Life Science Compliance Update

April 06, 2017

Senators Ask GAO to Investigate Potential Orphan Drug Act Abuse


In a March 3, 2017, letter to the United States Government Accountability Office, Senators Orrin Hatch, Chuck Grassley, and Tom Cotton raised the idea that regulatory or legislative changes might be needed to “preserve the intent of this vital law” that gives drug makers lucrative incentives to develop drugs for rare diseases.

The letter notes that, “[w]hile few will argue against the importance of the development of these drugs, several recent press reports suggest that some pharmaceutical manufacturers might be taking advantage of the multiple designation allowance in the orphan drug approval process.”

The senators ask for a list of drugs that have been approved or denied orphan status by the Food and Drug Administration (FDA), also asking whether resources at the FDA have been able to keep up with the “number of requests” from drug makers and whether there is consistency in the department’s reviews.

The senators also expressed concern about patients, saying in their letter that “we feel it is important to include the patient voice in your review.”

Few senators are in a position to alter the law. However, the three authors of this letter are in such a position. Hatch, a longtime advocate of the rare disease community, said late Monday in a statement that there was little evidence to suggest the Orphan Drug Act needs to change.

Hatch is chairman of the Senate Finance Committee, which oversees 50 percent of the federal budget, including Medicaid and Medicare spending. He said the letter is requesting “the first GAO study exclusively reviewing the Orphan Drug Act, and such oversight will ensure those critical innovations are continued into the future.”

Grassley, the senior senator from Iowa, chairs the Judiciary Committee and has jurisdiction over anti-competitive and patent-related issues. Grassley last month announced an inquiry into the Orphan Drug Act in response to KHN’s investigation.

Cotton, a strong conservative voice, chairs the subcommittee on economic policy under the committee on banking, housing and urban affairs. In a floor speech last month, he announced that he would find a legislative solution to price hikes associated with the orphan drug program.

Kaiser Health News Investigation

This letter comes on the heels of a January investigation published by Kaiser Health News (KHN) that found the orphan drug program is being manipulated by drug makers to maximize their profits and protect niche markets for particular medicines.

Recently, orphan drugs have come under fire (along with the rest of the industry) for high prices. The investigation by KHN found that many drugs that now have orphan status are not entirely new – more than seventy were drugs that were first approved by the FDA for mass-market use. Others (roughly numbering eighty) are drugs that have received multiple exclusivity periods for two or more rare conditions.

Marathon Pharma Hikes Emflaza Price

Senators have been incensed by actions taken by Marathon Pharmaceuticals, manufacturer of Emflaza, a corticosteroid approved to treat Duchenne muscular dystrophy. Marathon recently announced an $89,000 annual list price for the drug, which many U.S. patients have purchased overseas for $1,000 to $1,600 a year.

Marathon responded in February by delaying the rollout of the drug, saying it will talk with stakeholders, including patients, about the price.

Eight senators sent a letter to Marathon CEO Jeff Aronin demanding information on the private drug maker’s pricing strategy. Marathon spokeswoman Wanda Moebius released a statement saying the company is committed to ensuring that all patients who need this drug have access to it and will continue to work with the Duchenne community.

September 15, 2016

New OIG Guidance on IRO Independence and Objectivity


In August 2016, new Health and Human Services (HHS) Office of Inspector General (OIG) guidance was issued on Independent Review Organization (IRO) independence and objectivity. This new guidance follows the original guidance offered in 2004, prompted by inquiries from individuals and entities who were subject to Corporate Integrity Agreements (CIAs) regarding circumstances that might affect the independence of an IRO that performs CIA reviews.

Then, in 2007, the Government Accountability Office (GAO) updated its auditing standards, leading to an updated guidance from the OIG in 2010 to reflect those updated standards and additional types of IRO reviews included in CIAs, such as arrangements reviews, promotional and product services reviews, etc.).

This most recent guidance reflects the 2011 revisions to the GAO auditing standards and is a summary of the OIG’s views on the relevant principles that should be used to assess the independence and objectivity of an IRO that performs CIA reviews.

Summary of OIG’s Views on Applicable Independence and Objectivity Standards

The OIG has previously determined it to be appropriate to adopt the standards for auditor independence and objectivity that are set forth in the GAO Government Auditing Standards (December 2011 Revision), also known as the “Yellow Book.” The Yellow Book provides both ethical principles and general standards that apply to all types of IRO reviews performed under CIAs and that form the basis of the OIG’s requirements relating to independence and objectivity of the IRO.

Oftentimes, CIAs will require that each IRO used by the provider must furnish a certification that the IRO has evaluated its professional independence and objectivity with respect to the review being performed for the provider and that the IRO has concluded that it is independent and objective.


The Yellow Book provides that objectivity includes “independence of mind and appearance when providing audits, maintaining an attitude of impartiality, having intellectual honesty, and being free of conflicts of interest.” The concepts of objectivity are closely related and independence impairments impacts objectivity.


The Yellow Book requires that, in all matters relating to audit work, the audit organization and individual auditor remain independent. Independence comprises both independence of mind and independence in appearance. IROS must maintain independence so that their opinions, findings, conclusions, judgments, and recommendations are impartial, and viewed as impartial by the OIG.

