U.S. medtech companies are facing ever growing challenges as they expand their compliance oversight to operations in other countries.

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Medtech Compliance Goes Global

GOVERNMENT & LEGAL AFFAIRS

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The development and commercialization of today's advanced medical technologies rely heavily on a variety of unique interactions among healthcare professionals and the representatives of medical device companies. Such interactions often create financial relationships that can be problematic when considered in the light of federal statutes designed to prevent kickbacks and eliminate fraud and abuse in healthcare purchasing. When overlaid against the sales, marketing, and promotional practices of medical device companies, such relationships can create unique legal and regulatory risks for all of the parties involved.

Partly as a result of ongoing federal and state investigations and prosecutions, U.S. medical device companies have become especially attuned to the legal and ethical risks involved in their relationships with healthcare professionals. In 2003, industry association AdvaMed (Washington, DC) addressed many of the challenges facing U.S. companies by issuing a revised code of ethics that has since become the industry standard for guiding company behavior in this area.1

Global Risks

However, medical device companies with operations outside the United States also face significant legal and regulatory risks related to their business in those countries. These risks can vary widely according to the laws and enforcement environments in different countries.

Overseas authorities are watching industry-physician relations more closely than ever before. However, government agencies have generally not provided definitive guidance about accepted practices in this area. Consequently, self-regulatory codes of conduct issued by industry associations usually provide the fullest and most widely accepted guidelines. In the United States, the AdvaMed code is the logical starting point for a medtech firm's compliance activities. But companies with overseas operations have been challenged to navigate the guidance—or absence of guidance—in other countries because there has previously been no single source for locating information about the practices considered acceptable in those regions.

A new publication, the 2007 International Medical Device Compliance Code Compendium, provides a desk reference to such codes of conduct for executives involved in the oversight and implementation of compliance on an international basis.2 Compiled by researchers from Huron Consulting Group (Chicago), King & Spalding LLP (Washington, DC), and the Compliance-Alliance LLC (Arlington, VA), the compendium was released in March at the Harvard University Medical Device Regulatory, Reimbursement, and Compliance Congress.

The Same, Only Different

Authorities in many countries and regions have used the AdvaMed code as the starting point for developing their own codes. As a result, medical device executives will find similarities in both structure and wording with other codes outside the United States.

Similarities to the AdvaMed code are most evident in the two regional codes developed by Eucomed, the European trade association for designers, manufacturers, and suppliers of medical technologies; and the European Diagnostic Manufacturers Association (EDMA), the trade association for the in vitro diagnostics industry in Europe. The national trade associations that are members of one or both of these organizations have adopted either the Eucomed or EDMA guidelines—or both of them—on behalf of their member companies.

Although many national and regional codes resemble the AdvaMed code, there are also numerous differences among the many codes that are now in use throughout the world. Within Europe and elsewhere, for instance, authorities in some nations have created country-specific codes of conduct that provide additional guidance for their members. And in some countries, medical device manufacturers are expected to abide by the rules that are incorporated in the local code of conduct for pharmaceutical manufacturers.

In order to address issues of ethical compliance on a global scale, medical device companies have to become familiar with all of the different codes of conduct that may apply to their business anywhere in the world. The following sections offer some key examples of divergence among the requirements of current codes of conduct in major areas of interest to medical device executives.

Company-Sponsored Training and Education

The AdvaMed code observes that medical device manufacturers have "a responsibility to make product education and training available to healthcare professionals."1 To ensure that such education and training are carried out with the minimum temptation to unethical behavior, the code includes guidance about the appropriate settings, meals, and hospitality to be associated with these events. In addition, the code indicates that physician trainers should have the appropriate qualifications and level of expertise needed to conduct training sessions.

Where medical device companies can sometimes encounter difficulties in the area of training and education is in how they operationalize the guidance. Using expensive resort venues, paying for excessive meal and alcohol costs, or permitting those without a bona fide interest in the training to attend hospitality events (e.g., spouses) can all cause compliance issues for an organization.

