Perception of Widespread Payment Abuses Fuel Transparency Legislation

Legislative efforts designed to increase transparency into payments made to doctors by medical device manufacturers are gaining momentum. Earlier this month, Representatives Peter DeFazio (D–OR) and Pete Stark (D–CA) introduced a companion bill to the Senate's Physician Payments Sunshine Act. Both bills (HR 5605 and S 2029) would require drug and device manufacturers with at least $100 million in annual revenue to file quarterly reports listing all physician payments and gifts with a value of $25 or more.

The companion bill's introduction came shortly after a hearing of the Senate Special Committee on Aging. Publicized under the heading “Surgeons for Sale?: Conflicts and Consultant Payments in the Medical Device Industry,” the hearing was conducted by committee chairman Senator Herb Kohl (D–WI). In partnership with Senator Charles Grassley (R–IA), Kohl introduced the Senate version of the Physician Payments Sunshine Act last September, following a similar committee hearing examining the relationships between physicians and the pharmaceutical industry.

In driving support for the Physician Payments Sunshine Act, proponents of the legislation have focused heavily on inappropriate payments to physicians by device makers, including alleged violations of the Federal Healthcare Antikickback Act and the False Claims Act by leading orthopedic manufacturers. Late last year, in order to resolve a probe by the U.S. Department of Justice, five orthopedic companies accepted the imposition of corporate integrity agreements, deferred-prosecution agreements, and fines totaling $311 million.

Despite the industry criticism being used to fuel the legislation, industry associations AdvaMed (Washington, DC) and the Medical Device Manufacturers Association (MDMA; Washington, DC) have voiced support for the transparency objectives of the bill. However, both are recommending changes to the legislation that would decrease the burden of manufacturer compliance and increase the level of context in which information regarding physician payments is reported.

“AdvaMed supports appropriate disclosure of relationships between medical technology companies and physicians,” said AdvaMed executive vice president, general counsel, and secretary Christopher White, in his testimony before the Committee on Aging. “With some reasonable modifications to ensure a fair and level playing field for our companies; to provide clear, meaningful information to patients; and to preserve the relationships beneficial to patients and continued medical innovation; we believe our industry could support your legislation.”

Specifically, AdvaMed recommends the following changes.

In a statement, Medtronic Inc. (Minneapolis) echoed support for the goal of the Physician Payments Sunshine Act to curb inappropriate relationships or conflicts of interests between industry and physicians. However, the company urged legislators to take the bill a step further by requiring the same level of disclosure from all companies in the industry, regardless of size, and including those companies owned in whole or in part by physicians. “Companies with yearly revenues less than $100 million and physician-owned companies are currently excluded from the bill, and they account for more than 75% of the companies in the industry,” Medtronic stated.

“We have been pleased to work with the members of the Senate Special Committee on Aging, the Senate Finance Committee, and members of the House of Representatives and Senate on this legislation,” said Bill Hawkins, president and CEO of Medtronic. “We will continue to work with the sponsors of this legislation to incorporate all companies in the industry into the bill and bring greater transparency to these important relationships.”

Mark Leahey, executive director of MDMA, echoes many of AdvaMed's concerns with regard to the current shape of the Physician Payments Sunshine Act. Unlike AdvaMed and Medtronic, however, MDMA recommends that the $100 million revenue threshold for compliance remain in place. “Given the significant costs associated with compliance, MDMA strongly supports the $100 million threshold that exists in the current Senate and House versions of the bill,” Leahey says. “This is critical to ensure that smaller companies can invest in R&D, not additional lawyers.

“While MDMA agrees with the objectives of the bill to provide greater transparency, provisions in the current bill would require significant investments from medical technology manufacturers,” he adds. “This would include sophisticated software systems to track payments and generate the proper reports. Additional staff would also be required. Finally, training all employees about the new requirements and their implementation would be very costly. The goal should be to get the most important information in the most efficient manner.”

