, progress and concerns related to participation in the 51 new state exchanges. Many providers have been slow to promote the expanded coverage options, HRI discovered. Health systems attribute delays in their enrollment efforts to multiple factors, including: "reform fatigue;" the need to finalize contracts with insurers; the slow trickle of information from regulators; and the desire for additional regulatory guidance, especially in the area of outreach designations and certification requirements.

"As the health industry moves from wholesale to retail, the customer takes center stage," said Ceci Connolly, managing director, PwC Health Research Institute. "Outreach and education should be top-of-mind for hospitals and health systems, but many are still coping with operational issues to ensure readiness for open enrollment. These companies will have to shift into gear quickly to focus on their consumer strategies and how to attract and retain a diverse mix of exchange customers."

Some of that caution may have to do with worries about reimbursement, either with regard to the commercial rates hospitals will be paid, or with regard to new enrollees choosing mostly the cheaper, bronze level plans, which are suppose to charge holders 40 percent of actuarial value, when cost-sharing, deductibles are added up. That 40 percent is the average for all people holding that bronze level coverage in a given plan. So that 40 percent will translate into a different dollar amount from state to state. Regardless, bronze level policy holders may leave hospitals with significant amounts of unpaid bills. Adding to that hospital angst in some states is the rejection of the Medicaid expansion, meaning the hope of transitioning current uninsured patients to Medicaid becomes a pipedream.

   

The promise of Obamacare may be illusionary, or it may be fulfilled. What is certain is that how hospitals will fare in this brave new world is, well, uncertain.

Good Kindling Fires-Up M&A Activity: Verizon Deal Provides the Fuel

November 2013
Financial Executive Magazine - for the online version go HERE.

When Verizon Communications Inc. Chairman and CEO Lowell McAdams spoke with analysts via a conference call on Sept. 3, 2013, he said his company was acquiring Vodafone Group plc’s 45 percent interest in Verizon Wireless “after a decade of anticipating.”

It was paying Vodafone $130 billion, consisting primarily of cash and stock, with about $49 billion of that total coming from the sale of bonds, marking it the largest corporate sale ever. Sitting in a studio at Verizon’s operations center in Basking Ridge, N.J., McAdams explained, in general terms, why the anticipation could now end: “The timing of this transaction is right from both the strategic and financial perspective.”

The timing appears to be right for many companies. “Many corporations have trimmed all the fat they can from their businesses and are now realizing their cost of capital is likely to rise. That’s one of the reasons we have been witnessing more M&A activity,” says Kathleen Gaffney, vice president and co-director investment grade fixed income, Eaton Vance Investment Managers. “If companies are going to finance a deal, there may be no better time than the present with rates still close to record lows.”

Microsoft Corp. announced its $7.2 billion purchase of Nokia Corp.’s mobile phone business at about the same time Verizon scooped up Vodafone’s share in Verizon’s wireless business. The Verizon and Microsoft deals overshadowed Koch Industries Inc.’s $7.2 billion purchase of Molex Inc. one week later.

Though the Koch acquisition was the same size as Microsoft’s, mention of its significance disappeared in the press the day after it was announced. As if acquisitions in the billions had suddenly become de rigueur. Deals continued to roll off the assembly line throughout the fall. On Sept. 18, Packaging Corporation of America acquired Boise Inc. for $1.995 billion.

Recent acquisitions have been both sizeable and smaller in dollars but still stunning. Amazon.com Inc.’s CEO Jeff Bezos’s $250 million purchase of the The Washington Post Co. in August is a prominent member of the latter category, although Bezos is making the purchase with his personal fortune, and for cash, so interest rates aren’t an issue there. US Airways Group’s merger with bankrupt American Airlines (AMR Group), announced last December, was perhaps less of a surprise, but no less significant, as two of the top five U.S. airlines could dissolve into one.

Conditions Driving M&A

The soil has been fertile for these kinds of deals for the past year, according to Greg Lemkau, co-head, global mergers and acquisitions, investment banking division, Goldman Sachs Group. Speaking in a webcast in July, Lemkau said, “Conditions driving M&A are as good as they have been in a long time.” He was referring to historically low interest rates, record corporate cash balances and relatively low corporate organic growth opportunities.

Given the current climate, Lemkau said it was “fascinating” that there had not been, up to that point in July, no big recovery in M&A. He cited as the reason “risk aversion by CEOs,” who had become gun shy because of big macroeconomic shocks such as the fiscal cliff and the euro crisis. But he noticed a big sentiment change over the past year. “CEOs of the biggest companies are much more forward leaning and much more confident than they were six or 12 months ago,” he said.