The Yellow Book identifies two categories of threats to independence: (1) “self-review threat”: the threat that an auditor or audit organizations that has provided nonaudit services will not appropriately evaluate the results of previous judgments made or services performed as part of the nonaudit services when forming a judgment significant to an audit and (2) “management participation threat”: the threat that results from an auditor taking on the role of management or otherwise performing management functions on behalf of the entity undergoing the audit.

Services that Likely Would Not Impair the IRO’s Independence and Objectivity

The OIG has set forth examples of nonaudit services furnished by an IRO to an entity under a CIA that likely would not present an impairment to the IRO’s independence and objectivity with respect to the IRO performing a CIA review for that entity.

Some services that likely would not impair the independence and objectivity include services such as: IRO personnel furnishing general compliance training that addresses the requirements of the provider’s CIA and introduces employees to the provider’s overall compliance program; the IRO performs routine tasks relating to the provider’s confidential disclosure program, such as answering the confidential hotline or transcribing the allegations received via the hotline; and the IRO provides personnel to perform work plan procedures that are developed by the provider’s internal audit department and are not related to the subject matter of the CIA reviews.

Services that Likely Would Impair the IRO’s Independence and Objectivity

Likewise, the OIG set forth a list of examples of nonaudit services furnished by an IRO to an entity under a CIA that, if the IRO performed, would likely be considered an impairment of independence and objectivity.

Services that likely would have an impact on independence and objectivity include: a provider using a billing system or coding software that was developed or designed by the IRO and the IRO is being engaged to perform a claims review; the IRO participates in decision making relating to the confidential disclosure program, such as determining which allegations warrant further investigation or the appropriate corrective action to take in response to compliance allegations; or the IRO is engaged to provide consulting services to the provider during the term of the CIA on a matter that is related to the subject matter of the CIA reviews.

Professional Judgment and Competence

According to the Yellow Book, auditors should use professional judgment in all aspects of their professional responsibilities, including following the independence standards and related conceptual framework, maintaining objectivity and credibility, assigning competent staff to the audit, defining the scope of work, evaluation, documenting, and reporting the results of the work, and maintaining appropriate quality control over the audit process.

September 13, 2016

GAO Issues Report on Generic Drug Price Increases


On September 12, 2016, the Government Accountability Office (GAO) released a report about generic drug prices in the Medicare Part D program. The report provides an overview of changes in Part D generic drug prices over time, the extent to which Part D generic drugs experienced “extraordinary” price increases, the effect of the increase on benefit design, and factors that were identified by stakeholders as contributing to drug prices.

This report has been issued in response to a request made to GAO that they examine price trends for generic drugs, and the factors that affect prices. In addition to analyzing pricing data, GAO created price indexes to show price trends; determined the number of drugs that had an extraordinary price increase of 100% or more; and interviewed drug manufacturers, Medicare Part D plan sponsors, pharmacy benefit managers, relevant trade associations, and economics experts, to identify factors that contribute to generic drug price changes.

Overall Generic Price Trends

The GAO looked at data from Part D claims from Q1 2010 through Q2 2015. GAO found that “generic drug prices fell 59 percent from the first quarter of 2010 through the second quarter of 2015,” reflecting a “changing basket” of 2,378 drugs during that time period. According to the report, prices under Medicare Part D fell rapidly from Q1 2010 through Q4 2012 and then declined moderately thereafter through Q2 of 2015 for the changing basket of drugs.

GAO additionally looked at an “established basket” of 1,441 drugs that “were present during the entire period of analysis.” The established basket, “decreased moderately and then increased slightly.” Overall, drugs in the established basket declined by 14% from the first quarter of 2010 through the second quarter of 2015, but trends varied over time: the prices decreased by 22% from Q1 2010 through Q4 2012, from that point until Q2 2015, the price increased by 10%.

It is likely that the steeper price decrease experienced by the changing basket was due to rapid price declines among new generic drugs, which are found in the changing basket but not the established one. GAO found that prices declined much more rapidly for generics newly billed under Medicare Part D relative to established generic drugs.

Price Increases

In reference to the “extraordinary” price increases, the GAO found that more than 300 of the established generic drugs had at least one extraordinary price increase during the time period (defined as a price increase of 100% or more). The report notes that certain categories of generics were more prone to extraordinary price increases than others and that the extraordinary price increases did not impact benefit design too much because of continued relative lower cost compared to their branded counterparts. Additionally, it was noted that some of the more expensive generic drugs are placed on non-preferred generic tiers, which are still cheaper for the beneficiary than the tiers that have branded products.

Factors Contributing to Drug Prices

According to the report, the factor that most impacted generic drug prices was competition – “price and availability” of the same drug from other manufacturers was the “primary driver” of generic price increases. The GAO also noted that generic competition is impacted by factors, including “raw material shortages, production difficulties, consolidation among manufacturers, and a backlog of new generic drug applications awaiting federal review.”

The appendices at the end of the report provide detailed information on the specific generics that underwent extraordinary price increases and information on the categories of generics that experienced a price increase.


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