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On December 1, 2016, Parker Hannifin Corporation and CLARCOR Inc. announced that the companies have entered into a definitive agreement under which Parker will acquire CLARCOR for approximately $4.3 billion in cash, including the assumption of net debt. The transaction has been unanimously approved by the board of directors of each company. Upon closing of the transaction, expected to be completed by or during the first quarter of Parker’s fiscal year 2018, CLARCOR will be combined with Parker’s Filtration Group to form a leading and diverse global filtration business. Bass, Berry & Sims has served CLARCOR as primary corporate and securities counsel for 10 years and served as lead counsel on this transaction. Read more here.

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Securities Law Exchange BlogSecurities Law Exchange blog offers insight on the latest legal and regulatory developments affecting publicly traded companies. It focuses on a wide variety of topics including regulation and reporting updates, public company advisory topics, IPO readiness and exchange updates including IPO announcements, M&A trends and deal news.

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Oncology Limited Distribution Networks Balance Risk with Opportunity

Publications

June 25, 2015

Limited distribution networks (LDNs), particularly in the oncology space, are increasingly being used by manufacturers to reduce costs, improve efficiency, and ensure quality control in the distribution chain while maintaining broad patient access and quality of service. Although adherence services are often key components of many LDNs, the market and the structure of such arrangements appear to be in flux due to recent prosecutions, especially on adherence services.

A specialty pharmacy looking to participate in LDNs or wanting to evaluate existing arrangements should consider three primary factors to ensure competitiveness and compliance with the law:

  • Provision of sufficient infrastructure and high-quality service
  • Knowledge of current market contracting trends
  • Understanding of applicable law, including current legal prosecutions
Infrastructure and Service 

Specialty pharmacies are typically vetted for LDN inclusion by their payer access, geographic footprint (licensure and Medicaid provider status, not necessarily brick-and-mortar locations), and ability to provide consistent high-quality service.

Broad payer access is a must for inclusion in LDNs, as is the ability to distribute throughout the United States (and sometimes Puerto Rico). Beyond these mandatory dispensing issues, specialty pharmacies must distinguish themselves with superior service and data reporting.

Essential core services for LDNs include speedy benefits investigation and quick turnaround time for shipments. First dispensing time is often critical to manufacturers. Focusing on these basics is absolutely paramount for a specialty pharmacy to be a competitive choice for an LDN.

Also common in LDNs are specialized services, such as working with the manufacturer's hub or offering hub-like services, and the ability to keep consigned product inventory separate. Notably, LDN drugs are more likely than non-LDN drugs to be under a Risk Evaluation and Mitigation Strategy (REMS), have black box warnings, or have complicated adverse effect (AE) management. Operationalizing these LDN-specific services often requires a different work flow than core services and may require careful planning and training to execute. For example, communicating protected health information with the manufacturer's hub may require the use of a Health Insurance Portability and Accountability Act authorization early in the patient's treatment before a specialty pharmacy typically receives such authorization.

Furthermore, the primary means of patient contact for many specialty pharmacies is via the phone. Manufacturers focus on specialty pharmacies that can develop and maintain a close relationship with their patients, which is often viewed as the backbone of a successful therapy adherence program. Finally, the ability to provide access to data—in some cases, real-time access to data—is a must for inclusion in LDNs. Particularly in the case of REMS drugs or AE management, manufacturers often want almost immediate access not only to drug utilization data, but also clinical outcomes data.

Contractual Considerations

Certain contractual terms are common in LDN agreements and require a different analysis than is required in other distribution agreements, such as "own use" provisions, listings of specialty pharmacy facilities included in the network, diverted product limitations, return of product at termination, AE reporting, and side effect management/provision of manufacturer literature or scripted communications.

