There must have been a formal review?

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Medicines Australia informed its member companies on 23 January 2018 it had been in "general discussions" with the government on changes to the "supply chain model".

Members were only informed in response to an article published in PharmaDispatch on 22 January 2018. 

The association confirmed at a special member briefing on Friday (27 April 2018) the discussions had been underway since "October or November" last year. 

Medicines Australia was involved in "general discussions". However, companies were engaged in related product-specific negotiations. 

The intersection between industry-wide discussions and product-specific negotiations created conflicts of interest for some of the association's leadership. The evidence suggests individual directors have taken different approaches to disclosing these potential conflicts.

This issue has also raised questions about the approach taken by the government.

PharmaDispatch has written a series of articles on this matter over the past two weeks. The accuracy of the information disclosed in those articles remains publicly unchallenged. 

In a memo issued late Friday (27 April 2018), the Medicines Australia Board of directors said, "The Board assures members that matters of conflict of interest were managed in accordance with the Policy, and continue to be managed appropriately and transparently as required."

Given this assertion, the substance of legal advice, events at Friday's member briefing and the serious implications, the association's directors can only have used the findings of a formal review to satisfy themselves the content was accurate before it was sent. 

This article restates much of the information already disclosed in seeking to create a fact-based chronology of events. It also provides some new information and background on Friday's memo.

The background

According to a memo issued to member companies on 20 April 2018, just over one week ago, "...MA was invited to discuss this issue late last year when the Secretaries for Health and Finance proposed to MA to eliminate the rebates from the supply chain."

Under the proposed change, the government would directly remunerate the different components of the supply chain - manufacturer, wholesaler and pharmacy - with the gradual elimination of rebates paid under special pricing arrangements.

The current arrangements involve companies repaying the government the difference between a higher published PBS price and the lower cost-effective price. Eliminating these rebates would reduce the government's upfront spending on the PBS.

The government imposed confidentiality agreements on Medicines Australia, and other participants in the discussions, including the Pharmacy Guild and the National Pharmaceutical Services Association, preventing them from engaging more broadly on the issue. For the directors of Medicines Australia, that confidentiality agreement was complicated by their own recently imposed confidentiality agreement, meaning they were technically unable to communicate or seek advice from their staff on matters about the Board and its engagement with the government.

Legal advice has also hamstrung Medicines Australia. It means it cannot negotiate an outcome on behalf of member companies.

"It is challenging that the advice that MA has clearly received is that the Competition and Consumer Act significantly limits MA’s ability to negotiate as a collective on the operations of the supply chain," said the 20 April memo.

The industry-wide discussions have focused on implementing the change from 1 July 2018 via a potential 'pilot' involving a small number of medicines. That pilot has been delayed until 1 July 2019.

The government initiated negotiations with individual companies, in parallel with industry-wide discussions, to secure candidates for the pilot.

These negotiations involved companies with already listed medicines, with the government pushing to alter existing special pricing arrangements to eliminate rebates, but also companies with a recommended but yet-to-be-listed medicine.

Most companies have been reluctant to participate in the pilot. Officials are understood to have told the companies a new listing was contingent on their agreement to be a potential candidate for the pilot or to accept the new arrangements when they are more widely adopted. Some companies accepted this requirement while others refused and, despite the claims of officials, their listing proceeded regardless. 

A conflict of interest

The government's approach to the discussions has had the impact, intentional or otherwise, of creating conflicts of interest for some of the Medicines Australia leadership, in the form of its Board of directors.

According to the memo issued late Friday (27 April), "Medicines Australia (MA) is a public company limited by guarantee which represents the interests of its members drawn from the research based pharmaceutical industry in Australia. All Board Directors of MA abide by the obligations and responsibilities required by the Corporations Act and good governance requirements. This includes management of all instances of real or perceived conflicts of interest that may involve Directors or senior officers."

This statement can be considered in the context of recent events.

The duty for disclosing any conflict resides with an individual director. Under the Corporations Act 2001, a disclosure is required when a director becomes aware a conflict may exist.

It is understood that in late 2017 one Medicines Australia director excluded themselves from involvement in the association's discussions with the government on the supply chain change when their company was approached to be part of the pilot. They excluded themselves because of the potential conflict between their company's commercial interest and the wider policy interest of the industry. This disclosure was pro-active and made when the director became aware of a potential conflict, real or perceived, consistent with the requirements. Another director is understood to have recently made a similar pro-active disclosure while another may have adopted a different approach.

The listing of GIOTRIF

Boehringer Ingelheim's GIOTRIF (afatinib) will be listed on the PBS tomorrow with a special pricing arrangement despite not meeting the criteria.

