Pharmaceutical group releases guidelines for its members

The guidelines were generated in response to recent fraud enforcement efforts.

The government has placed its health care fraud and abuse enforcement spotlight squarely on pharmaceutical companies. At issue is the companies’ sales and marketing practices and their relationship with institutional and individual providers, including those involved in clinical research.

In apparent response to this recent and ever more focused initiative, the executive committee of the Pharmaceutical Research and Manufacturers of America (PhRMA), the trade association for pharmaceutical and biotechnology companies, recently adopted a voluntary set of guidelines for its members entitled “Code on Interaction With Health care Professionals.”

The code

The code clearly reflects the release earlier this year by the American Medical Association of revised ethical guidelines for gifts to physicians from industry, as well as the expected release later this year by the Office of the Inspector General (OIG) for the Department of Health and Human Services of compliance guidance for the pharmaceutical industry and the increasingly significant discussion within the government of altering the average wholesale price methodology under which Medicare pays for drugs.

The code, which went into effect July 1, addresses pharmaceutical companies’ interactions with physicians and other health care professionals with respect to marketed products and related pre-launch activities. It says in part that “each member company is strongly encouraged to adopt procedures to assure adherence to this Code.”

In light of the current aggressive enforcement environment, pharmaceutical companies and providers large and small that have relationships with them would be well-advised to review their existing policies and procedures relating to sales and marketing practices to make certain they are consistent with these guidelines. The code, along with its delayed effective date, appears to reflect concerns by some pharmaceutical companies that if they unilaterally change their marketing practices, they will be at a competitive disadvantage to competitors who do not.

Increased enforcement

Perhaps the clearest example of the threat to both pharmaceutical companies and providers is the record-setting $875 million settlement late last year with TAP Pharmaceutical Products Inc. regarding its sales and marketing practices on one its drugs. A number of physicians who had relationships with TAP have been forced to plead guilty to a variety of criminal offenses in connection with the case, and there is danger that others will in the future. Significantly, the corporate integrity agreement that TAP entered into as part of the settlement includes future compliance provisions which, according to the government, establish for the first time governmental oversight of the sales and marketing practices of a pharmaceutical company.

Another strong indication of the government’s increased scrutiny of pharmaceutical companies and providers who have relationships with them is the 2002 work plan for the OIG, which sets out their plans for expanded investigations of drug companies’ marketing practices.

And the federal government is not the only potential enforcer. Recent litigation filed by consumer groups, private insurance companies and health plans against pharmaceutical companies makes this clear.

In this article, we first outline the salient features of the PhRMA code; next we summarize the key enforcement tools that prosecutors have at their disposal in their fight against health care fraud and abuse; last, we assess compliance measures that pharmaceutical companies can take to minimize risks.

What the code says

The theme of the code is set forth in its first section, Basis of Interactions. It states that relationships with health care professionals are intended to benefit patients and to enhance the practice of medicine. Interactions should be focused on informing health care professionals about products, providing scientific and educational information and supporting medical research and education.

The code covers six main areas: informational presentations, educational or professional meetings, consultants, speaker training meetings, scholarship and educational funds, and educational and health care practice-related items. A word of caution should be made at the outset; federal government officials have already said the code does not go “far enough” in addressing at least some issues of concern.

Informational presentations. In connection with informational presentations and discussions by industry representatives, drug companies can provide, consistent with the code, occasional meals (but not entertainment or recreational events), so long as they are “modest as judged by local standards” and “occur in a venue and manner conducive to informational communication and provide scientific or educational value.” Programs referred to as “dine and dash,” where takeout meals are offered to be eaten without a representative from the drug company present, are considered inappropriate by PhRMA.

Educational or professional meetings. Drug companies can provide financial support for continuing medical education or other third-party scientific and educational conferences or professional meetings. However, these conferences or meetings must be primarily focused on promoting objective scientific and educational activities, and “the main incentive for bringing attendees together must be to further their knowledge on the topics being presented.”

