Managed Care Payer Implications Associated with Asset Transfer

Kevin Donlan, R.Ph., M.S. Market Access, Strategy

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Within the pharmaceutical industry, it is common for a manufacturer to sell an asset of a lower revenue-producing compound to a smaller company that wishes to acquire that same product. By virtue of the acquiring company’s P&L and associated revenue goals, that compound is a good fit for their associated promotional goals and commercialization capabilities.

Seems straightforward, but, as with many things in the pharma world, the associated “transfer of asset” dynamics come with many important milestones (aka, issues) that need to be navigated between both parties. In reality, most of those issues fall on the acquiring party to resolve. That challenge is especially true relative to the managed care payer implications associated with the scenario of product acquisition and transfer of ownership. More specifically, there needs to be an awareness (and subsequent management) of existing (or contemplated) payer contracts that require coordination between the seller, buyer, and payer.

The following are primary issues that we, as Viking Healthcare Solutions, have identified and dealt with in recent product acquisition scenarios. Our work has resulted in the successful navigation of these potential barriers relative to payer implications on behalf of our pharma clients.

1. Financial Concerns and Associated Analysis

Primary to any associated purchase of an asset is the assessment of existing financial (rebate) payer obligations and the terms of those agreements, including current rebate payment obligations, as well as possible return on investment (ROI) assumptions. This is a very important component of any asset purchase. Nevertheless, several major payers will not allow the selling company to disclose those rates to the purchasing company. This leaves an important “trust factor” on the part of the seller/payer to accurately transfer those rates to the acquiring entity and associated assumption on the buyer’s side that those rebate rates are current and valid.

  • A good example of this is in the consideration of existing price protection language which obviously limits future revenue growth on same/similar units based on the rate and start date for the calculations.

2. Validation of the Managed Market Sectors by Percentage of Revenue  

This data point seems like a given in any due diligence and asset transference. The acquiring entity should always verify the associated distribution prescriptions across market channels (Commercial, Medicare Part D, Medicaid, and Managed Medicaid) and across the entities within those channels. Often the selling entity has dated utilization information on the associated asset, making this a critical metric for the acquiring company to understand.

  • This concern is especially applicable in the state-based CPI penalties.

3. Legal Concerns; Shared Rates etc.

Coordination of a likely three-way CDA agreement between the payer, acquiring party, and selling party are crucial and allows the sharing of all existing contracts and associated contract terms. The open communication from the CDA helps to facilitate a smooth transfer process relative to the eventual managed care organization’s engagement on a go-forward basis. Unfortunately, this is often complicated because that single product asset acquisition is part of a broader group of products that the selling entity doesn’t want introduced into the associated disclosure and transference process. In addition, there is an associated concern on the selling party to disclose the primary contract terms.

  • At least one major PBM has associated onerous steps to allow the disclosure of shared rebate rates.

4. Existing Payer Contract Carry Over Obligations

Basically, this is an analysis and summary of existing payer obligations on the part of the seller. These include rebate rates, term designations, and most importantly, the inherited accrual of price protection “True Ups.”  Again, sharing of existing payer contract obligations seldom occurs, sometimes due to an unwillingness of the seller to share with the acquiring party.

  • This issue in particular highlights the importance of having a resource like Viking Healthcare Solutions who has dealt with each payer on associated similar contracts and language.

5. Payer Amendment Strategies

The coordinated transference of an existing payer MSA (Master Services Agreement) from the selling company to the acquiring company is needed. This can be as simple as an assigned signature. More than likely, however, it involves a complex redline to the existing MSA to not assign (but amend) associated originally obligated (yet dated) components in the MSA (Price protection dates, etc.).

  • Complicating this amendment strategy is the likelihood that the original MSA, executed sometimes long ago, is essentially outdated in terms of contractual clauses that were not included in the original agreement (especially price-protection language calculations).

6. Transference of Contracts

Basically, language in the associated existing payer contract obligating the “selling company” for downstream obligations of the acquiring company. While this seems like a standard of purchasing due diligence, we have found numerous gaps in the associated seller disclosure, sharing of rebate obligations, and follow-up steps (e.g. Necessity to renew a contract that expired, etc.).

7. Coordination of Contract Transference Timelines

This dynamic often includes acceptance of recent payer amendments and definitions that were not in the original agreement. That scenario often necessitates a “bridge amendment” from the seller to the payer and typically requires the acquiring company to drive that process. The selling entity is concerned about residual effects on existing products not included in the asset transfer.

8. Rebate Allocation Obligations and Strategies for Transfer

Payers want to be assured that in this acquisition scenario, they will be made “whole” financially. The payer concerns are those of assuring that if they have a product under contract with the selling company, that there will be no “gap” in associated rebates relative to the transfer of the asset. Many times the payer has made commitments or is in bids with clients, that must be kept.

  • Additionally, there are logistics to address in the associated rebate billing contracts and timelines for past accrual of rebates.

9. Formulary Data and Assurance of Same/Similar or Better Coverage

In many cases, the seller has not engaged the payer market relative to coverage for the product being sold. We, as Viking, initiate payer interactions and re-engage those decision-makers with the goal of improving (or at a minimum, maintaining) coverage. Viking works with our clients to improve the lifecycle management of the acquired product. We verify its current coverage and obtain any utilization management criteria (e.g., prior authorizations and/or step therapy) being applied to the product and verify that the payer has the most current, approved clinical information about the product.

  • This can be especially relevant when a payer’s utilization management criteria may not be entirely appropriate

10. NDC Product-Specific Obligations and Supply Chain Management (Payers tracking inventory against the ultimate seller vs acquirer)

  • Payers want a guarantee that the specific NDC of the acquired product will be paid plus the newly launched NDC for applied rebate off-sets.

In aggregate, all of the above are necessarily important and any one of those issues can delay or complicate the smooth transfer of an asset. Viking has worked through a number of these scenarios and can help you navigate the transfer.

For further information and analysis, please contact Kevin Donlan, Managing Partner at Viking Healthcare Solutions.

Viking Healthcare Solutions has established itself as the premier provider of corporate account services and strategic planning support for the pharmaceutical and biotech industries. VHS Insights, our research division, specializing in payer profiling, market research and analytics, can help you find answers to inform your payer strategy. We support traditional and rare/specialty organizations to create, maintain, defend, and protect access to your product throughout its lifecycle. Bank on our experience to help you achieve successful product commercialization. Contact us at www.vikinghcs.com/connect.