Preventive Medicine

Accordingly, both states now expressly seek to create additional regulations governing these relationships.

The proposed regulations cover a range of business activities and include proposals governing physician compensation, continuing education, data mining, and consulting arrangements. This article outlines how these proposals affect manufacturers that are looking not only to stay abreast of existing regulations but also to create robust compliance programs that anticipate regulatory trends.

Minimizing Conflict in New Jersey

In December 2009, the New Jersey state attorney general released the Report on Physician Compensation Arrangements prepared by the state’s Division of Consumer Affairs.1 The report’s recommendations seek to minimize any potential conflict of interest in the financial relationships between physicians and the medical device and drug industries. The report recommends additional regulation by focusing on a new group of actors: New Jersey state physicians.
The report identifies eight general topics for regulation:

Within these areas, the report makes a series of specific recommendations that involve restrictions on gifts. The restrictions include an amendment to the New Jersey Board of Medical Examiners regulations that focus on physicians. These new regulations prohibit physicians from accepting any payments, subsidies, gifts, or meals for attending CMEs or industry-sponsored meetings where the physician was not contracted to perform services.

The amended rules also: require physicians to disclose all compensation in excess of $200 in the previous two years as part of the Board of Medical Examiner’s biennial renewal process; require physician-speakers to disclose the reportable compensation received at the beginning of the CME; and create additional requirements concerning the use of data mining for prescription practices.

The report recognizes the existence of current industry standards such as PhRMA and the AdvaMed Codes of Conduct and state and federal legislation (e.g., False Claims Act and Physicians Payment Sunshine Act obligations.) However, its recommendations are more restrictive because they suggest regulating the conduct and obligations of individual physicians. This provision would make New Jersey the first state to consider imposing specific standards of conduct directly on physicians.

The report has been sent to the state Board of Medical Examiners and Board of Pharmacy for review and future rulemaking. There is no deadline for publishing a proposed rule, but any proposed rule will be published in the New Jersey Register and be open for public comment in a process that usually takes six months. It remains to be seen whether these recommendations gain any momentum under the leadership of New Jersey’s new governor and state attorney general.

New York Targets Financial Support

Pending legislation in New York State Senate Bill 6608-A also proposes additional restrictions on the interactions between pharmaceutical companies (which by definition includes companies that manufacture medical devices) and healthcare professionals.2 The bill addresses these issues:

The bill also assesses civil penalties of no less than $15,000 and no more than $250,000 for violations by manufacturers. For violations by healthcare professionals the civil penalties are between $5000 and $10,000.
 

The New York bill addresses the conduct of both manufacturers and healthcare professionals, and it expands existing PhRMA and AdvaMed Codes of Conduct. For example, under the pending bill companies cannot offer—and healthcare professionals cannot accept—any financial compensation, cash-equivalent gifts, benefits, and the like outside of bona fide consulting or speaking agreements. In addition, companies are strictly prohibited from acting as a CME provider in the State of New York. They also are enjoined from sponsoring continuing medical education until the manufacturer creates and complies with an internal CME grant-making policy. This provision is to assure that CMEs are objective, independent, and separate from sales and marketing department and personnel. Further, companies are prohibited from retaining a healthcare professional in any consulting or speaking capacity if that person is a member of a committee that sets formularies or develops clinical guidelines and fails to disclose that relationship to the committee. The bill also requires manufacturers’ sales and marketing personnel to train their representatives in the general science and product-specific information as well as all applicable regulations and ensure representatives’ compliance.
 

The bill was referred to the Senate Finance Committee in January 2010 and is currently pending further action.
 

Protecting Public Welfare

In recent years, high-profile government enforcement actions aimed at device manufacturers have alleged that manufacturers illegally induced physicians to change prescribing practices because of improper financial incentives.
One prominent example is the highly publicized U.S. Department of Justice (DOJ) investigation of five manufacturers of orthopedic hip and knee implants, in which DOJ alleged that the manufacturers’ consulting agreements and other financial relationships with orthopedic surgeons violated the anti-kickback statute. The DOJ investigation resulted in a settlement with these manufacturers in late 2007. In February 2010, the Office of Inspector General (OIG) announced that a physician had solicited and received compensation in the form of consulting payments in exchange for using certain orthopedic hip and knee products. The physician agreed to pay $650,000 for these alleged violations of the Civil Monetary Penalties Law.

In 2009, three former sales representatives of an orthopedic device manufacturer pleaded guilty to off-label promotion of separate bone-healing products that had received a provisional humanitarian device exemption (HDE) by FDA. In the plea agreements, the former sales representatives admitted to promoting these orthopedic products outside of the provisional HDE approval. Subsequently, DOJ successfully brought an indictment against the manufacturer and other present and former employees on charges of wire fraud, misbranding, making false statements, and conspiracy.

Certainly, these stories reinforce the public perception that device manufacturers improperly influence decisions by healthcare professionals. The New Jersey report and proposed New York legislation are the most recent state responses to this concern. Thus, there should be no surprise that both sets of proposed regulations refer to the potential for harm to the public welfare caused by unethical financial relationships. Both take a multipronged approach to addressing the issue by limiting the type of financial contacts, increasing reporting and transparency of appropriate financial transactions, and requiring that manufacturers and healthcare professionals create and maintain compliance programs. These proposals highlight the importance of understanding existing regulations and creating a robust compliance program to anticipate trends in regulatory activity.

Insight Into Regulators’ Thinking

Both the New Jersey report and the proposed New York legislation provide insights into the kind of behavior that regulators will consider in determining whether to pursue enforcement actions. The New Jersey report focuses on additional regulations that directly affect the physician, and the New York legislation places regulatory burdens on both manufacturers and healthcare professionals. Both proposals identify elements that a good manufacturer should include in a compliance program. For example, the New York bill requires a device manufacturer to:

Similarly, the New Jersey report makes specific recommendations for creating a database whereby physicians disclose any payments received from manufacturers—a requirement that dovetails with federal legislative efforts contained in the Physician Payments Sunshine Act.

Whether these proposals ever become final remains to be seen, but there is scant evidence that deregulation is on the horizon. Therefore, a prudent medical device manufacturer needs to understand how these proposals will affect its business. The paramount goal is to have a firm grasp of the impact the potential new regulations would have on existing compliance programs as well as on the manufacturers’ relationships with physicians. This foreknowledge will help ensure that the manufacturer can both understand and comply with all applicable regulations should they take effect.
 

References

Caryn Silverman is a partner in the New York office of Sedgwick, Detert, Moran & Arnold (San Francisco). She specializes in product liability and medical device and drug litigation and may be reached at 212/422-0202 or [email protected]. Soo Kim is an associate in the law firm’s New York office. Her area of focus includes product liability and medical device litigation. Soo may also be reached at 212/422-0202 or [email protected].