Leahey also says that one of the key improvements needed in the bill is to differentiate between remuneration provided for valid training and education purposes versus remuneration in the form of gifts or consulting arrangements. “While the latter are more appropriate for disclosure, the former should be exempt,” he says. “In addition, the $25 threshold should be increased significantly to lessen the reporting requirements and also permit appropriate and necessary feedback between companies and physicians to occur during the R&D phase.”

Leahey also notes that the existing bills do not draw a distinction between drug and device selling channels. “Physicians have much more autonomy over which drugs they prescribe than which devices they use,” he says. “For drugs, they write a prescription. For devices, they are forced to use the products that the hospital contracted to buy via its group purchasing organization. Given the significant influence that GPOs have related to the selection of products, GPOs must also be required to disclose any remuneration they receive from suppliers.”

Despite AdvaMed testimony pointing out the widespread adoption of its voluntary “Code of Ethics on Interactions with Healthcare Professionals,” a news release publicizing the Senate committee hearing claimed that unethical physician payments have become a hallmark of the device industry. “These financial relationships create conflicts of interest, can exert inappropriate influence over medical decisions, and, in some documented cases, violate federal antikickback and self-referral statutes,” the release stated. “An investigation undertaken by the committee has shown some of these payments to be grossly excessive, illegitimate, and often not properly documented.”

“These types of unethical payments are not anecdotal, but rather have been pervasive and industrywide for far too long,” Kohl said in the statement. “The physicians who take their money are equal participants and equally culpable. If these physicians are essentially putting their medical judgment up for sale, where does the patient's wellbeing fit into the equation?”

Grassley added, “Our bill doesn't do anything to change the ability of device or drug makers to tap the expertise and insights of physicians. Rather, the proposal works to build public confidence in the system with openness and transparency. It's a common sense initiative.”

During the hearing, the committee heard from two panels of speakers. One panel included AdvaMed's White as well as representatives from two of the orthopedics companies involved in the recent federal settlement: Edward Lipes, executive vice president of Stryker Corp. (Kalamazoo, MI), and Chad Phipps, senior vice president, secretary, and general counsel of Zimmer Holdings Inc. (Warsaw, IN).

The other panel featured a statement from Charles Rosen, MD, president of the Association for Ethics in Spine Surgery and a clinical professor from the University of California, Irvine. Rosen testified that his refusal to take part in financial relationships with the medical device industry has resulted in a multitude of professional attacks on him.

The panel also presented testimony by Said Hilal, president and CEO of Applied Medical Resources Corp. (Rancho Santa Margarita, CA), who outlined his company's concerns related to conflicts of interest between medical device manufacturers and physicians. “Sadly, voluntary codes from industry, self-governance, and gentle slap-on-the-wrist settlements and penalties have been ineffective,” he said. “Many manufacturers still feel comfortable skirting the edge and breaking promises of ethical conduct, while hiding behind superficial credos and codes. And as long as the penalty for making billions of unethical dollars for years is a few million dollars once every few years, these corrupting behaviors will not recede. Rather, these practices will continue to keep costs high, stifle competition and innovation, and defer or prevent these cost-saving improvements from reaching our aging population.”

Rounding out the panel was Greg Demske, assistant inspector for legal affairs at the Office of Inspector General (OIG) for the Department of Health and Human Services. Along with the Justice Department, OIG has been examining suspected industry conflicts of interest for the past three years.

“The government has found that sometimes industry payments to physicians are not related to the actual contributions of the physicians, but instead are kickbacks designed to influence the physicians' medical decision making,” Demske testified. “These abusive practices are sometimes disguised as consulting contracts, royalty agreements, or gifts. The companies and physicians who engage in such kickback schemes are subject to criminal, civil, and administrative prosecution.

“Additionally, physician ownership of medical device manufacturers and related businesses appears to be a growing trend in the medical device sector,” he added. “These business ventures raise substantial concerns that a physician's return on investment from the venture may influence the physician's choice of device. In some cases, physicians could receive substantial returns while contributing little to the venture beyond the ability to generate business for the venture.”

Additional testimony from all parties represented at the hearing can be viewed at www.aging.senate.gov/hearing_detail.cfm?id=293677&.

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