Case Study: Planning Aggregate Spend Activities for the Next Three Years

The National Disclosure SummitWashington DCMarch 6, 2009

Cynthia “Cindy” Cetani Jon Wilkenfeld

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Introductions

Cynthia “Cindy” Cetani*

Executive Director

Novartis Pharmaceuticals Corp.

Cynthia.Cetani@novartis.com

(862) 778-3949

Jon Wilkenfeld

President

Potomac River Partners

Jwilkenfeld@potomacriverpartners.com

(610) 470-7616 (M)

*Disclaimer: The views of the Novartis presenter reflect a personal perspective and should not be considered an endorsement by or specific views of Novartis Pharmaceuticals Corporation

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ARS: Aggregate Spend Status

Where are you within the lifecycle of building an aggregate spend solution regarding physician spend?

1. Fully implemented for HCP spend

2. Partially automated and partially manual for HCP spend

3. Building a solution now; spend capture is manual by state

4. We are in early planning stages

5. We haven’t started planning or building yet

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6. Change Management

Today: The Basics of an Aggregate Spend System

Monitoring

Disclosure

Policy&

Practices

“Integrated Customer Master”(HCP/O and Non-HCP/O)

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Spend Monitoring &Disclosure Rules

1.

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5.

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What do you believe will follow the Sunshine Act?

1. States will be satisfied with the data reported at the federal level and will not request additional information. The federal government will take no additional action.

2. States will be satisfied with the data reported at the federal level but the federal government will require additional disclosures.

3. States will not be satisfied with the data reported at the federal level and will continue to proliferate new reporting requirements.

4. Don’t know

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US Regulatory Environment

Current and Future Regulatory Environment

Physician Payment Sunshine Act

Additional congressional action• Grant transparency• Samples

Changes to existing state laws

New state laws

Mid-level prescribers and other HCPs

Specific requirements from CIAs, consent decrees

How will the changing regulatory impact your rules engine?

Definition of HCP

HCP degree/specialty

Purpose/nature of spend

Meal allocation methodologies

Medicare billing / State Licensing #s

Other?

MAINE

IOWA

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Q . Do you currently have the capability to link individual HCPs to organizations?

1. Yes, we can link HCPs to affiliated organizations (e.g. medical practices, hospitals, universities, societies) within our aggregate spend system

2. No, we cannot link HCPs to affiliated organizations within our aggregate spend system

3. We are currently working on implementing the capability to link HCPs to their affiliated organization

4. Don’t know

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Future: Customer Master With Relationship Data

•What relationship aspects will be included within your data?•Will you be able to automatically toggle between individuals and DBAs? •Will you be able to automate identification of Government Employees? •Will you be able to identify all members of a medical practice? All members of an association (e.g. Wisconsin Medical Society)? Those employed by Stanford?

Questions to Consider:

ID Name Degree Specialty Address

1234 Jane Smith

MD Cardio 123 Main St.

New York, NY 10001

1235 John Jones

DO Onc 1600 Penn Ave.

Washington DC 20001

2008 Customer Master: 2D

HCP Smith

MedicalPractice

Managed Care Plans

Peer HCPs

StaffAddress(es)

Degree/Specialty

Association Memberships

Hospital Affiliation

2012 Customer Master: 3D

D/B/A Corp.

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ARS: Spend Capture on HCOs

What is the status of your aggregate spend solution for HCOs?

1. Fully automated for HCO spend

2. Partially automated and partially manual for HCO spend

3. Building an automated solution; spend capture is manual

4. We are working on our plan now

5. We don’t intend to capture any HCO spend

HCOs include: hospitals, clinics, medical practices, universities, pharmacies, professional associations (American Med Assoc) and medical societies (American Cancer Society)

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Challenges with Healthcare Organization (HCO) Spend

How will the changing regulatory environment impact HCO spend capture?

How do you define HCO?

State law disclosure reports include the following: • Hospitals, clinics, universities, pharmacies, medical groups, disease-specific patient advocacy / support groups

Challenges with building your HCO Customer Master• Establishing consolidation rules (local vs. national orgs; corporate parent structure)• Two-dimensional vs. Three-dimensional data

Data capture requirements• Payable to vs. recipient for grants• Convention / health fair spend capture

Data integrity challenges unique to HCOs?• False positive (e.g., NAIC Codes are too broad)• Less effective, costlier scrubbing processes• Incomplete third-party data

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ARS: Data Integrity

What actions are you taking to ensure accurate data? 1. Full-time “Data Steward” responsible for data integrity

2. We periodically audit/monitor data

3. Manual checks by Aggregate Spend owner (e.g. Compliance) that focuses primarily on data outliers

4. We rely exclusively on data accuracy within the source systems

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Can your data pass the sniff test?

Will it hold up to intense scrutiny?• Media • Individual physicians • Associations • Plaintiffs Bar

What are the sources of data errors?• False matching/merging records• Incomplete internal data entry • Inaccurate third-party submissions

What are you going to do about it?• Enhanced manual auditing and monitoring of data• Enhanced IT validation (e.g., drop-downs)• Monitoring data outliers or all data?

Do you have validation timing concerns?

Can you track data changes? Can you see changes over time?

Data Monitoring: Garbage In – Garbage Out

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Q . Does your data certification process lead to corrections in source system data or manual adjustments to your reports?