The code provides that financial support should not be provided to individual participants; rather, financial support could be provided to the sponsor of the conference, who in turn could use this financial support to reduce the overall registration fee for all participants. Further, when companies underwrite third-party medical conferences or meetings, the code provides that responsibility for, and control over, the selection of content, faculty, educational methods, materials and venue should belong to the organizers of the conferences or meetings, not the drug company.

Pharmaceutical companies should not pay for the costs of travel, lodging or other personal expenses of attendees at conferences. Companies can provide meals or receptions directly at such events if they comply with the sponsoring organization’s guidelines and are modest and conducive to discussion among faculty and attendees.

Consultants. Legitimate consulting or advisory arrangements are appropriate, but token consulting arrangements should not be used to justify payments to health care professionals, the code says. It notes the features of legitimate consulting arrangements as a written contract setting forth the specific duties to be performed; retention of professionals based on their expertise, not as a reward or inducement for their ordering patterns; demonstration of a legitimate need for the services; and the retention of no more consultants than are needed for the specific program.

It is not appropriate to pay honoraria, travel or lodging expenses to nonfaculty and nonconsultant attendees at company-sponsored meetings, “including attendees who participate in interactive sessions.” Further, it is not appropriate to pay for the costs of a spouse of a consultant.

Educational and health care practice-related items. The code provides that items primarily for the benefit of patients may be offered to physicians and other health care professionals, as long as they are not of substantial value (ie, $100 or less). As an example, the code says that an anatomical model for use in an exam room entails a benefit to patients; however, a VCR or CD player does not. Items of minimal value, such as pens and notepads, are appropriate because they are primarily associated with a health care professional’s practice. However, items such as sporting event tickets, golf balls or sports bags, which are intended for the personal benefit of health care professionals, are not appropriate.

Scholarships and educational funds. Scholarships and other educational funds to permit health care professionals-in-training to attend “carefully selected educational conferences” are appropriate if the academic or training institution, not the pharmaceutical company, is the one who selects the individuals who will receive the funds. The code defines “carefully selected educational conferences” as “the major educational, scientific or policy-making meetings of national, regional or specialty medical associations.”

Speaker training meetings. It is appropriate for health care professionals who take part in programs intended to recruit and train speakers for company-sponsored speaker events to receive reasonable compensation, as long as, among other things, “the participants receive extensive training on the company’s drug products and on compliance with Food and Drug Administration regulatory requirements for communications about such products.”

Relevant legal authorities

The PhRMA code is designed to address sales and marketing practices that implicate the government’s main enforcement weapons in its fight against health care fraud and abuse: the Federal Anti-Kickback Statute, the False Claims Act and the Prescription Drug Marketing Act.

Anti-Kickback Statute. The Anti-Kickback Statute prohibits the knowing or willful offer, solicitation, payment or receipt of anything of value (direct or indirect, overt or covert, in cash or in kind) that is intended to induce the referral of a patient for an item or service that is reimbursable by most federal programs, including Medicare, Medicaid, Tricare and programs covering veterans’ benefits. The OIG considers the Anti-Kickback Statute to have been been violated if one purpose of an arrangement is to induce referrals, notwithstanding the fact there may be other legitimate purposes for which the payment is made.

As a result, virtually any financial relationship between a health care provider and a referral source has potential anti-kickback implications. Although an arrangement is prohibited under the Anti-Kickback Statute only if there is an intent to induce referrals, the government could infer such intent from circumstantial evidence suggesting that one of the reasons for the business arrangement was to induce referrals.

The federal government has authority to enforce the law through criminal prosecution and, upon conviction, fines of up to $25,000 and imprisonment for up to 5 years. Further, a violation also serves as the basis for exclusion from the Medicare and Medicaid programs, as well as other federal programs. Finally, HHS also has the authority to impose an administrative penalty of up to $50,000 for each kickback violation.

Because of the breadth of the Anti-Kickback Statute, the OIG has published final rules, referred to as “safe harbors,” defining payment practices that would not be subject to civil sanction or criminal enforcement under the Anti-Kickback Statute. Significantly, the safe harbor regulations do not expand the scope of the federal statute. Thus, failure to comply with a safe harbor provision does not make the activity illegal. Rather, the safe harbors set forth specific payment practices that, if fully met, will assure the entities involved of not being prosecuted criminally or civilly for the arrangement under the Anti-Kickback Statute. Most relevant for purposes of analyzing marketing practices involving drug companies are the safe harbors for “discounts” and “personal services.”

