States Want Healthier Professional RelationshipsStates Want Healthier Professional Relationships

Within the past few years state legislatures have begun to target the marketing and promotional practices of medical device companies in an effort to promote more transparency in their relationships with prescribers. State laws that have historically restricted the promotional activities of pharmaceutical companies—such as prohibitions on gifts to practitioners and requirements for the disclosure of payments to healthcare professionals—now increasingly also focus on medical device manufacturers.

This expanded regulation is due in part to recent enforcement actions taken against medical device manufacturers by the United States Department of Health and Human Services Office of Inspector General (HHS OIG) for violations of fraud and abuse laws. These violations include kickbacks to physicians in the form of all-expense-paid trips, false consulting arrangements, and meals. Other factors have drawn the attention of state lawmakers, including the April 2009 Institute of Medicine report, “Conflict of Interest in Medical Research, Education, and Practice.” These and other signs have shown that certain interactions between healthcare professionals and industry may unduly influence prescribing patterns.

Four States

Currently, four states—California, Nevada, Massachusetts, and Vermont—have compliance laws regulating the activities of medical device companies. California and Nevada require device manufacturers to adopt as company policy otherwise voluntary industry guidelines such as HHS OIG Compliance Program Guidance. Massachusetts’ and Vermont’s laws, however, are significantly more burdensome. Massachusetts requires medical device companies to adopt and certify compliance with a state-authored code of conduct, and Vermont medical device companies must comply with a prohibition on providing items of value to Vermont healthcare practitioners that is more stringent than most companies’ own policies on this subject. In addition, Massachusetts and Vermont are the first jurisdictions to mandate that device manufacturers disclose to state agencies payments furnished to state-licensed healthcare practitioners. Of equal importance, authorities in both states must make reported information available to the public. 

Given the increase in public reporting and enforcement efforts, medical device manufacturers need to comply with these laws and pay close attention to the evolving legal landscape. States continue to advance legislation that might affect promotional practices, so manufacturers must continue to develop processes that allow for tracking and transparency. The following section examines the compliance laws affecting the device industry in each of the four states mentioned above.

California Compliance Program Law. California’s Compliance Program Law, enacted in 2004, is aimed at pharmaceutical manufacturers; however, certain terms and definitions used in the statute suggest that the law may be reasonably interpreted to extend to medical device manufacturers as well.¹ The California Compliance Program Law requires companies to adopt a Comprehensive Compliance Program (CCP) in accordance with April 2003 guidelines established by the HHS OIG that expressly includes policies for compliance with PhRMA’s Code on Interactions with Healthcare Professionals (PhRMA Code). The PhRMA Code is an industry guideline that applies to the activities of pharmaceutical companies and does not accurately reflect the unique interactions between medical device companies and healthcare professionals. To address this issue, medical device companies often adopt the medical device industry counterpart to the PhRMA Code, the AdvaMed Code on Interactions with Healthcare Professionals, or AdvaMed Code, in an effort to comply with the California law. 

In addition, the California law requires companies to establish a specific annual per practitioner dollar limit on gifts, promotional materials, and items provided to California healthcare professionals. There are several types of payments that are exempt from the annual limit, such as payments for bona fide professional services.  Companies are required to make an annual declaration of compliance with both the CCP and company-established annual dollar limit, and make the CCP information publicly available via the company Web site and a toll-free telephone number.

The California Compliance Program Law does not have separate enforcement provisions to address violations. Prosecutors, however, may pursue civil enforcement action under the California Unfair Competition Law (UCL) and obtain injunctive relief, restitution, and civil penalties of $2500 per violation.² 

Nevada Compliance Program Law. The Nevada Compliance Program Law, unlike the California Compliance Program Law, unambiguously applies to medical device manufacturers.³ The Nevada law requires medical device manufacturers to adopt a marketing code of conduct and submit a copy of the code to the Nevada Board of Pharmacy. In addition, manufacturers are required to submit to the Nevada Board of Pharmacy annually updated information regarding compliance with their marketing code of conduct, including a description of the training program for the code of conduct and a description of policies for investigating instances of noncompliance.

