GOVERNMENT SCRUTINY OF MEDICAL DEVICE MANUFACTURERS’ ARRANGEMENTS WITH PHYSICIANS HIGHLIGHTS NEED FOR COMPLIANCE REVIEW

Several recent developments suggest that medical device manufacturers should review their corporate compliance policies and procedures to ensure they comply with current regulatory requirements and expectations.

Nevada Requires Drug and Device Manufacturers and Wholesalers to Submit Compliance Form by June 1, 2008

This new law, which became effective on October 1, 2007, is being implemented by the Nevada State Board of Pharmacy and applies to any “wholesaler or manufacturer who employs a person to sell or market a drug, medicine, chemical, device or appliance” in Nevada. The Pharmacy Board’s Compliance Packet includes instructions, forms and a copy of the law and regulations. 

Requirements include:

• Adopting a written marketing code of conduct on practices and standards governing the marketing and sale of its products
• Adopting a training program on the marketing code of conduct
• Conducting annual audits to monitor compliance with its marketing code
• Adopting policies and procedures for investigating instances of noncompliance with the marketing code
• Identifying a compliance officer

Each manufacturer is required to file a Compliance Form and provide the following information to the Pharmacy Board annually:

• A copy of its marketing code, unless it adopted the PhRMA or AdvaMed Codes without modification
• A description of its training program
• A description of its policies for investigating noncompliance with its code
• A list of any related companies to which the submission applies
• Compliance officer identification and contact information
• Certification (after the first year) that it has conducted an annual audit and “that it is in compliance with its marketing code of conduct”

The first Compliance Form is due June 1, 2008.

If a device manufacturer adopts its own code of conduct, it must address the following:

• Product training and education
• Third-party educational conference support
• Sales and promotional meetings
• Consultant arrangements 
• Gifts
• Reimbursement and other economic information given to providers
• Grants and other charitable donations

The Pharmacy Board determines whether a marketing code of conduct addresses the required subjects and, if not, the code will be deemed incomplete and noncompliant. The regulations are ambiguous in a number of areas. No specific penalties are stated in the statute or regulations.

U.S. Senate Special Committee on Aging Holds Hearing Entitled “Surgeons for Sale:  Conflicts and Consultant Payments in the Medical Device Industry”

This Hearing was held in connection with the “Physician Payments Sunshine Act”, a bill introduced by Senators Kohl and Grassley. It focused on the use of physician consultants by the medical device industry, as well as the payment of educational grants, royalties, clinical trial funding, travel expenses and gifts. Concerns were raised that payments may be grossly excessive, illegitimate or not properly documented. They also discussed the possibility of kickbacks or other legal violations arising from these arrangements, as well as the potential for conflicts of interest or improper influence on medical decision making.

The proposed bill would require disclosure by certain drug, medical device and medical supply companies of anything of value provided to physicians and entities in which a physician has an ownership interest or with which a physician has an employment or tenure relationship. Specifically, the bill would require the payment value, physician name, date and purpose and notification if anything was provided in exchange for the payment. This information would be posted on a government web site. Participants voiced general support for the measure (with certain recommended changes) and the prevailing view seemed to be that voluntary industry codes were not sufficient to drive necessary industry changes.

Testifying in support of the measure was Zimmer Holdings, Inc., an orthopedic implant company that recently settled a criminal investigation by entering into a Deferred Prosecution Agreement with the U.S. Attorney’s Office for the District of New Jersey. Industry representatives also spoke in favor of preemption of state and local regulatory initiatives, not surprisingly, in light of actions taken by the State of Nevada and other states and cities.

After the hearing on medical device company payments and another hearing on pharmaceutical company payments, in support of his bill, Senator Grassley issued a
Floor Statement entitled “Pharma Payments to Doctors”, which singled out by name an individual doctor who allegedly did not fully disclose to her employer, or in connection with NIH grant funding she received, industry payments for lectures, consulting, advisory board service and expense reimbursement.

U.S. Attorney Enters into Deferred and Non-Prosecution Agreements with Orthopedic Implant Companies

Finally, as mentioned above, late last year, the U.S. Attorney for the District of New Jersey entered into agreements with the companiesthat make up approximately 95% of the orthopedic implant industry (Zimmer, Inc. Depuy Orthopaedics, Inc., Biomet Inc., Smith and Nephew, Inc. and Stryker Orthopedics, Inc.,) to defer or (in the case of Stryker) not to initiate criminal prosecution of the companies. The agreements (except for Stryker) include substantial payments to the government and all include costly, onerous procedures designed to limit and promote disclosure of consulting agreements with physicians. Each of the companies also entered into a Corporate Integrity Agreement with the OIG.

The Agreements, which are nearly identical, must be posted on the companies’ websites, along with the amounts and names of physicians who received payments.

Among other things, the companies have agreed to:

• Work with federal monitors appointed by the U.S. Attorney’s Office to review compliance. (It has been widely reported that Zimmer, alone, will pay in excess of $28 Million for John Ashcroft’s services based on a $750,000 monthly retainer, with separate hourly fees for some services up to $895/hour.)
• Conduct an annual prospective needs assessment to identify a commercially reasonable need for educational, new product development, clinical trial and other consultants
• Allow federal monitors to approve all new consultants and consulting agreements
• Limit and prohibit certain forms of compensation and submit to detailed review and approval processes
• Require consultant physicians to disclose their financial engagements to patients
• Adopt stringent compliance programs and procedures, including mandatory compliance with the AdvaMed Code
• Maintain detailed recordkeeping to document compliance
• Conduct oversight of distributors and subcontractors
• Ensure a company employee is present for all consultant services other than clinical trials and travel time

The prosecutor has said he is done with the supply side and is now moving on to enforce the demand (physician) side. There have also been reports of subpoenas for physician records. In light of these developments, device companies should carefully review their compliance programs, procedures and policies.

If you have questions about this client alert, please contact your Oppenheimer attorney or Margo Struthers at (612) 607-7427.

This alert is a copyrighted publication produced by Oppenheimer Wolff & Donnelly LLP. The information contained in this alert is of a general nature and is subject to change. Readers should not act without further inquiry and/or consultation with legal counsel.