In 1994 the OIG issued a Special Fraud Alert concerning prescription drug marketing practices that could potentially implicate the anti-kickback law. The alert stated that payments to physicians or pharmacists to recommend the use of a particular pharmaceutical product may pose a danger to beneficiaries by interfering with professionals’ judgment of what is the most appropriate treatment for a patient. Moreover, such programs may increase the government’s costs.

The OIG cited the following conduct as problematic: payments by drug companies to pharmacies for switching patients from one brand to another; crediting physicians frequent flier miles whenever they fill out questionnaires for a new patient placed on the drug company’s product; and making substantial payments to physicians for minimal recordkeeping tasks.

False Claims Act. The Federal Civil False Claims Act (FCA) is a powerful weapon used frequently by the government against individuals and entities submitting false claims to the federal government. The FCA makes it a violation of federal law for any person to knowingly file false claims for payment to any federal program, including Medicare and Medicaid. Although pharmaceutical companies do not submit claims to the government for reimbursement, liability can still be incurred because the FCA is also violated when a person causes a false claim to be filed.

Although pharmaceutical companies do not submit claims to the government for reimbursement, note that they do submit certain pricing data to the government. Thus, to the extent that such data is false, the company could be subject to FCA exposure. Also, the statute refers to liability for “causing” a false claim to be filed, even if it is filed by a separate entity.

Further, the government has taken the position that a violation of the anti-kickback statute renders false and fraudulent all claims submitted during the existence of the illegal arrangement.

The “knowingly” standard is met if the person or entity that submits the claim, or causes the claim to be submitted, has actual knowledge of the falsity of the information, acts in deliberate ignorance of the truth or falsity of the information or acts in reckless disregard of the truth or falsity of the information submitted to the government. No “specific intent” to defraud is required.

A violation of the FCA is punishable by damages in the amount of three times the actual loss, as well as a penalty of up to over $10,000 per claim or other false record created or submitted in support of the service.

Prescription Drug Marketing Act. The Prescription Drug Marketing Act provides for criminal penalties for anyone who sells, purchases or trades, or offers to sell, purchase or trade any drug sample. TAP paid $290 million to the government to settle allegations that it violated the PDMA. One of the central allegations in that case, and the related criminal actions brought against doctors, was that TAP provided free samples of a drug to doctors, knowing that these doctors would fraudulently bill insurers such as Medicare for the prescriptions.

Implications for pharmaceutical companies

Pharmaceutical companies and those who have relationships with them should make certain that they adhere to these new guidelines. The PhRMA code underscores the sensitivity of contacts between pharmaceutical companies and physicians or other health care professionals who prescribe or are in a position to prescribe.

Similarly, physicians and other health care providers who order drugs from pharmaceutical companies should evaluate their practices for consistency with these guidelines, as well as with the AMA’s guidelines.

To that end, to the extent they have not done so already, drug companies and physician practices should develop and implement internal policies and procedures consistent with these guidelines, and strict compliance with these guidelines should be made a condition for employment or contracting with the company. Adherence to these policies and procedures should be monitored on a consistent basis, and appropriate disciplinary measures should be taken in instances of noncompliance.

Consistent with the code and the recent enforcement initiatives by the federal government, in evaluating relationships involving pharmaceutical companies and health care professionals, particular attention should be focused on the following risk areas: consulting arrangements; sponsorship of conferences; gifts, travel and entertainment; and samples.

For Your Information:

• Mark B. Langdon, JD, can be reached at Arent Fox Kintner Plotkin & Kahn, PLLC, 1050 Connecticut Ave. NW, Washington DC 20036; (202) 857-6026; fax: (202) 857-6395; e-mail: langdonm@arentfox.com.
• The Code can be found on the Internet at www.phrma.org/publications/2002-04-19.391.pdf.