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Health Law & Life Sciences
Alert - October 8, 2002
 
OIG Releases Compliance Guidance for Pharmaceutical Manufacturers
 
 October 8, 2002
 
Michael R. Manthei- Boston

On September 30, 2002, the Department of Health and Human Services Office of Inspector General (OIG) released a compliance guidance for companies that develop, manufacture, market and sell pharmaceutical drugs or biological products (pharmaceutical manufacturers). The guidance offers specific advice for pharmaceutical manufacturers who are implementing or reviewing a compliance plan, and discusses three major risk areas for the manufacturers: (1) ensuring the integrity of data that is used for government reimbursement purposes, (2) avoiding kickbacks and other illegal remuneration, and (3) complying with laws regulating drug samples.

Although the OIG admitted that compliance measures will vary based on a manufacturer's organizational structure, operations, resources, and prior enforcement experience, it recommended that every effective compliance program begin with a formal commitment by the pharmaceutical manufacturer's governing body. The OIG also noted that, "at a minimum, a comprehensive compliance program should include:"

  • written standards of conduct and written policies and procedures
  • a designated compliance officer and a corporate compliance committee
  • effective and documented education and training programs for all affected employees, officers, directors, contractors and agents
  • an effective line of communication between the compliance officer and employees, including hotlines, newsletters, suggestion boxes, open door policies and non-retaliation policies
  • compliance audits or other risk evaluation techniques
  • specific disciplinary policies and procedures related to the consequences of violating the law or the entity's code of conduct or policies
  • policies and procedures addressing the investigations of, and corrective actions for, noncompliance, misconduct or detected offenses

With regard to the three identified risk areas, the guidance noted that price and sales data furnished to federal and state health care programs by pharmaceutical manufacturers must be accurate because it is used to establish reimbursement rates. The OIG warned that false, fraudulent, or misleading submissions could be actionable under the False Claims Act or the federal Antikickback Statute, and that such submissions could trigger civil monetary penalties. Manufacturers were encouraged to "retain all relevant records reflecting reported prices and efforts to comply with the Federal health care program requirements." This is a clear reference to recent federal investigations of alleged manipulation by manufacturers of “average wholesale prices.”

In addressing kickbacks and other illegal remuneration, the OIG noted that "[p]harmaceutical manufacturers, as well as their employees and agents, should be aware of the Federal Antikickback Statute and the constraints it places on the marketing and promotion of products reimbursable by the Federal health care programs." The Guidance warns that manufacturers should structure their arrangements to meet the federal Antikickback Statute safe harbors. Alternatively, manufacturers should seek guidance on particular arrangements through the OIG advisory opinion process.

The Guidance identifies the antikickback risks related to manufacturer-purchaser relationships as stemming from discounts, price concessions and manipulations of the average wholesale price (AWP). Specifically, the guidance noted that the Antikickback statute is implicated if:

  • price concessions are offered to customers to induce the customers to purchase products, and the products are reimbursable by any of the federal health care programs
  • price concessions or other benefits are offered to induce wholesalers to recommend products, and the products are purchased by customers who submit claims to the federal health care programs
  • incentive payments are offered to GPOs, PBMs, or other entities in a position to influence the purchase of the manufacturer's products
  • the terms of the sale or price concessions do not squarely fit into the discount safe harbor found at 42 C.F.R. § 1001.952(h)
  • the manufacturer offers services in connection with the sale of its products (such as billing assistance or reimbursement consultation), and the services are only offered to a select group and not made available to all customers, or the services eliminate an expense to the purchaser, or
  • the manufacturer manipulates the AWP to increase its customer's profits by increasing the amount the federal health care programs reimburse its customers

Relationships with physicians and other health care professionals who order or prescribe pharmaceutical products are also subject to the Antikickback Statute and should be examined carefully. Product conversion arrangements and payments for physician consultants or advisors can result in problems for manufacturers. Product conversion arrangements (or "switching" arrangements) occur when manufacturers offer pharmacies, PBMs, physicians, or other prescribers cash payments or other benefits when a patient's prescription is changed from a competing product to the manufacturer's product. These relationships implicate the antikickback statute when the "switching" payment is connected to a product that is reimbursable by a federal health care program or when the payments occur after contact with a patient or a physician.

The risks associated with engaging physicians to perform consulting services or to fill advisory positions emerge when the arrangements result in payments for referrals. To avoid the appearance of token arrangements or arrangements created to disguise otherwise improper payments, the payments should be set at fair market value (FMV) for the services rendered and the actual performance of services and FMV calculations should be documented. Moreover, if the pharmaceutical company offers gifts, gratuities, entertainment, travel, meals, sponsorships for educational conferences, grants, or other business courtesies, it should adhere to the benchmarks set forth in the "Code on Interactions with Healthcare Professionals" recently published by the Pharmaceutical Research and manufacturers of America (PhRMA) and found at: http://www.phrma.org

In a nod to industry attempts at self-policing, the Guidance states that the PhRMA Code is a good starting point for Antikickback compliance. It is, however, a “floor” according to the OIG. Therefore, arrangements not meeting the PhRMA Code will be subject to increased OIG or law enforcement scrutiny.

The liability risks related to employed or contracted sales agents revolve around improper marketing and promotional activities. The guidance recommended that manufacturers structure their relationships with their sales force to fit into a safe harbor, such as the safe harbor for personal services arrangements and employment found at 42 C.F.R. § 1001.952(d),(i). Other important steps include training the sales force, implementing corrective action procedures and disciplinary policies, and tracking and monitoring sales force activities.

Finally, with regard to the provision of drug samples, manufacturers can minimize their risk of liability by:
closely following the Prescription Drug Marketing Act of 1987 (PDMA)
training sales force members to clearly explain that samples may not be sold or billed
conspicuously labeling individual drug samples as units that may not be sold, and
including a notice with packaging documentation, shipping forms, and invoices that alerts the reader that the samples are subject to the PDMA and that they may not be sold

The OIG will accept written comments from interested parties for 60 days. Instructions for submitting comments and the entire guidance can be found at: http://www.oig.hhs.gov/fraud/docs/complianceguidance/draftcpgpharm09272002.pdf

For more information, contact Michael Manthei or Jacqueline Myles, toll free at 888-688-8500, or via e-mail at mimanthei@hklaw.com or jamyles@hklaw.com, respectively.

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