RECENT DEVELOPMENTS IN FRAUD AND ABUSE LAW REQUIRE ACTION BY MEDICAL MANUFACTURERS
The “Patient Protection and Affordable Care Act” as amended by the “Health Care and Education Affordability Reconciliation Act of 2010”, both signed into law in March (individually and collectively “Health Care Reform Laws”), have substantially changed existing fraud and abuse laws. Many of these changes became effective on March 23, 2010, while others will become effective over the next few years. These developments, and others relating to fraud and abuse, should be carefully reviewed by medical manufacturers.
New Requirement to Disclose Most Physician and Teaching Hospital Payments and “Gifts”
Disclosure requirements similar to the Physician Payments Sunshine Act—which was repeatedly introduced in the Senate over the past few years by Senator Chuck Grassley, but not enacted—were included in the Health Care Reform Laws. These requirements will affect manufacturers directly, as follows:
- Beginning March 31, 2013, and on the 90th day of each year thereafter, any pharmaceutical or medical device manufacturer that provides a payment or transfers value to a physician or teaching hospital (“Payment”) in the previous year will be required to report Payments to the Secretary of Health and Human Services (“Secretary”). Manufacturers need to begin collecting information about Payments as of January 1, 2012, and should begin developing the capability to do so without delay.
- The reports will include detailed information, including the name and business address of the recipient, the amount, date and description of the Payment and any other information that the Secretary determines to be appropriate.
- Disclosure is required to be made of the form of payment (cash or cash equivalents, in-kind items or services, stock or stock options, ownership interest, dividend, profit or other return on investment and any other transfer of value as defined by the Secretary) and a description of the nature of the payment (consulting fees, honoraria, compensation for serving as faculty or speaker for medical education programs, or other compensation for services; gifts; entertainment; food; travel; education; research; charitable contribution; grant; royalty or license; current or prospective ownership or investment interest; or any other nature of the transfer of value as defined by the Secretary).
- Manufacturers will be required to report any ownership interest held by a physician (other than ownership of publicly traded securities) and describe the value and terms, as well as any Payments to physicians holding such ownership interests.
- Certain transfers that are generally not for the direct benefit of the physician or hospital are exempt from disclosure, such as product samples intended for patient use, educational materials that directly benefit patients, loans of devices for fewer than 90 days for evaluation purposes, discounts and in-kind items used for charity care. Dividends from publicly traded companies and warranty items or services are also exempt from disclosure.
- Any Payment having a value of less than $10 is exempted, so long as the aggregate amount transferred to such physicians or hospitals in a calendar year does not exceed $100. Therefore, manufacturers will need to maintain records of all Payments, regardless of value, to be prepared in the event that the amounts exceed the $100 annual threshold.
- No later than September 30, 2013 and June 30 of each year thereafter, HHS will make the reports publicly available online.
- Disclosures of Payments made under a product research or development agreement in connection with a new drug, device, biological or medical supply, new application of a drug or device, biological or medical supply or clinical investigation related thereto, will not be made publicly available until the earlier of (1) the date such drug or device receives FDA approval or (2) four years after the date such Payments were made.
- The new law preempts similar state laws, such as those in Massachusetts or Vermont, but ONLY to the extent that such laws require the disclosure of similar information related to Payments. Any other requirements under state laws (such as the substantive compliance requirements adopted in Massachusetts, Vermont, Nevada and California), are not preempted by this legislation and will remain in full force and effect.
- Manufacturers that violate these requirements are subject to civil penalties of $1,000-10,000 for each Payment that is not reported, up to an aggregate of $150,000 annually. If a manufacturer knowingly fails to report a Payment, it is subject to penalties of $10,000-$100,000 for each such failure, up to an aggregate of $1,000,000 annually.
Changes to Existing Fraud and Abuse Laws in Health Care Reform Laws
Manufacturers should be aware of a number of changes:
- The False Claims Act has been changed to make it easier for the government and, especially, whistleblowers to bring claims. For example, it is now clear that a violation of the Anti-kickback Statute is a false claim under the False Claims Act. Also, whistleblowers will likely find it easier to bring cases based on publicly disclosed information because of jurisdictional and other changes to the False Claims Act.
- It is no longer necessary for violators to have actual knowledge and specific intent to violate the Anti-kickback Statute or the Criminal Health Care Fraud Statute, as some courts have held.
- The U.S. Sentencing Guidelines will now take into account the aggregate value of improper claims submitted to the government in determining the length of a sentence.
- Corporate Compliance programs will be mandatory for skilled nursing facilities and may be mandatory for other suppliers and providers, as determined by regulations to be issued by the Secretary. It is not clear that this will extend to manufacturers that are not enrolled as suppliers in the Medicare program, but it is likely to result in a conclusion that having an effective compliance program is no longer optional. Manufacturers should consider reviewing and revising as necessary their compliance policies and procedures to meet these changing expectations and to minimize their exposure to civil and criminal liability.
Council of Medical Specialties Adopts Code for Interaction of Medical Specialty Societies with Industry to Promote Independence and Transparency
On April 17, the Council of Medical Specialties adopted a Code to guide its constituent societies in the development of policies and procedures intended to protect the independence of their programs, policies and advocacy positions from influence by industry. Individual societies are encouraged to adopt the Code as appropriate to their respective organizations and may adopt more rigorous standards. One principle of the Code that may be of particular interest to device companies is that key society leaders (primarily those in the line of Presidential succession and journal editors) are prohibited from having a direct financial relationship with industry during their terms of service.
New FDA Program to Encourage Physicians to Report Misleading or Off-label Promotion
On May 11, the FDA announced a new “Bad Ad Program” in an effort to obtain information about communications in private between drug manufacturers and physicians in individual or small group meetings, where manufacturers’ representatives may not accurately communicate a drug’s benefits, risks or approved uses. The program encourages physician reporting to the FDA, and it clearly is not aimed at formal advertising. The program does not apply to medical devices at this time, but is something to be aware of as it could easily be expanded to medical device promotion. All manufacturers should consider reviewing their marketing initiatives relating to product claims and ensuring that all sales representatives are properly trained on these issues.
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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.