California Marketing Compliance Law Mandates Comprehensive Compliance Programs for Pharmaceutical and Device Companies

Introduction

The California Marketing Compliance Law (CMCL) adds a new section to the California Health and Safety Code relating to prescription drug and medical device marketing practices. The CMCL requires pharmaceutical companies and medical device manufacturers to adopt Comprehensive Compliance Programs (CCPs) that meet the standards set forth in the compliance guidance for pharmaceutical companies published by the Department of Health and Human Services’ Office of Inspector General (OIG). These compliance programs must also contain provisions concerning their interactions with medical and health professionals, and adopt limits on gifts to such professionals. Finally, the CMCL requires covered companies to make certain compliance declarations publicly. See California Health and Safety Code §§ 119400-119402. The CMCL was proposed in 2004 on the theory that “by limiting marketing practices to exclude inappropriate marketing or promotional activities ... the bill will have the effect of lowering prescription drug costs and easing public concerns about conflicts of interest between doctors and drug company sales representatives.” SB 1765 Bill Analysis (April 12, 2004).

The CMCL becomes effective July 1, 2005. See California Health and Safety Code § 119402(f). Unfortunately, neither the California legislature nor state regulatory agencies have offered substantive guidance to assist the industry in interpretation and implementation. This memorandum analyzes the requirements of the law, identifies the responsibilities of the entities subject to the law, and discusses some implementation ambiguities.

Entities Subject to the CMCL

Pharmaceutical Companies

The CMCL applies to entities “engaged in the production, preparation, propagation, compounding, conversion, or processing of dangerous drugs, either directly or indirectly, by extraction from substances of natural origin or independently by means of chemical synthesis or by a combination of extraction and clinical synthesis.” See California Health and Safety Code § 119400(c). The law also states that “pharmaceutical company” also means “an entity engaged in the packaging, repackaging, labeling, re-labeling, or distribution of dangerous drugs,” as well as “a person who engages in pharmaceutical detailing, promotional activities, or other marketing of a dangerous drug in ... [California] on behalf of a pharmaceutical company.” Id. Given this definition, the law potentially also applies to wholesalers or third party sales agents for manufacturers. The law specifies that a licensed pharmacist is not included. Id.

Medical Device Companies

The CMCL apparently covers medical device companies because some devices fall within the definition of “dangerous drug.” A “dangerous drug” not only includes drugs that are “unsafe for self-use” and “Rx only,” but also “[a]ny drug or device that, pursuant to federal or state law, may be dispensed only by prescription, or that is furnished pursuant to Section 4006 of the Business and Professions Code” (emphasis added).¹ See California Health and Safety Code § 119400(a)(2). Indeed, there were efforts in the California Assembly to amend the CMCL to remove the reference to device manufacturers, but these efforts ultimately failed. See Cal. AB 1187 (2004).

Medical and Health Professionals

The CMCL also regulates interactions by drug and device companies with “medical or health professionals,” which are defined as persons licensed by state law to prescribe drugs for human patients, a medical student, or a drug formulary committee member. See California Health and Safety Code § 119400(b).

CMCL Requirements

Implement a Comprehensive Compliance Program

Drug and device manufacturers must adopt a Comprehensive Compliance Program that is “in accordance with” the Office of Inspector General’s 2003 Compliance Program Guidance for Pharmaceutical Manufacturers.² See California Health and Safety Code § 119402(a). The OIG’s Guidance specifically references only pharmaceutical companies, but the OIG has made it clear that this Guidance applies equally to device companies.

The CMCL offers little guidance (beyond referring to the OIG’s Guidance) regarding the contents of the CCPs. Based to a large degree on the guidance for compliance programs from the U.S. Sentencing Commission, the OIG’s Compliance Guidance outlines the seven basic elements that are fundamental to an effective compliance program:

1. Implementing written policies and procedures;
2. Designating a compliance officer and compliance committee;
3. Conducting training and education;
4. Developing effective lines of communication;
5. Conducting internal monitoring and auditing;
6. Enforcing standards through well-publicized disciplinary guidelines; and
7. Responding promptly to detected problems and undertaking corrective action.

CCP Must Include PhRMA Code Policies

The CMCL requires drug and device manufacturers to develop CCPs that include “policies for compliance with” the Code on Interactions with Health Care Professionals published by the Pharmaceutical Research and Manufacturers of America in July 2002 (the PhRMA Code).³ See California Health and Safety Code § 119400(b). And, manufacturers must monitor both the OIG’s and PhRMA’s guidance in order to keep their CCPs updated. Upon any changes to the OIG’s or PhRMA’s guidance, manufacturers have six months to bring their CCP into compliance with the changes. Id. at §§ 119402(a)-(b).