The implementation of such restrictions can become even more confusing when companies are operating in a global context. For instance, the Eucomed code permits spouses to participate in group hospitality, "provided that the incremental costs to members are nominal."3 Hence, at an event held in a Eucomed member country (e.g., Belgium), the presence of physicians' spouses would be permitted under that country's code. However, the Eucomed code also states that hospitality, travel, and lodging provided by members must be in compliance with the regulations of the country where the healthcare professional is licensed to practice. Consequently, at the same event in Belgium, Belgian physicians would be permitted to bring their spouses, while American physicians in attendance would not be permitted to do so.

In such a widely varying global context, medtech compliance executives are faced with incredible operational challenges. They must be able to track all of the company's physician training activities—wherever in the world they may be conducted—and ensure that all activities associated with those events adhere to company policy, local codes that may apply, and the relevant codes within each physician's home country.

Arrangements with Consultants

Among medical device manufacturers operating in the United States, one of the most difficult compliance issues of current concern is how to establish the fair market value of various services provided to companies by healthcare professionals. Such services can run the gamut from consulting about product design and development issues to advising on reimbursement strategies—and everything in between—and virtually every aspect of such relationships is subject to temptations that could lead to unethical behavior.

In order to provide guidance about how medtech companies should compensate consulting healthcare professionals, the AdvaMed code stresses that payments should be based on the fair market value typical for such consulting arrangements.1 Unless a company adopts the practice of paying according to the fair market value of the services, it may find that its payments to healthcare professionals vary widely. Alternatively, the company may find that it is sometimes making 'outlier payments'—compensation for services that is out of the normal range—which could be perceived as kickbacks. By establishing the fair market value of the services being rendered, a company can reduce this type of risk and ensure that payments are viewed as being appropriate for services performed. In spite of the recommendations of the AdvaMed code, however, no other country or regional guidelines specify that manufacturers should use fair market value as the basis for determining the compensation rates for their consulting healthcare professionals. The Eucomed code directs that payment should be based on the services actually provided, but does not mention fair market value.3 For The Netherlands, the Nefemed code requires that payment must be commensurate with the services provided, but does not specify fair market value as the rate-setting mechanism.4

Such extensive variations in guidance—or the absence of guidance—can create difficulties for organizations that hire and train physicians across countries and from different regions of the world. It is a tremendous effort for a medtech company to determine fair market value pay scales that take into account vast differences in cost of living and salary expectations from country to country. A company might do all that work to implement fair market value compensation in a country where physicians are not accustomed to the concept, only to face opposition based on the history and cultural predispositions of that country.

Third-Party Educational Conferences

The AdvaMed code permits medtech companies to support third-party educational conferences within certain parameters. For example, companies may provide grants directly to the sponsor to defray general participation costs, but they may not provide funding to individual attendees. Funding provided by companies may also be used to pay for modest meals and hospitality, for faculty expenses, or for advertising or booth space at a conference.1

However, current guidance in several other countries differs from that of the AdvaMed code.

For The Netherlands, for example, the Nefemed code permits manufacturers to reimburse the travel costs for healthcare professionals to attend international conferences so long as they meet certain requirements (e.g., economy class airfare). However, the Nefemed code does not allow for payment or reimbursement of conference fees by manufacturers.4

For Germany, the Professional Rules for German Physicians, compiled by the federal board of physicians, permits companies to pay travel costs, including conference fees, for German physicians.5

These types of differences can create confusion for anyone who is implementing global guidelines or monitoring adherence to those guidelines. Some medical device companies have addressed this issue by creating tiered policies and guidelines. Using this approach, companies create a high-level policy that provides the overarching vision of a compliance area, and then supplement the policy with procedures or work instructions to address specific issues that may arise at the country or regional level.

Gifts

For many years, gifts from medical device organizations to healthcare professionals have been a source of confusion and potential risk. The AdvaMed code establishes some parameters to address questions that can arise with regard to gifts. According to AdvaMed's code, for example, any gift to a healthcare professional should benefit patients or serve an educational function, and must not exceed a fair market value of $100.

Outside the United States, however, guidance about gifts varies from country to country, as illustrated in the following examples.

