Final Compliance Program Guidance
for Pharmaceutical Manufacturers

May 2003

Recently, the United States Department of Health and Human Services' Office of the Inspector General (OIG) finalized its Compliance Program Guidance for Pharmaceutical Manufacturers. The guidance is intended:

To assist companies that develop, manufacture, market, and sell pharmaceutical drugs … in developing and implementing internal controls and procedures that promote adherence to applicable statutes, regulations, and requirements of the federal health care programs [footnote omitted] and in evaluating and, as necessary, refining existing compliance programs.

This bulletin focuses only on those areas where the final guidance is different from the draft, which was issued last year, either in emphasis or in substance, and which could affect a drug company's future marketing activities, particularly as they may implicate the anti-kickback statute. We will not review: (1) those references in the final document that are the same as the draft, (2) the OIG discussions concerning integrity of data used by state and federal governments to establish payment, or (3) the OIG comments on drug samples. We will also not discuss here the anti-kickback statute itself or the regulatory safe harbors.

Compliance with the PhRMA Code

• The OIG changed its position slightly as it relates to a pharmaceutical company's compliance with the Pharmaceutical Research and Manufacturers of America's Code concerning interactions with healthcare professionals. In the final guidance, the OIG now states:

Although compliance with the PhRMA Code will not protect a manufacturer as a matter of law under the anti-kickback statute, it will substantially reduce the risk of fraud and abuse and help demonstrate a good faith effort to comply with the applicable federal health care program requirements.

The draft guidance had previously stated that the PhRMA Code was merely "a good starting point for compliance purposes" and were "minimum standards."

Educational and Research Grants

• Manufacturers should separate their educational and research funding activities, such as the issuance of grants, from sales and marketing activities.
  
  
• The OIG recognizes that educational funding can offer valuable information to the medical and healthcare industry. However, manufacturer grants to purchasers, such as group purchasing organizations (GPOs) and pharmacy benefit managers (PBMs), raise concerns under the anti-kickback statute. Therefore, companies "should establish objective criteria for making grants that do not take into account the volume or value of purchases made by, or anticipated from, the grant recipient and that serve to ensure that the funded activities are bona fide."
  
  
• Contracts with physicians for research services may be "suspect," particularly if they are offered in connection with sales contracts. Similarly, research contracts that originate from a drug company's marketing and sales department will likely raise regulatory scrutiny.
  
  
• Companies should ensure that postmarketing research activities are legitimate and "not simply a pretext to generate prescriptions of a drug." The OIG cautioned that educational programs for physicians should not be used "to channel improper remuneration to physicians or others in a position to generate business for the manufacturer or to influence or control the content of the program."

Consulting and Advisory Payments

• The OIG is less likely to be concerned with payments to a small number of physicians at fair market value for bona fide consulting and advisory services. However, a drug company should not compensate the physician as a "consultant" for merely attending a meeting or conference if the physician is not an active participant.
  
  
• The OIG stated:

  Also of concern are compensation relationships with physicians for services connected directly or indirectly to a manufacturer's marketing and sales activities, such as speaking, certain research, or preceptor or "shadowing" services. While these arrangements are potentially beneficial, they also pose a risk of fraud and abuse. In particular, the use of health care professionals for marketing purposes - including, for example, ghost-written papers or speeches - implicates the anti-kickback statute. While full disclosure by physicians of any potential conflicts of interest and of industry sponsorship or affiliation may reduce the risk of abuse, disclosure does not eliminate the risk.

  At a minimum, manufacturers should periodically review arrangements for physicians' services to ensure that: (i) the arrangement is set out in writing; (ii) there is a legitimate need for the services; (iii) the services are provided; (iv) the compensation is at fair market value; and (v) all of the preceding facts are documented prior to payment. In addition, to further reduce their risk, manufacturers should structure services arrangements to comply with a safe harbor whenever possible.

• Manufacturers should not compensate physicians for listening to sales representatives detail products. According to the OIG:

  In some cases, these payments are characterized as 'consulting' fees and may require physicians to complete minimal paperwork. Other companies pay physicians for time spent accessing web sites to view or listen to marketing information or perform 'research.' All of these activities are highly suspect under the anti-kickback statute, are highly susceptible to fraud and abuse, and should be strongly discouraged.

Arrangements with Referral Sources

• Arrangements with potential referral sources are not per se illegal. The OIG recommends that manufacturers apply a two-prong test when evaluating whether a particular marketing activity presents a potential fraud and abuse issue:

  (1) identify any remunerative relationship between itself (or its representatives) and persons or entities in a position to generate federal health care business for the manufacturer directly or indirectly; and

  (2) determine whether any one purpose of the remuneration may be to induce or reward the referral or recommendation of business payable in whole or in part by a federal health care program.