The above-referenced documents offer specific guidance for pharmaceutical companies but only general guidance for device companies. Device manufacturers should look to the Advanced Medical Technology Manufacturers Code on Interactions with Health Care Professionals (AdvaMed Code)⁴ and the Code of Ethics on Interactions with Health Care Providers adopted by the National Electrical Manufacturers Association (NEMA Code) ⁵ for additional guidance.

Implement Limit on Value of Gifts

The CMCL requires manufacturers to implement “a specific annual dollar limit on gifts, promotional materials, or items or activities” that the manufacturer may provide to medical or health care professionals, in accordance with the OIG Compliance Guidance and the PhRMA Code. See California Health and Safety Code § 119402(c)-(d). The CMCL, however, specifically excludes the following items/expenditures from the gift limits: drug samples, financial support for continuing medical education forums and health scholarships, and payments for “legitimate professional services” rendered by health and medical professionals, including, but not limited to consulting services, if the payments reflect fair market value. See California Health and Safety Code § 119402(d)(2)-(3).

Unfortunately, there has been no precise guidance regarding how gift-limit language should be interpreted, and this could lead to ambiguity. For instance, the PhRMA code suggests gifts primarily for the benefit of patients (e.g., stethoscopes or other instruments) be limited to a total of $100 or less per item as long as such items are provided on an “occasional basis.” See PhRMA Code, Chp. 7, p. 17. The Code, however, also allows for “reminder items” of minimal value (e.g., pens and notepads), Id., and for “occasional” meals during presentations, seemingly indicating that these expenses should not be calculated as part of the $100 cap. Id. at Chp 2, p. 7. Nevertheless, the CMCL indicates that all marketing expenses should be aggregated and capped under a certain amount. Individual manufacturers must determine a specific budget taking into account all such possible expenditures covered by the CMCL and allowed for under the PhRMA Code and OIG Compliance Guidance. Such factors to consider will include, but may not be limited to, (i) the number of products the manufacturer has on the market, the number of annual presentations made to the physician and health care professional community, including any associated meals with such presentations; (ii) the number of “reminder items” it provides for in California on an annual basis; (iii) the amount of promotion materials provided to health care professionals; and (iv) the amount it spends on individual items that benefit the patients such as an “anatomical model for use in an examination … .” See PhRMA Code, Chp.7, page 17. Regardless of such a budget established under the CMCL, all expenditures must be in compliance with the PhRMA Code and the OIG Compliance Guidance. See California Health and Safety Code § 119402(d)(1).

Annual Declarations and Web Site Availability of Compliance Program

The CMCL requires that manufacturers “annually declare” in writing that they are in compliance with their own CCP and with the CMCL. See California Health and Safety Code § 119402(e). There is no guidance from the state regarding precisely how to comply. So, literally, the CMCL requires manufacturers to publish their CCPs and their compliance declarations, both on their Web sites and by providing a toll-free number through which copies of these materials can be acquired. Id. The annual declaration itself must state that the company is in compliance with its CCP and CMCL. Id.

Enforcement

The CMCL does not provide for specific penalties for violation of its sections. And, teleconferences with the California Department of Health Services (CDHS), the California Pharmacy Board, and the California Attorney General’s Office confirmed that there is no codified enforcement provision for the CMCL, and that none of those agencies is charged with oversight. Nevertheless, the CMCL is California State law and must be followed.

There has been some suggestion that the Attorney General’s office may have authority to enforce the CMCL through California’s Unfair Competition Law, which covers marketing activities. These provisions can be found in the Business & Professionals Code §§ 17200-17500, which authorize civil enforcement actions and can result in civil penalties up to $2,500 per violation. Id. at § 17206.

¹ According to California state law, the following drugs or devices require a prescription: (1) a habit-forming drug; (2) a drug or device that, because of its toxicity or harmful effect, or the method of its use, is not safe except under the supervision of a licensed practitioner; (3) a drug or device for which adequate directions cannot be written for safe and effective self-medication for persons who are not licensed practitioners; and (4) a drug or device limited by an application approved by the FDA to use under the supervision of a licensed practitioner (i.e., a new drug or device). See Cal. Health & Safety Code § 111470.

² The OIG posted the final Compliance Program Guidance for Pharmaceutical Manufacturers on the Internet at: http://oig.hhs.gov/fraud/docs/complianceguidance/042803pharmacymfgnonfr.pdf; see also 68 Fed. Reg. 23,731 (May 5, 2003).

³ The PhRMA Code is available on the association’s Web site at: http://www.phrma.Org/publications/policy/2004-01-19.391.pdf.

⁴ The AdvaMed Code is found at: http://www.advamed.org/publicdocs/code_pf_ethics.pdf.

⁵ The NEMA Code is found at: http://www.nema.org/media/pr/upload/NEMA%20CodeofEthics.FAQ.adopted.pdf.