There is a one-page policy document that sets out the criteria under which a medicine can qualify for a special pricing arrangement. The Department of Health recently confirmed that the criteria have not changed.

It is understood that since it was recommended in 2013, Boehringer Ingelheim has consistently lobbied the Department of Health and successive health ministers for an exception to secure the listing of GIOTRIF with a special pricing arrangement.

It does not meet the criteria, a fact confirmed by the PBAC in 2015, and the company's efforts were consistently rejected, until now, just months before the 2013 PBAC recommendation expired. Why? Why would the government agree to make an exception now? Why would they agree to an exception without requiring the company to go back to the PBAC? Why would they agree given one of the competitors is already off-patent and the other is about to lose exclusivity?

The government agreed to list GIOTRIF with the special pricing arrangement in return for the company's agreement it would be a potential candidate for the supply chain pilot. Any other reason remains unclear.

The timing

The negotiation of the GIOTRIF listing, linked to the policy outcome discussed in parallel with Medicines Australia, began before or around the time the association's membership was informed (23 January 2018) it had been in discussions with the government over the supply chain pilot. 

This critical point has not yet been publicly challenged, despite several invitations and a requested interview, but it goes to the heart of the association's governance, questions of conflicts, and the government's motive for agreeing to list GIOTRIF with a special pricing arrangement.

The memo issued Friday said, "The Board assures members that matters of conflict of interest were managed in accordance with the Policy, and continue to be managed appropriately and transparently as required."

A Clayton Utz lawyer blocked Boehringer Ingelheim managing director and Medicines Australia chair Wes Cook from fully detailing his version of events at Friday's special member briefing. This block, based on the competition law advice that has so hampered the association in its approach to the issue, means the directors could not have endorsed the memo based on a detailed version of events from Mr Cook. You have to assume the directors followed a process, such as a formal or independent review, to satisfy themselves the content of the memo was accurate before it was sent.

In light of the legal block, and the fact directors of other companies have been found in breach of their duties for failing to prevent the release of incorrect statements, how could the memo include the statements about conflicts of interest without such a process?

Medicines Australia has declined to answer questions on the process leading to Friday's memo. However, given the serious legal implications, it must be reasonable to assume the directors undertook a formal review or engaged an independent investigator to satisfy themselves the content of the memo was accurate. 

The extent to which the government may have been aware of a potential conflict of interest remains unclear. Its decision to engage in parallel product-specific negotiations with companies, while also engaged in industry-level discussions, was always going to create conflicts. Was it conscious of these conflicts?

The GIOTRIF listing was at the very least well advanced and potentially even finalised by the time company managing directors met over dinner in Sydney on 20 February. The accounts of that dinner vary, but it is agreed several managing directors voiced concern over the proposed supply chain changes and the approach adopted by Medicines Australia. The association's leadership, led by Mr Cook, are understood to have encouraged managing directors that industry should back the changes in support of health minister Greg Hunt. 

Had the industry's leadership disclosed conflicts of interest before that dinner? The events of the next day are revealing.

The association's Board met on 21 February. Importantly, it is understood there was disagreement over the representation of comments made at the managing directors' dinner. Some directors challenged the claim the managing directors were widely supportive of the approach taken by Medicines Australia. At that point, the directors were asked to disclose any conflicts of interest. GIOTRIF was not explicitly mentioned but Mr Cook did disclose a 'potential future conflict'.

The obligation to disclose a conflict ultimately sits with an individual director. The disclosure is required at the time they become aware of a potential conflict. Other directors can intervene and seek a declaration of any conflict, and this appears to have happened at the Board meeting on 21 February. 

As a result of the disclosures, a new two-member team was appointed to lead the association's discussions with the government over the supply chain changes. 

The two-member team, which remains in place, is comprised of Pfizer's Melissa McGregor and Novo Nordisk's Michala Fischer-Hansen.

Yet the governance of the disclosed conflicts remains very unclear because the government has maintained its 'parallel' approach to discussions with industry and negotiations with individual companies. 

What happened in March?

Health minister Greg Hunt hosted a delegation of company representatives at his parliament house office on 19 March.

Mr Hunt told the delegation their support for the supply chain change and participation in the pilot would enable the government to provide more funding for the PBS.

A series of discussions took place in the days following that meeting, involving company managing directors that did not attend and a Medicines Australia director (Mr Cook) with a declared conflict who was not a member of the association's two-member team.

In those discussions, it is understood Mr Cook spoke in support of the supply chain change, encouraging the managing directors to back industry support for the pilot. Mr Cook, who had disclosed a potential conflict but only to the other directors, and been formally excluded from participation in the industry-wide discussions, strangely did not disclose his conflict to these managing directors.