  • In Canada, the MEDEC code permits companies to give gifts with a fair market value of $100 CDN. There is no requirement that the gift benefit patients or serve an educational function.6

  • The Eucomed code does not specify a maximum value for gifts to healthcare professionals.3

  • In Australia, the MIAA code specifies that "gifts and hospitality shall have a minimal market value within any one-year period."7

  • Austria's Pharmig code prohibits gifts if they are "not of minor value."8

  • In Belgium, under Article 10 of the Medicines Act, manufacturers are permitted to give gifts if they are "inexpensive."9

  • Spain's Fenin code states that gifts to healthcare professionals cannot exceed €30 in value, but provides exceptions if the item is in support of professional endeavors or contributes to the education of healthcare professionals.10

As with the other issues discussed here, the giving of gifts can create unique challenges for global compliance officers. They must seek to develop a compliance program that encompasses their company's policy vision, but also takes into account the variations in implementing and monitoring procedures that often arise at a country or regional level.

International Impact

Considering the size and importance of the medical device industry in the United States, it is natural that medtech companies should pay special attention when they hear of U.S. investigations into possible violations of federal healthcare statutes. However, international investigations that affect U.S. companies are also under way, and they are becoming more numerous and more intense with every passing year. Following are some examples that illustrate the kinds of enforcement activities that companies may encounter in various countries around the world.

China. Chinese authorities have targeted the recipients of bribes and improper inducements. In August 2006, Chinese authorities arrested two senior officials from Chongqing Chest Hospital for allegedly accepting improper payments from medical device suppliers. Authorities alleged that the hospital purchased two respirators and an ultrasound machine from Chongqing Aikang Trading Co. In exchange, the company paid the president of the hospital and the hospital official in charge of medical equipment purchases the equivalent of $1250 and $625, respectively.

The two hospital officials were alleged to have also received kickbacks from other Chinese device manufacturers. According to press reports, a Chinese court sentenced the president and procurement chief to five-and-a-half- and five-year prison terms, respectively.11

Italy. In June 2006, Italian authorities arrested three senior executives of Recordati—Italy's largest pharmaceutical company—on bribery charges. The Milan office of the country's financial police is leading the investigation, which concerns the alleged bribing of doctors with money, mobile phones, laptops, and other gifts so that they would prescribe more Recordati products.

Among those taken into custody was the general manager of the company's pharmaceutical division, Vittorio Bonazzi, who resigned after being arrested. The two other executives were being kept under house arrest. Dozens of individuals—including employees, doctors, and a pharmacist—are also under investigation, and more arrests are possible.

According to a 2004 report in the British Medical Journal, more than 4700 Italian doctors, managers, and employees of a UK-headquartered pharmaceutical company with operations in the United States were under criminal investigation for making improper payments to state-employed physicians. Italian tax police in Verona conducted the two-year investigation, which is alleged to have involved a scheme in all 94 Italian provinces. The investigation was triggered by a random audit in July 2002. The audit revealed that up to $100 million for programs described as 'other promotions' was, in fact, used to make improper payments.12

Germany. German authorities have expressed concern about perceived corruption in the healthcare sector, including interactions between medical technology manufacturers and healthcare professionals. In 2004, a report by Frankfurt's state prosecutor, Wolfgang Schaupensteiner, found that one-third of all those accepting bribes worked in the healthcare sector. His report focused on the pharmaceutical and medical device industries, and said that the number of companies offering money or illegal incentives to doctors increased from 7.9% in 2001 to 14.1% in 2002.

Meanwhile, Transparency International, an independent organization that monitors corruption around the globe, has alleged that bribery and corruption in the German healthcare sector costs taxpayers €10 billion each year.

The Netherlands. In 2005, the Dutch agency responsible for overseeing The Netherlands' code on the promotion of medicinal products ordered a global pharmaceutical company headquartered in the United States to halt a postmarket research study involving a medication for the treatment of schizophrenia and manic episodes associated with bipolar disorder. According to authorities, participating doctors received €100 per enrolled patient. But the research protocol was vague, did not meet research quality standards, and lacked a clear research objective. In addition to halting the project, Dutch authorities required the company to send rectification letters to participating healthcare professionals.13

Addressing Global Compliance

In light of the global investigational environment and the complexities of international guidance, medical device executives should move forward as rapidly as practicable with plans to assess, implement, and monitor their company's compliance programs in an international setting.