“They are thinking about big industry-changing transactions. Conditions are too good and all that is needed is a period of sustainable stability in the market,” said Lemkau. The Verizon, Microsoft, Koch and PCA deals were announced a few months later.

The pickup in M&A pace seems likely to continue barring any major economic shocks in the U.S. or elsewhere. KPMG issues its M&A Predictor, which bases predictions on two measures: predicted forward price to earnings ratios (P/E),its measure of corporate appetite, and the capacity to transact, as measured by forecast net debt to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). The July issue of M&A Predictor included data on 362 large U.S. companies, which were among 1,000 corporations worldwide included in the survey.

The model concluded the U.S. continues to outperform the market, even when times are tough. Forward P/E ratios were 4 percent higher than six months ago — modest but positive in an uncertain market — and 14 percent up year-on-year. The U.S.’s capacity to transact is robust, with an expected improvement of 20 percent over the next year. The U.S. market for mergers and acquisitions is in better shape than most other world markets, though Japan scored well, too.

Companies involved in this recent surge of M&A activity do not appear to be concerned about the Obama administration’s attempt to block some recent mergers, nor intimidated by the U.S. Department of Justice’s (DoJ) publication of new merger guidelines in 2010. “The changes in the 2010 merger guidelines were pro-enforcement because they expanded the theories and the types of evidence that the government could use to challenge mergers raising substantial competition issues,” explains Spencer Weber Waller, professor and director of the Institute for Consumer Antitrust Studies at Loyola University Chicago School of Law.

Those new merger guidelines might have been one factor in persuading the DoJ and six state attorneys generals to federal district court in August to block the US Airways/ American merger. Justice stepped in to force changes to a couple of big proposed mergers since 2010, including AT&T Inc.’s takeover of T-Mobile USA, which AT&T then dropped, and Anheuser-Busch InBev N.V’s merger with Grupo Modelo, which Anheuser-Busch subsequently revised in order to gain the Justice department’s approval.

Just one month prior to Justice flashing a red light to US Airways and American, the Federal Trade Commission (FTC), which is bound by the DoJ merger enforcement guidelines issued in 2010, issued an administrative complaint challenging Ardagh Group S.A.’s proposed $1.7 billion acquisition of Saint-Gobain Containers Inc.

The proposed acquisition would combine the second-largest manufacturer of glass containers (Saint-Gobain) and the third-largest (Ardagh). Owens-Illinois Inc. is the largest. Together, the three companies dominate the approximately $5 billion U.S. glass container industry. The next step in both cases is scheduled for this fall. An administrative law judge will hear the Ardagh case in early December.

Legislative Roadblocks

Verizon, Microsoft, Koch, PCA and any other purchaser or merger instigator is subject to the Hart-Scott-Rodino (HSR) law, which requires the Federal Trade Commission (FTC) or DoJ to review details of any large, proposed merger to insure it will be pro-competitive.

A company such as Verizon submits a notification to both agencies, which decides which one of the two will conduct the review. That decision is made based on which agency has expertise in that particular industry area, on staff availability and other factors. Both agencies can go to federal court to obtain an injunction to prevent a merger from taking place.

The FTC has the additional option of forcing a company like Ardagh to submit to a hearing by an administrative law judge, who makes a decision. Going that route can be much faster than going to court and it also allows the FTC to build a factual case that judge rebuffs the commission.

FTC Chairwoman Edith Ramirez told the Senate Judiciary Committee last April that fiscal 2012 saw twice as many HSR filings as FY 2009. In fiscal 2013, the FTC stepped in to block 16 mergers, in the energy, manufacturing, pharmaceuticals, health care and automotive industries. In a number of those cases, the mergers or acquisitions were approved when the dominant partner agreed to divest some of the assets of the purchased or merged company.

The Justice Department attempt to ground the US Airways/American deal could be viewed as a little perplexing given that the George W. Bush and Barack Obama administrations allowed six major airline industry mergers since 2005: U.S. Airways/ America West in 2005; Delta/Northwest in 2008; Republic Airlines’ acquisitions of both Midwest and Frontier Airlines in 2009; United/Continental in 2010; and Southwest/ AirTran in 2010.

