Medical Economics: New Highs for a Historic Brand

Posted under Advanstar, Advertising, Blog, Companies, Diagnostics, E-Media, Funding, healthcare, life sciences, Marketing, Medical Devices, Medical Economics, Medical Education, Medical Supply, MM&M, Pharmaceuticals, primary care physicians, Startups, Strategy, Universities, Videos by William Looney

Following the premise that good news needs to be shared, Pharm Exec is proud to announce that one of our sister Advanstar publications, Medical Economics, has been selected as Media Brand of the Year by Medical Marketing and Media (MM&M) magazine. The fact that MM&M is one of Pharm Exec’s lead competitors in the life sciences editorial space should not impair its non-partisan good judgment—after all, it could be said that the stressed ranks of the B-to-B segment is trending toward one big publication anyway.

Medical Economics is a venerable play, with a publication record that dates back to 1923. Like many titles with a long track record, the magazine hit some bumps several years ago, but new leadership and a commitment to making one with the customer—175,000 reading primary care physicians—has put the grease back on the wheels. Ad revenues rose nearly 40 percent from 2010 to 2011, while the readership average per issue posted a 3.9 percent increase over roughly the same period, much higher than the average 1 percent score in this market segment. It’s a performance that lends credence to the principle that money follows quality.

How did this happen? The turnaround built heavily on a deep-dive effort to engage with the readership and understand what the magazine could do for it. Says Advanstar’s executive vice president Georgiann Decenzo, “We refocused on specific ways to deliver value to our audience of primary care physicians, a community challenged left and right by external forces that threaten its very existence. Information, analytics, and advice on coping with these challenges was defined as our editorial mission—every feature is bench-marked around a precise mission: to help these physicians stay in practice.”

With the magazine performing nicely in terms of ad revenue, the next step is a redesign and overhaul of Medical Economics’ online offerings, including a new website due for unveiling later in the spring.

The HCR Taxman Cometh

Posted under Advertising, Agency Insight, Blog, Companies, compliance, Corporate Responsibility, Diagnostics, Funding, Medical Devices, Medical Supply, Pharmaceuticals, Startups, Strategy, Universities, Videos by Guest Blogger

By Tom Norton

As the country struggles with the current economic malaise, and the pharmaceutical industry enters into yet another difficult quarter of “trying to make the numbers,” one matter that I doubt many Rx execs are thinking about today is the HCR Taxman.  That’s too bad.  They probably should.  That’s because he’s coming for the entire industry on September 30^th.

Now that I have your attention, what in the world am I talking about?  It’s a long story, but let’s just say that the HCR chit that the industry signed in Washington, D.C. during the summer of 2009 has come due, and it’s time to begin paying up.  If your company does more than $5 million a year in sales to various federal government entities, you should read on.

On August 22^nd, the IRS issued temporary rules on the matter that direct the following:

“Drug manufacturers that sell $5 million or more annually through the federal government’s Medicare Parts B and D, Medicaid, Veterans Affairs, the Department of Defense and TriCare programs, are required to make combined total fee payments of $2.5 billion by Sept. 30, 2011.”

The Obama Administration, in the push for HCR in 2008, understood that it needed to bring the Rx industry “into the fold.” The subsequent deal – $80 billion over 10 years – struck between the Administration and PhRMA required the Rx industry to “fill the donut hole in Part D,” offer up other payments to ameliorate the costs of Medicare Part B, and to “contribute” to various military health services. In exchange, the Administration would back off demands for additional HCR taxes on the Rx industry, going forward.  Clearly, the industry’s theory was that the Rx volume to be generated by 35 million newly covered HCR patients would more than offset the costs of the deal. But now, two years later, PhRMA is back in protective mode, as the same fee proposals have begun to resurface. So much for the Administration’s 2009 deal with industry.

Back to the impending September tax obligation. According to the preliminary rules the IRS released on August 22^nd, the aggregate fee amount due from the Rx industry for each year of the HCR funding is:

• $2.5 billion for fee year 2011;
• $2.8 billion for fee years 2012 and 2013;
• $3 billion for fee years 2014 through 2016;
• $4 billion for fee year 2017;
• $4.1 billion  for fee year 2018;
• $2.8 billion for fee year 2019 and thereafter.

The fees for each year will be allocated:

• Using a specified formula, among covered entities (i.e., manufacturers & importers) with aggregate branded prescription drug sales of over $5 million to specified government programs (Medicare Part B program, the Medicare Part D program, the Medicaid program, any program under which branded prescription drugs are procured by the Department of Veterans Affairs, any program under which branded prescription drugs are procured by the Department of Defense, and the TRICARE retail pharmacy program).

Provides that the annual fee for each covered entity is calculated by determining the ratio of:

• The covered entity’s branded prescription drug sales taken into account during the preceding calendar year to…
• The aggregate branded prescription drug sales taken into account for all covered entities during the same year, and applying this ratio to the applicable amount.

So what is the Rx industry’s tax liability?  Here’s a 2010 estimated look at how this lays out, courtesy of Foley-Hoag, LLC:

The table that follows illustrates the graduated structure of the fee for a (hypothetical) covered entity, “ Q Pharmaceuticals,” with $1 billion in total branded prescription branded drug sales in 2010 (under specified programs):

Statutory Scale: Total Branded Prescription Drug Sales	Applicable Sales	Percentage of Sales Taken into Account	Covered Entity’s Sales Taken into Account
Up to $5m	$5m	0%	$0
More than $5m up to $125 m	$120m	10%	$12m
More than $125m up to $225m	$100m	40%	$40m
More than $225m up to $400m	$175m	75%	$131m
More than $400m	$600m	100%	$600m
Total Sales Taken into Account			$783m

To calculate a covered entity’s share of the statutorily determined aggregate fee, the IRS would multiply the fee by the ratio of the covered entity’s total sales taken into account to the aggregate of all covered entities branded drug sales taken into account.

Determined Fee x	Q Pharmaceuticals Sales Taken into Account
	Aggregate Industry Sales Taken into Account

Under the above scenario, where Q Pharmaceuticals total sales taken into account is $783 million in 2010, and where the aggregate sales taken into account for all covered entities is $10 billion, Q Pharmaceuticals fee would be:

$2.5 billion x	$783 million	= $195.75 million
	$10 billion

If you’re an Rx firm doing an aggregate one billion dollars of business with the federal entities listed above, you’re on the hook for nearly $200 million by September 30, according to the IRS and the 2010 Foley-Hoag formula. This is a hypothetical, but the above formula is pretty straightforward.  You should be able to load in your federal sales numbers, as appropriate, and figure out where you will actually stand on September 30th.  It could be a very interesting number.

For brand managers who are sweating out sales every quarter, trying to make quota, the idea that the profitability of their product may be adversely impacted by this new HCR “fee” is no small matter. Will these fees have an impact on 2011 bottom line, year-end bonuses, for example? As HCR continues to roll out, keep an eye on the activities happening beneath the surface of the law. Rx industry CFOs and industry tax departments are well aware of this development, but I’m guessing that the September 30^th tax obligation might come as a surprise to many in the C-suite. I would be interested in your thoughts on this latest development in HCR.