Adopt AdvaMed Code

To fulfill the requirement that a company adopt a marketing code of conduct, the Nevada Compliance Program Law permits medical device manufacturers to adopt the AdvaMed Code without modification. If a medical device manufacturer has not adopted the code, the manufacturer must ensure that its self-developed guidelines address all the key topics addressed by the AdvaMed Code.

In addition, the Nevada Compliance Program Law requires device companies to conduct an annual audit to monitor compliance with the marketing codes of conduct and to certify annually to the Nevada Board of Pharmacy by June 1 that such an audit was conducted. The law does not require a specific type of annual audit (e.g., internal or third-party) nor does it prescribe certain parameters for the audit. Consequently, many companies comply with this requirement by following federal guidelines, which specifically condone risk-based audits.  The Nevada Board of Pharmacy annually posts on its Web site a list of those companies that have furnished the requested information. The law does not provide separate enforcement provisions, but the Board of Pharmacy may bring an action to enjoin violators in district court. 

Massachusetts’ Marketing Code of Conduct and Practitioner Payment Reporting Law. In 2009, Massachusetts enacted the Marketing Code of Conduct and Practitioner Payment Reporting Law, which expressly applies to medical device manufacturers.⁴ The law requires medical device manufacturers to adopt and certify compliance with a state-authored marketing code of conduct. Developed by the Massachusetts Department of Public Health (DPH), the code restricts a number of interactions medical device companies have with Massachusetts healthcare practitioners. Its most significant provision mandates all meals that companies provide to Massachusetts healthcare practitioners take place within an office or hospital setting. In addition, the code requires that written agreements must be in place governing coverage or reimbursement of reasonable expenses of Massachusetts healthcare practitioners in connection with bona fide medical device product training. The law also restricts company support for continuing medical education (CME) and other educational and professional conferences or meetings.

Similar to Nevada’s law, the Massachusetts regulations require medical device manufacturers to report to the DPH certain information about training programs, investigation policies, and the like regarding compliance with the state’s code. Furthermore, companies must conduct an annual audit to monitor compliance with the state’s code and certify to the Massachusetts DPH by July 1 that they conducted such an audit. The DPH has expressly indicated it expects companies to have a compliance auditing system consistent with existing auditing practices and federal guidelines. In addition, beginning July 1, 2010, and by each July 1 thereafter, medical device manufacturers are required to submit an annual fee of $2000 and submit a report to the Massachusetts DPH.

The report must disclose the value, nature, purpose, and recipient of any fee, payment, covered expense, subsidy, or other economic benefit with a value of at least $50 that the company provided to persons authorized to prescribe, dispense, or purchase prescription drugs or medical devices in Massachusetts. This description includes physicians, hospitals, and nursing homes. It’s important to note that the Massachusetts law requires that the DPH post company-reported information on an easily searchable public Internet database.

Companies that violate the Massachusetts code of conduct restrictions and reporting requirements may be subject to a civil penalty of not more than $5000 per violation. Each individual event or failure to report constitutes a separate violation.

Vermont Gift Prohibition and Payment Reporting Law. Vermont is the latest state to impose marketing restrictions on medical device manufacturers. The Vermont Gift Prohibition Law, enacted in 2009, is the most stringent of its type in the country.⁵ The law prohibits medical device companies from providing to a Vermont healthcare provider any payment, food, entertainment, travel, subscription, advance, or service, unless the provider reimburses the cost at fair market value or the activity is specifically allowed under the law. 