In the absence of some type of objective assessment of their compliance programs, many companies do not even realize that they have global issues that need to be addressed. Waiting to address compliance issues until a criminal investigation has been launched or a subpoena has been delivered is not a recommended strategy. Doing so adds stress on the organization, wastes valuable time needed to resolve important issues, and takes a toll on the company's human and financial resources.

Company executives should place a high priority on assessing their company's compliance needs and creating a plan to address compliance risks across the organization. In doing so, they should leverage all the resources available to them, whether those consist of other compliance executives, outside consultants who specialize in compliance matters, or other research resources.

Reference

  1. Code of Ethics on Interactions with Health Care Professionals (Washington, DC: AdvaMed, 2003 [cited 10 April 2007]); available from Internet: www.advamed.org/publicdocs/code_of_ethics.pdf.

  2. 2007 International Medical Device Compliance Code Compendium (Chicago: Huron Consulting Group, 2007).

  3. Eucomed Guidelines on Interactions with Healthcare Professionals (Brussels: Eucomed, 2004 [cited 10 April 2007]) available from Internet: www.eucomed.org/sitecore/shell/Controls/Rich%20Text%20Editor/~/media/pdf/tl/2006/other_docs/attachment1code_of_business_practice%20pdf.ashx.

  4. Code of Conduct and Regulations of the Dutch Federation of Producers, Importers and Traders of Medical Products (Tilburg, The Netherlands: Nefemed, 2005 [cited 10 April 2007]); available from Internet: www.nefemed.nl/docs/gedragscode%20nefemed%20english%20version.pdf.

  5. Professional Rules for German Physicians (Berlin: German Medical Association, 2003).

  6. MEDEC Code of Conduct (Toronto: MEDEC, 2005 [cited 10 April 2007]); available from Internet: www.medec.org/code_of_conduct.

  7. Medical Industry Association of Australia (MIAA) Code of Practice (St. Leonards, NSW, Australia, MIAA, 2006 [cited 10 April 2007]); available from Internet: www.miaa.org.au/codeofpractice.html.

  8. Pharmig Code of Conduct (Vienna, Austria: Association of the Austrian Pharmaceutical Industry, 2006); available from Internet: www.ifpma.org/EthicalPromotion/content/pdfs/AT_EN_Code.pdf.

  9. Royal Decree of 2004 for Article 10 of the Medicines Act (Brussels: 2004).

  10. Fenin Code of Good Practices (Madrid, Spain: Spanish Federation of Healthcare Technology Companies, 2005 [cited 10 April 2007]); available from Internet: www.fenin.es/en/publications/code-of-good-practices.html.

  11. "Two Chongqing Hospital Officials Jailed for Corruption," Interfax News Agency (August 22, 2006).

  12. Fabio Turone, "Italian Doctors Face Criminal Allegations over Bribes," British Medical Journal 328 (June 5, 2004): 1333; available from Internet: www.bmj.com/cgi/content/full/328/7452/1333.

  13. Branding the Cure: A Consumer Perspective on Corporate Social Responsibility, Drug Promotion, and the Pharmaceutical Industry in Europe (London: Consumers International, 2006); available from Internet: www.consumersinternational.org/Shared_ASP_Files/UploadedFiles/ECD91B6F-FE37-45C0-AE34-898BFB39C700_BrandingtheCure-fullreport.pdf.

Paul Silver is a managing director and global market leader of the pharmaceutical and medical devices practice for Huron Consulting Group (Chicago); Rosemary E. Weghorst is a manager in the pharmaceutical and medical devices practice for Huron Consulting Group; Scott R. Willoughby is a managing director at Huron Consulting Group; John Bentivoglio is a partner in the law firm of King & Spalding LLP (Washington, DC); Nancy Singer is president of Compliance-Alliance LLC (Arlington, VA).

Copyright ©2007 MX

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