But when Justice and six attorneys general filed the US Airways lawsuit on Aug. 13, Bill Baer, assistant attorney general, said the US Airways/ American combination would lessen competition for commercial air travel throughout the United States. “Importantly, neither airline needs this merger to succeed,” he added. “We simply cannot approve a merger that would result in U.S. consumers paying higher fares, higher fees and receiving less service.”

The two airlines argue the merger is “pro-competitive.” In testimony before the House Judiciary Committee last February, Gary F. Kennedy, senior vice president, general counsel and chief compliance officer, American Airlines Inc., called the merger a combination of two complementary networks that will offer consumers more service at more times to more places.

“And because this will be a merger of complementary networks, these benefits come with virtually no loss of competition,” he explained. “Of the more than 900 domestic routes flown by the two carriers, there are only 12 overlaps. This is one reason we are convinced that this merger is consistent with good public policy.”

Clifford Winston, senior fellow, economic studies program, The Brookings Institution, has studied the U.S. airlines industry. “I don’t see the basis for DoJ opposition and they have not clearly and persuasively articulated it,” he says. He explains that carrier competition would continue to be intense and low-cost carriers would continue to put downward pressure on fares.

Entry and exit would continue to be fluid in airline markets as a merged American and US Airways would optimize its network by exiting some routes and entering others, while other carriers would adjust their networks by entering some of the routes that American exited and exiting some of the routes that they entered.

Of course, Justice’s attempt to scuttle the US Airways/American merger has raised concerns over whether it will do the same in the case of the Verizon merger with Vodafone.

Robert Doyle, Jr., a partner with Doyle, Barlow & Mazard PLC and former deputy assistant director in the FTC’s Bureau of Competition, says: “Given that Verizon Communications had a preexisting 55 percent controlling interest in Verizon Wireless, buying its remaining 45 percent from Vodafone doesn’t seem to change the competitive dynamics in the industry, since it won’t change the controlling interest in Verizon Wireless.”

Verizon Communications controlled Verizon Wireless before the Vodafone deal, he says, and will control it after the deal. Nothing changes, he says, “I don’t see any change post acquisition that should raise any DOJ antitrust concerns with the deal.”

A Justice challenge to Verizon would be a lot more surprising than its challenge to US Airways, which itself elicited some head scratching. Whatever the level of anti-trust enforcement from the Obama administration, it is not impeding the announcement of M&As, which continued to appear through the fall, including some big ones, such as Applied Materials Inc.’s merger with chip-equipment rival Tokyo Electron Ltd., a $10 billion deal.

Barring the U.S. falling off some fiscal cliff or Federal Reserve Chairman Ben Bernanke turning off the cheap money faucet, other blockbusters seem certain to follow.

Sidebar

U.S. Approval of Chinese Acquisition of Smithfield Sends ‘Open Door’ Message

The U.S. government’s approval of a Chinese acquisition of one of America’s leading food processors may have opened the door to a broader range of foreign buy-ups of U.S. companies. In September, The Committee on Foreign Investment in the United States (CFIUS) green lighted Shuanghui International Holdings Ltd.’s acquisition of Smithfield Foods Inc., the world’s largest pork producer and processor. The acquisition represents the largest-ever purchase of an American company by a Chinese company.

CFIUS reviews potential purchases of U.S. companies that could threaten national security. Its review of the Smithfield deal was the first time the committee had looked at a potential acquisition in the field of agriculture.

Some members of Congress questioned the thoroughness of the CFIUS review. Sen. Debbie Stabenow (D-Mich.), chairwoman of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, was unsure, given CFIUS’s non-public process, whether issues such as the potential impact on American food security, the transfer of taxpayer-funded innovation to a foreign competitor or China’s protectionist trade barriers were considered.

“It’s troubling that taxpayers have received no assurances that these critical issues have been taken into account in transferring control of one of America’s largest food producers to a Chinese competitor with a spotty record on food safety,” she said.

Larry Ward, a partner at international law firm Dorsey & Whitney, notes that “Within the last year, at least two deals where the acquirer was ultimately owned by a Chinese state-owned entity were effectively prohibited by CFIUS and so clearance of this transaction may ease concerns so such entities may feel comfortable again in investing in  the United States.”

Read more: http://www.financialexecutives.org/KenticoCMS/Financial-Executive-Magazine/2013_11/Good-Kindling-Fires-Up-M-A-Activity--Verizon-Deal-.aspx#ixzz2k5JTpj31

Possibility of FDA Regulation of Health Information Technology Looms Large

P&T Journal
October 2013 - for a PDF copy of the published version go HERE.