The law explicitly permits certain interactions. These activities include payment or reimbursement of reasonable expenses necessary for product training, the loan of a medical device for a short-term trial period, and the provision of demonstration or evaluation units. Additional permitted activities are coverage of certain expenses related to genuine research projects, payment of reasonable fees at fair market value, and providing certain educational items. Regarding meals, the Vermont attorney general’s office has indicated the only exception to an outright ban involves reasonable meals provided to Vermont healthcare providers that are offering bona fide services to a company.

By July 1, 2010, and by each July 1 thereafter, medical device manufacturers will be required to submit to the Vermont attorney general’s office the contact information for the individual responsible for compliance with the law as well as a $500 fee.  In addition, by October 1, 2010, and by each October 1 thereafter, medical device manufacturers will be required to report the value, nature, purpose, and recipient information of any allowable gift or expenditure furnished to a healthcare provider. Providers include physicians and other prescribers, pharmacists, and hospitals.

The provision also covers academic institutions or organizations representing or servicing healthcare providers or consumers. Similar to the situation in Massachusetts, the law requires the attorney general’s office to post company reports on an easily searchable public Internet database.  Companies that violate the Vermont gift prohibition and reporting requirements may be subject to a civil penalty of no more than $10,000 per violation. Each prohibited gift or failure to report constitutes a separate violation.

More States Considering Compliance

In 2009, several other statesconsidered legislation that would have imposed disclosure requirements, gift prohibitions, and compliance program requirements on device manufacturers. As expected, the current landscape in 2010 is very similar. For example, the New York state legislature is considering a provision that would impose a number of restrictions on medical device companies. These strictures include limits on meals that may be offered to healthcare professionals and their staff, limits on the forms of financial and other support companies may provide for CME, and training requirements for representatives who visit healthcare professionals practicing in New York.⁶ In addition, Minnesota has a bill pending that would expand its existing gift prohibition law and practitioner payment reporting law—which apply only to pharmaceutical manufacturers—to medical device companies.⁷

It is interesting to note that New Jersey is contemplating provisions that would require physicians to publicly disclose their financial relationships with device manufacturers.⁸ Much of the new state legislation has advanced despite the recent passage of federal healthcare reform, which includes provisions that device companies must disclose payments provided to healthcare professionals across the country beginning March 2013.⁹

Although federal transparency requirements will preempt in some respects existing disclosure requirements in Massachusetts and Vermont, aspects of those state requirements will remain in effect. In addition, federal transparency requirements will not preempt existing state restrictions, such as gift bans and compliance program regulations, that are unrelated to disclosure requirements. Laws in four states place compliance obligations on medical device manufacturers. As additional states pursue legislation to regulate marketing and promotional activities, medical device manufacturers will likely be subject to a growing list of requirements.

Companies should not only consider the steps necessary to ensure compliance with these state laws but also determine how these new laws may impact the company’s existing compliance program, policies, procedures, and the financial systems that track payments to healthcare professionals. This is especially important given the current trend toward public transparency of the financial relationships between healthcare professionals and industry. Companies should expect government authorities, the press, practitioners, patients, and the public to examine publicly posted information. As a result, device manufacturers should be prepared to address the potential of increased enforcement activity and public scrutiny.

References

1. Cal. Health & Safety Code §§ 119400-119402.

2. Cal. Bus. & Prof. Code §§ 17200, 17203, 17204, and 17206.

3. Nev. Rev. Stat. § 639.570.

4. Mass. Gen. Law c.111N.

5. Vt. Stat. Ann. tit. 18 §§ 4631a, 4632.

6. NY S. 6608; NY A. 9708.

7. MN S. 1237; MN H. 1641.

8. New Jersey Attorney General Report on Physician Compensation Arrangements, available at http://www.nj.gov/oag/newsreleases09/pr20091203b.html.

Seth Lundy is a partner in the Washington, D.C., office of King & Spalding and a deputy chair of the FDA & Life Sciences Practice Group. Brian Bohnenkamp and Ami Patel are associates in the group. Lundy may be reached at 202/626-2924 or [email protected].