Own use provisions, the description of in-network facilities, and diverted product provisions often work in tandem and should be considered in light of one another. Specialty pharmacies may want to negotiate terms to permit the transfer of product among all its facilities and easy inclusion of new facilities into the network. Similarly, vague or broadly worded diverted product provisions can also limit or make unclear the ability of specialty pharmacies to transfer products among facilities or continue with other standard uses of the product. Negotiating these terms to allow for unencumbered interfacility exchange and broad distribution is optimal. If a manufacturer's internal processes do not allow for convenient inclusion of new facilities or impose certain restrictions on distribution, understanding those limitations up front may drive the decision making of specialty pharmacies down the road. For that reason, the discussion may be beneficial even if favorable terms are not reached.

Limitations on the ability to return product can have material consequences in LDNs. Specialty pharmacies should complete a careful reading of these terms to ensure that if the pharmacy is removed from the LDN, the pharmacy will not be stuck with a product the pharmacy is prohibited from dispensing.

LDNs tend to have more robust AE reporting requirements than non-LDN drugs, as many are under a REMS or have black-box warnings. Ensuring adequate reporting may require a specialty pharmacy to segregate patient communications for the LDN drug to a subset of employees trained on the unique AE requirements. This may have the added benefit of engendering a relationship with the patient that is important to facilitating successful therapy adherence.

Patients taking LDN drugs may experience more frequent side effects and require more intensive management to remain adherent to their therapy. Manufacturers may provide scripts or literature regarding drug side effects that are used for introductory communications. Specialty pharmacy clinical staff should ensure that these scripts do not interfere with their counseling of all relevant side effects within the applicable standards of professional practice. In negotiating contract terms, a specialty pharmacy should include the ability to approve or disapprove of any manufacturer literature or scripts and prohibit any language that could be construed to limit the professional clinical judgment of the specialty pharmacy professional staff.

Legal Considerations

Generally, LDN relationships are governed by the same principles as other distribution and service agreements. However, there are some key considerations unique to the LDN landscape. Those include valuation of services and ensuring that the professional judgment of the specialty pharmacy clinical staff is not encumbered or influenced by LDN inclusion. Recent prosecutions have left many in the specialty pharmacy space questioning the boundaries of permissible adherence services, leaving the market in flux on these issues. The touchstones for analyzing an LDN are:

  • The specialty pharmacy is compensated for the fair market value of the services provided, and the arrangement is commercially reasonable
  • The professional judgment of the specialty pharmacy clinical staff is not influenced

Typically, specialty pharmacies bifurcate core pharmacy services provided for free from other services that are only provided if the manufacturer pays for the service. Yet, inclusion in an LDN may require services beyond a specialty pharmacy's core offerings. It is unclear whether inclusion in the LDN is sufficient consideration for some level of enhanced services. Specialty pharmacies must carefully consider the value of being in the LDN compared with the services required. While it is beyond the scope of this article to delve into the nuances of this analysis, specialty pharmacies may find their legal and operations teams are well suited to work together on this issue.

Recent prosecutions have brought into focus the need to ensure that no service offerings interfere with the professional judgment of the specialty pharmacy clinical staff. Two common offerings—adherence services aimed at keeping the patient on therapy and nondisadvantage clauses—have been highlighted.

In a recent prosecution, prosecutors targeted manufacturer-compensated SP communications that focused on common side effects and risks while allegedly not highlighting more serious side effects and risks. The market continues to analyze and incorporate these recent prosecutorial actions, but SPs may want their clinical staff and legal team to evaluate any required adherence communications, including printed materials or scripts.

Also recently, government prosecutors targeted a clause disallowing a specialty pharmacy to favor a competitive product over the contracted product. With the uptick in prosecutorial attention to adherence service, specialty pharmacies may want to reevaluate the clinical oversight and checks and balances in place that evidence a specialty pharmacy's efforts are in the best interest of the patient and not simply aimed at inducing referrals.

In summary, a specialty pharmacy must have certain infrastructure and operational processes in place to be an attractive candidate for inclusion in LDNs. Also, there are specific contractual and legal considerations unique to LDNs. Given the current legal landscape, specialty pharmacies should ensure that LDN relationships do not impede the professional judgment of their staff.

Specialty Pharmacy Times previously published this article on June 8, 2015. The original publication may be accessed with a free login by visiting Specialty Pharmacy Times.


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