Fraud and Abuse Implications of Physician-Research Arrangements

By John W. Jones, Esq.

Many research-based pharmaceutical and biotechnology companies discover, develop and manufacture new medicines that help patients live healthier lives.  Critical to the development of new drugs and therapies is clinical research.  Manufacturers often contract with physician-purchasers of their products to engage in such research activities.

Principles governing the conduct of clinical research are set forth in the Declaration of Helsinki and the Guideline for Good Clinical Practice of the International Conference on Harmonization.  These standards have been translated and adopted into laws and regulations and enforced by federal agencies such as the U.S. Food and Drug Administration.  Institutional Review Boards and Ethics Committees also work to ensure the safe and appropriate conduct of clinical research.  Physician-researchers and manufacturers not only need to be mindful of these standards but also the fraud and abuse implications that such research arrangements present.

Importantly, physicians should be selected based on qualifications and expertise in a specific field and their ability to conduct research in accordance with applicable laws and guidelines not because they are in a position to recommend, order or prescribe the manufacturer’s products.  Selecting a physician to conduct research because the physician is in a position to order the manufacturer’s products and paying the physician for this purpose would be contrary to the federal Anti-Kickback Statute.

Anti-Kickback Statute

The federal Anti-Kickback Statute proscribes the offering, payment, solicitation or receipt of any remuneration in exchange for a patient referral or referral of other business for which payment may be made by a Federal health care program, including Medicare and Medicaid.  Violations of the Anti-Kickback Statute can result in significant criminal penalties, civil penalties of up to $50,000 for each violation, as well as imprisonment.

The primary concern for physician-research arrangements with pharmaceutical manufacturers under the Anti-Kickback Statute is whether the compensation paid to the physician-researcher constitutes disguised remuneration for referrals.

The Office of Inspector General (OIG) has historically taken the position that fees for hollow consulting services could result in a violation of the Anti-Kickback Statute. The argument is that the transfer of anything of more than nominal value to a physician may induce the physician to recommend to his patients the purchasing or ordering of federal health care program-reimbursed items or services.  Accordingly, the parties must ensure that any payment by the manufacturer to the physician-research must be for legitimate research services and not simply payment to induce the referral of business.

Since physicians are in a position to generate business for manufacturers, any value transferred by a manufacturer to physicians with the expectation of a recommendation from such physician to such patients could present significant risk to the parties. Given the severity of the criminal and civil sanctions under the federal Anti-Kickback Statute, physicians need to carefully structure these research arrangement and ensure that any such arrangements comply with applicable safe harbor regulations.

Personal Services Safe Harbor

For purposes of the federal Anti-Kickback Statute, under the personal services and management contracts safe harbor, remuneration would not include any payment made by a manufacturer to a physician as compensation for the research services of the physician, provided all of the following requirements are satisfied:

• The research agreement is set out in writing, signed by the parties and is for a term of not less than one year.
• The research agreement covers all of the services to be provided by the physician-researcher for the manufacturer for the term of the agreement and specifies the research and clinical trial services to be rendered.
• If the research agreement is intended to provide for services on a periodic, sporadic or part-time basis, rather than on a full-time basis, then the agreement specifies exactly the schedule of such intervals, their precise length, and the exact charge for such intervals.
• The aggregate compensation paid to the physician-researcher over the term of the research agreement is set in advance, consistent with fair market value in arms-length transactions and not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under federal health care programs.
• The research and clinical trial services performed under the research agreement must not involve the promotion or counseling of an activity or business arrangement that violates any state or federal law.
• The aggregate services under the research agreement must not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services.

Additionally, manufacturers should have separate research and development (R&D) and marketing divisions.  Physicians engaged by manufacturers for research should negotiate such arrangements with the manufacturer’s R&D division not marketing division and manufacturers should have a set contracting process and procedure for awarding such research contracts.  Further, OIG has pointed out that physicians and manufacturers need to be especially mindful of post-marketing research activities engaged in by physician-researchers on the manufacturer’s behalf.  Specifically, the parties need to ensure that such activities are legitimate services being provided by the physician-research and not simply a pretext to generate prescriptions for the manufacturer’s new product.  Such post-marketing research activities should also be structured to fit within the personal services and management contracts safe harbor.  To the extent that a physician-researcher markets a manufacturer’s products pursuant to an otherwise illegal arrangement and submits claims for reimbursement to the federal government for such products, the physician could be subject to sanction under the False Claims Act.

False Claims Act

The False Claims Act prohibits a physician from submitting or causing to submit a false or fraudulent claim for payment to the government. The False Claims Act could be implicated when claims for payment are submitted based on a false certification that the physician submitting the claim has complied with all applicable laws and regulations. Where claims are submitted pursuant to an otherwise illegal arrangement (for example, an arrangement that violates the federal Anti-Kickback Statute), it would be considered a false claim. Sanctions for violating the False Claims Act include treble damages, fines and administrative penalties.

Finally, manufacturers often fund a physician-purchaser’s own research.  Although many such research activities provide valuable scientific information for the treatment of patients, the parties need to ensure that the research funds are not tied to the recommending, ordering or prescribing of products by the physician.

John W. Jones, Esq., is a partner in the Health Care Services Group at Pepper Hamilton LLP in Philadelphia, Pa. For contact information, go to www.pepperlaw.com.