1. Yes, corrections to data are identified and corrected in source systems prior to final certification sign-off

2. Yes, corrections are identified during certification sign-off and addressed via manual adjustments to reports that are filed

3. Both 1 and 2, depending upon the system

4. We have never identified a necessary correction

5. Don’t know

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Data Certification

What is the ideal format and structure for certifications by C-level or Board?

What is the ideal format and structure for sub-certification (e.g. Head of Medical Affairs)?

How frequently will certifiers get data?

How do you measure data quality? What is an acceptable error rate?

What is the impact of unintended disclosures?

Impact of manually removing entries from Aggregate Spend solution?

Have you developed a procedure stating how and when you would re-file a submission?

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ARS: HCP Impact

In your humble opinion, which do you believe will be the biggest impact of PPSA on HCPs?

1. Some HCPs may limit their industry compensation for concern over disclosure

2. HCPs may refuse to accept value (e.g. a meal) while still attending an event

3. Attendance at promotional programs will decline

4. HCPs will demand to see copies of their disclosures prior to publishing on the web

5. No impact– HCPs will continue to interact with pharma companies exactly as before

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HCP Impact

How do you think HCPs will respond to disclosure?• Fewer speaker events per speaker• Will you need to track promotional attendees with and without meals consumed

What role will your company need to play?• Preemptive reports to all HCPs• Proactive communications/training on PPSA to HCPs • Responding to inquiries (methodologies, interpretations, errors?)

• Public relations responses

Will HCP response impact representative performance metrics?

Will you be in a position to point out emerging data patterns to senior management?

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ARS: Business Impact from Aggregate Spend

How does your company “use” aggregate spend data?1. We haven’t built our system yet

2. Use it only for state law reporting and monitoring

3. State laws + Compliance uses it for various monitoring activities

4. Compliance + Operations Groups (Sales Ops, Sourcing) look at cost figures

5. Compliance + Ops + the rest of the organization including Business Analysis, Market Research, Brand Teams, and/or Senior Management

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Business Value from Aggregate Spend

Compliance Monitoring

Modest meals

Minimum attendance

Fair market value

“Occasional” or similar quantity language

Promotional $ cap

Other outliers?

Cost Containment

Speaker payments for cancelled programs

Unused minimum guarantees

Unapproved pass-through expenses

Spending on non-HCPs and non-targets

Top Line Growth

No ROI on payments!

But…can you use aggregate spend to optimize promotion?

Do some promotional programs have better results?

How can you leverage this data in an ethical manner?

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Q . Do you currently report on behalf of a merged company or an affiliated legal entity?

1. Yes, we manage reporting for our company and the company we merged with

2. Yes, we manage reporting for our company as well as other affiliated legal entities

3. Yes, we manage to both above

4. No, we report for our legal entity only

5. Other

6. Don’t know

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“Subsidiary” Reporting and Post-Merger Integration

Have you started to capture spend for other US subsidiaries? • Animal? Consumer Health (i.e. OTC)? Generics?

• Lessons learned?

What IT challenges would you face in the event of a major acquisition for your firm? • Integration of Customer Master systems

• Coordination of third-party vendor reporting standards

• Potentially two different ERP systems (e.g. SAP and JD Edwards or Oracle)

What change management would be required?• New business rules and supporting matrices

• Training on new policies and data standards

PPSA Disclosure =

Any entity which is engaged in the production, preparation, marketing, or distribution of a covered drug, device, biological or medical supply

Undefined

+ Subsidiary /Entity Affiliated with Such EntityManufacturer

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ARS: Global Spend

Which payments are captured by your system? 1. Only US-Parent Corporation spend on US HCPs

2. All payments to US HCPs (US and Global subsidiaries)

3. All payments from US-Parent Corp (US and Non-US HCPs)

4. #2 and #3

5. All spend (US and Global Subs) to all HCPs (US or Global)

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Global Spend

How do you leverage internal knowledge, resources, and IT systems?

Are you concerned about corporate separateness?

Are you confident that global spend doesn’t violate US law (e.g. FCPA)?

Will other regulatory bodies require global reporting? EU? EFPIA? Specific countries?

What is your approach to IT systems? • Portals or spreadsheets to capture payments? • Global Customer Master?

How do you implement change management around the world?

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Solution: Develop [Another?] Three-Year Plan

20112011

Initial PPSA report with corresponding disclaimers

Automated HCP affiliation identifications

Begin capturing global or subsidiary HCP spend

Global / subsidiary change management

Compliant revenue optimization

Initial PPSA report with corresponding disclaimers

Automated HCP affiliation identifications

Begin capturing global or subsidiary HCP spend

Global / subsidiary change management

Compliant revenue optimization

20102010

Begin including advanced hierarchies into customer master

Enhanced data audibility (storage of legacy data)

Data integrity: Avoidance of errors

Project plan for global and/or subsidiary spend

Cost management; Key opinion leader (KOL) management

Testing for PPSA reporting and other new requirements

Begin including advanced hierarchies into customer master

Enhanced data audibility (storage of legacy data)

Data integrity: Avoidance of errors

Project plan for global and/or subsidiary spend

Cost management; Key opinion leader (KOL) management

Testing for PPSA reporting and other new requirements

20092009

Finish building automated Aggregate Spend system (HCPs)

Begin building HCO infrastructure

Data integrity: Outlier analysis

Compliance monitoring

Sub-certifications by management

Communications to HCPs about PPSA

Finish building automated Aggregate Spend system (HCPs)

Begin building HCO infrastructure

Data integrity: Outlier analysis

Compliance monitoring

Sub-certifications by management

Communications to HCPs about PPSA

Illustrative

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Questions