The Issue Around Pharma Bundled Sales

One area of continued focus by pharma regulators is on drug manufacturers’ discounting strategies and their impact on prices the  government pays for particular drugs. In particular, they have focused on the concept of a Bundled Sale, typically where the discount on one drug is conditioned on the purchase of another drug. The main government contention is that in a bundled sale the economic benefit (net price) from the purchase of a particular drug is placed on a different drug (or a different time period), skewing the reported commercial price and used as the basis for the government price for those drugs. Actions by pharma that affect the prices reported to the government have been fertile grounds in the past for the Justice Department and State Attorneys General to file fraud and false claim acts cases with settlements in the $100M to $2B range.

The government response to the issue of bundled sales for the largest purchasing programs (Medicare and Medicaid) has been to require the manufacturer to reallocate the discounts proportionately to the value of each drug sold in that arrangement during that period prior to calculating and reporting those drugs’ prices. Three factors are bringing this issue into new focus:

·        The “clarification” of the definition of bundled sales triggered by the Deficit Reduction Act (DRA) of 2005, which greatly
expanded the scope of arrangements that could be considered bundled sales

·        The increased use of innovative multi-product discounting as a part of many pharma competitive strategies

·        Industry consolidation is placing more drugs onto single agreements and increasing the potential for bundled arrangements

What has been the pharma response so far? Most have gone through an evaluation of their agreements to determine what their potential bundled sales exposure is. Companies with exposure have either opted to change their agreements (and commercial strategies) to reduce or eliminate their bundled sales exposure or to reallocate the discounts. Both options have
their issues. For many companies, potentially changing commercial strategies to something less effective is not an option. For those that have gone down the route of reallocation, they have often had to implement custom  or manual processes to perform the reallocation that are inefficient or have issues providing adequate audit and compliance controls. To address these problems, Model N recently introduced an automated discount reallocation solution that is integrate into its Revenue Management Suite.