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Crackdown on Rx industry affects physicians

By William H. Maruca, Esq

Lavish meals. Free vacations. “Consulting fees” for attending sales presentations. Expensive tickets to sporting and entertainment events. These and other traditional pharmaceutical company giveaways are under attack by the Federal government on multiple fronts. In this rapidly changing legal environment, physicians need to know what items they can safely, ethically and legally accept from drug companies.

The first headline-grabber was the record-breaking $875,000,000 settlement with TAP Pharmaceuticals which came after a six-year investigation into questionable practices by the maker of the prostate cancer drug Lupron. Misconduct alleged in this case included manipulation and fraudulent reporting by TAP of the average wholesale price (AWP) for its products, provision of improper incentives to physicians, and provision of free samples of Lupron to physicians with the expectation that they would be sold. A number of physicians who participated in these arrangements have been prosecuted as well.

Partially in reaction to the TAP case, the Pharmaceutical Research and Manufacturers of America (PhRMA) developed and published a code of conduct relating to interactions with health care professionals, which sharply reduces the range of acceptable behavior for pharmaceutical manufacturer members. The Code can be found on PhRMA’s website, www.phrma.org. The Code is based on the principle that a health care professional’s care of patients should be based, and should be perceived as being based, solely on each patient’s medical needs and the health care professional’s medical knowledge and experience. The interaction should be focused on informing health care professionals about the benefits and risks of the manufacturers’ products, providing scientific and educational informational, supporting medical research and education, and obtaining feedback and advice about products through consultation with medical experts.

The PhRMA Code provides the following, in part.

Pharmaceutical companies may provide occasional meals, but no entertainment or recreational events, in connection with presentations or discussions which provide valuable scientific and educational benefits so long as they are modest as judged by local standards and occur in a venue and manner conducive to informational communication. Inclusion of a health care professional’s spouse or guest is not appropriate. Offering meals to be eaten without a company representative being present (often referred to as “dine and dash” programs) is not appropriate.

Items primarily for the benefit of patients may be offered to health care professionals if they are not of substantial value ($100 or less). For instance, an anatomical model for use in an examination room primarily involves a patient benefit, whereas, a VCR or CD player does not. Items of minimal value may be offered if they are primarily associated with the health care professional’s practice, such as pens, notepads, and similar “reminder” items with company or product logos.

It is appropriate for consultants who provide services to be offered reasonable compensation for those services and to be offered reimbursement for reasonable travel, lodging and meal expenses incurred as part of providing those services. Compensation and reimbursement that would be inappropriate in other contexts can be acceptable for bona fide consultants in connection with their consulting arrangements. Token consulting or advisory arrangements should not be used to justify compensating health care professionals for their time or their travel, lodging and other out-of-pocket expenses. Factors which PhRMA cites that will support the existence of a bona fide consulting arrangement include: the parties enter into a written contract that specifies the nature of the services to be provided and the basis for payment; a legitimate need for the services clearly identified in advance; the company has the expertise necessary to evaluate whether the particular health care professionals meet those criteria; the number of health care professionals retained is not greater than the number reasonably necessary to achieve the identified purpose; the company maintains appropriate records and makes appropriate use of the services provided by consultants; the venue and circumstances of any meeting with consultants are conducive to the consulting services, and any social or entertainment events are clearly subordinate in terms of time and emphasis.

The American Medical Association has also adopted Opinion 8.061, entitled “Gifts to Physicians From Industry,” and expanded on that opinion with an addendum updated in June 2002 relating to specific issues involving acceptance of gifts from pharmaceutical manufacturers and other health care industry representatives. The opinion is online at http://www.ama-assn.org/ama/pub/article/4001-4236.html, and the addendum appears at http://www.ama-assn.org/ama/pub/article/4001-4388.html. The AMA’s approach substantially mirrors the approach adopted by PhRMA.

The Inspector General Speaks

On October 3, 2002, HHS Inspector General Janet Rehnquist published Draft Compliance Program Guidance for Pharmaceutical Manufacturers in the Federal Register. The Guidance can be accessed at http://oig.hhs.gov/fraud/complianceguidance.html. This document follows the pattern established by the OIG in previous guidance documents for other segments of the health care industry, and sets forth the usual seven components of an effective compliance program. Notably, the OIG expressly adopts the PhRMA Code as a minimum set of standards to be followed by pharmaceutical manufacturers. The OIG notes that arrangements that fail to meet the minimum standards set out in the PhRMA Code are likely to receive increased scrutiny from government authority.

The day after the release of the compliance guidance, the OIG issued Advisory Opinion 02-13, which concluded that a proposed financial assistance program to be provided by a non-profit foundation established by a pharmaceutical company for financially disadvantaged individuals who use its products could constitute an illegal inducements to patients prohibited by the Civil Monetary Penalty law and illegal inducements to physicians prohibited under the anti-kickback law.

The opinion contrasted this program with unadvertised, non-routine waivers of co-payments based on a patient’s financial needs, which is generally permissible. Instead, the OIG determined that the proposed arrangement could give physicians an incentive to prescribe the manufacturer’s drug instead of its competitor’s since it would create a method under which the physician could get paid in full for the cost of the drug when treating financially needy patients.

Presumably, the physician would be more likely to prescribe the drug covered by this program than a competing drug where financial assistance was not available. Further, since the manufacturer controls the average wholesale price, the OIG suggested that the subsidy could be recouped by adopting price increases to cover the costs of the charitable donations to the foundation.

Know the Rules

How should physicians react to these developments? First, despite what you may have heard, your dealings with pharmaceutical companies will no longer be business as usual. The government will carefully scrutinize arrangements that have long been standard operating procedure in such relationships, such as sponsorship and subsidies of expensive meals, conferences, travel and expensive gifts, which do not benefit patients. Consulting arrangements, CME sponsorships and research payments will also be carefully scrutinized.

Although the enforcement focus has been on perceived rampant misconduct within the pharmaceutical industry itself, each questionable inducement involves at least one physician, who, under the anti-kickback law, would be equally subject to civil and criminal penalties. Do not assume that if a large pharmaceutical company is continuing to engage in behavioral deemed questionable by PhRMA, the AMA or the OIG, it must be all right. Physicians who have historically relied on various gifts and subsidizes from pharmaceutical companies to help defray certain operating costs continue to do so at their peril.

If you have any questions about the legitimacy of a gift, sponsorship arrangement, consulting arrangement, or other interaction with a drug company, you should contact your health care counsel before proceeding.

William H. Maruca, Esq., is a partner with the Pittsburgh office of Fox, Rothschild, O’Brien & Frankel, LLP, a regional firm with offices in Pennsylvania, New Jersey and Delaware.

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