Pharmacies and Their Vendors Worry About Quality

The hospital drive to implement health information technology (HIT) systems, driven in good part by Medicare and Medicaid incentives (and penalties), has certainly affected pharmacy systems, and will continue to do so as the definition of "meaningful use" is expanded to incorporate more required medication tasks. So anyone who works in a hospital pharmacy ought to be interested in how the federal government regulates these new technologies, be they hardware or software. Retail pharmacies, too, even though they are not being pressured by incentives, are concerned about how any regulation would affect mobile medical devices such as glucose monitoring/diabetes management, at home hypertension monitoring/management, medication management, and medication reconciliation at transitions of care. 

Pharmacy organizations such as the Pharmacy e-HIT Collaborative are communicating with a work group within the Department of Health and Human Services (HHS) Office of the National Coordinator for Health Information Technology (ONC) which will be making HIT recommendations to Congress imminently. That report will provide directions to the Food and Drug Administration (FDA).

Surescripts, too, is concerned about the failure of some pharmacy systems vendors to police the quality of their products. Surescripts provides the e-prescribing electronic backbone which software vendors plug into. Those vendors sell plugged-in e-prescribing systems directly to end-user pharmacies. David Yakimischak, General Manager, E-Prescribing, says the company has worked hard to encourage its vendors to adopt quality programs leading to fewer pharmacy errors. "Vendor responsiveness has been relatively random," he explains. "Quality/patient safety performance does not appear to play heavily in end-users’ purchasing decisions. Our conclusion is that in the absence of new incentives and penalties, there is currently little or no business case for vendors to make significant investments in high quality patient safety programs."

The FDA is under a congressionally-mandated deadline of January 2014 to produce a regulatory framework for HIT. The key issue is whether the FDA should be allowed to regulate all HIT as it does medical devices. Or should some HIT, especially software where pharmacists and physicians interact with a system to make clinical decisions or observations, even be regulated at all. There are those who think systems requiring clinical intervention should be certified, not regulated, by a non-federal body such as The Joint Commission, with that certification process overseen by the ONC. The ONC already has a few years of experience certifying HIT eligible for incentives (which go to the purchasers, such as hospitals) decreed by the 2009 stimulus bill. "The ONC is well positioned to coordinate oversight among these various organizations to ensure patient safety, prevent overlap and continue to foster innovation and adoption of health IT by providers," states Ann Richardson Berkey, Senior Vice President, Public Affairs, McKesson Corp. She says organizations such as the National Committee for Quality Assurance (NCQA), The Joint Commission or URAC have track records in the rigorous accreditation of healthcare software.

The American Hospital Association (AHA) thinks products should be regulated based on the risk they pose to patients. Key factors to be considered include the potential for harm, the extent of harm, and the extent to which software is automating and or guiding clinical decision-making. "For example, when drug dosage data are sent from an order entry system to a pharmacy information system, it is crucial for safety that both the data points and their units of measure are accurate within each system and across systems," says Linda E. Fishman, Senior Vice President, Public Policy Analysis & Development, AHA.

Last February, the Bipartisan Policy Center, a think tank of sorts meant to meld Democratic and Republican views, produced a report called An Oversight Framework for Assuring Patient Safety in Health Information Technology. It stated: "The FDA’s current regulatory approach for medical devices is generally not well-suited for health IT." The report recommends that HIT products be divided into three categories according to the relative risk to patients and the opportunity for clinical intervention. Those where there is no or little opportunity for clinical intervention represent a higher potential risk of patient harm. Such devices are currently regulated by the FDA as Class I, Class II, or Class III medical devices. The FDA would continue to regulate these devices.

The lowest risk category would be administrative software which supports the administrative and operational aspects of healthcare but is not used in direct delivery of clinical care. Population analytics, back office billing systems, claims payment systems, and prescription drug refill reminders are all examples of software that are not used for patient specific treatment or diagnosis. The BPC recommends no additional oversight for this category.

The middle category would include products which can be used to recommend a course of care; call this category clinical software. Very few participants in the debate, at least on the industry side, think this category should be regulated by a federal agency.

    

Meanwhile, the ONC's ability to translate its considerable HIT experience into political weight in any upcoming battle with the FDA over new regulations is compromised by the absence of a National Coordinator, given the departure of Farzad Mostashari, M.D. The position needs to be filled quickly, and for a lot of reasons.