The manufacturer should ask itself the following questions when assessing a specific arrangement:

• Does the arrangement or practice have a potential to interfere with, or skew, clinical decision-making? Does it have a potential to undermine the clinical integrity of a formulary process? If the arrangement or practice involves providing information to decision-makers, prescribers, or patients, is the information complete, accurate, and not misleading?
  
  
• Does the arrangement or practice have a potential to increase costs to the federal health care programs, beneficiaries, or enrollees? Does the arrangement or practice have the potential to be a disguised discount to circumvent the Medicaid Rebate Program Best Price calculation?
  
  
• Does the arrangement or practice have a potential to increase the risk of overutilization or inappropriate utilization?
  
  
• Does the arrangement or practice raise patient safety or quality of care concerns?

Formularies

• The development of a formulary should not raise an anti-kickback problem. However, a drug company must be careful about:
  
  
  • improper influence over formulary committee deliberations;
    
    
  • rebates or other payments by drug manufacturers to PBMs that are based on, or otherwise related to, the PBM's customers' purchases; and
    
    
  • lump sum payments for inclusion in a formulary or for exclusive or restricted formulary status.

Switching

• The OIG remains concerned about the use of incentives to encourage the switching of one product for another where the drug is reimbursable by federal health care programs. However, unlike in the draft Guidance, the OIG does not discuss discounts or rebates, based on movement of market share, in connection with switching in the final document.

Relationship With Sales Agents

• Manufacturers should carefully review their compensation arrangements with sales agents (e.g., employees or independent contractors). Many arrangements can be structured to fit in the employment or personal services safe harbor. However, if the arrangement cannot fit into a safe harbor, the company should review:
  
  
  • the amount of compensation;
    
    
  • the identity of the sales agent engaged in the marketing or promotional activity (e.g., whether the agent is a "white coat" marketer or otherwise in a position of exceptional influence);
    
    
  • the sales agent's relationship with the audience;
    
    
  • the nature of the marketing or promotional activity;
    
    
  • the item or service being promoted or marketed; and
    
    
  • the composition of the target audience.
    
    
• Even if a compensation arrangement with a sales agent fits in a safe harbor, a company must be careful about improper intent to influence business. The OIG cited, as an example, if a manufacturer provides sales employees with extraordinary incentive bonuses and expense accounts, "there may well be an inference to be drawn that the manufacturer intentionally motivated the sales force to induce sales through lavish entertainment or other remuneration."

Compliance Program

• The drug manufacturer should not subordinate the Compliance Officer to the company's General Counsel, the Comptroller, or similar financial officer.
  
  
• The manufacturer should notify third-party agents or contractors about the company's policies concerning interactions with healthcare professionals.
  
  
• If a manufacturer offers discounts, it should educate sales and marketing personnel about the applicable safe harbors to the anti-kickback statute.
  
  
• The company should require a minimum number of compliance-educational hours per year. However, the final guidance does not offer any specific recommendations as to the number of training hours to be provided.
  
  
• The OIG recommends that a manufacturer "promptly report the existence of misconduct to the appropriate federal and state authorities within a reasonable period, but not more than 60 days, after determining that there is credible evidence of a violation."

For more information, please contact Alan G. Minsk, 404.873.8690, alan.minsk@agg.com.

Members of the Life Sciences Practice Group:

	Phone	E-mail
Jason E. Bring	404.873.8162	jason.bring@agg.com
Jennifer R. Downs	404.873.8194	jennifer.downs@agg.com
Thomas O. Duvall, Jr.	404.873.8600	tom.duvall@agg.com
Tracy M. Field	404.873.8648	tracy.field@agg.com
Richard E. Gardner	404.873.8148	richard.gardner@agg.com
Glenn P. Hendrix	404.873.8692	glenn.hendrix@agg.com
David L. Hoffman	404.873.8740	david.hoffman@agg.com
William H. Kitchens	404.873.8644	william.kitchens@agg.com
Keith A. Mauriello	404.873.8732	keith.mauriello@agg.com
Alan G. Minsk	404.873.8690	alan.minsk@agg.com
Marc L. Peterzell	404.873.8662	marc.peterzell@agg.com
Hedy S. Rubinger	404.873.8724	hedy.rubinger@agg.com

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This bulletin was prepared by the law firm of Arnall Golden Gregory LLP. It presents information on legal matters of general interest in summary form. This document should not be construed as legal advice or opinion on specific matters.

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