Physician Compensation/Pharmaceutical Marketing Statutes
Wednesday, August 04, 2010
Physician Compensation/Pharmaceutical Marketing Statutes
Issued By CASRO's General Counsel on August 4, 2010
On March 23, 2010, the well-publicized federal health care reform bill, the "Patient Protection and Affordable Care Act," was signed into law, and included within it was the formerly stand-alone bill, the "Physician Payment Sunshine Act" (the "Federal Sunshine Act"). The Federal Sunshine Act resembles a number of proposed and enacted state statutes that require pharmaceutical and medical device manufacturers to disclose "payments or other transfers of value" to physicians and hospitals; however, due to the lobbying efforts of PMRG, CASRO and other trade groups, the Federal Sunshine Act includes a broad exception for payments made as part of legitimate market research. The Federal Sunshine Act preempts similar state statutes, but allows states to impose more restrictive disclosure requirements or to prohibit such payments altogether.
As of the publication date of this memorandum, eight states and the District of Columbia have enacted statutes that either prohibit or require disclosure of payments to physicians as part of pharmaceutical marketing. None of those states currently prohibit payments made to physicians and other health care professionals as part of market research ("Market Research Payments"). Currently, two states (Maine and Vermont) and the District of Columbia appear to require the disclosure of such payments. It has been CASRO's experience that with education of the nature and importance of market research, state regulatory agencies have agreed that their state's prohibitions and disclosure requirements were never intended to apply to Market Research Payments. For example, in both Massachusetts and Minnesota, the relevant regulatory agencies have re-interpreted their respective state's requirements to not extend to ordinary, legitimate market research. CASRO intends to take steps in Vermont, Maine and District of Columbia to produce similar results.
We will be carefully watching how states react to the impending preemption in 2012 by the Federal Sunshine Act. One state that was considering enacting a comprehensive disclosure statute this year, Colorado, extensively revised their proposed legislation to simply provide for the re-publication of the reports required under the Federal Sunshine Act after the Federal Sunshine Act became law. Based on the fact that no other state statute in this area made significant legislative progress following the passage of the Federal Sunshine Act, it is possible that more states will follow Colorado's lead and provide only for republication of the Federal Sunshine Act reports or simply abandon separate disclosure statutes altogether. States with existing statutes, perhaps in cooperation with the Federal government, will need to provide clarification on the extent to which they view their disclosure statute as being preempted by the Federal Sunshine Act.
This memorandum summarizes the Federal Sunshine Act and those state laws that have been enacted on this topic and discusses the impact of such laws on research companies.
1. Federal Government
As mentioned immediately above, the Federal Sunshine Act was enacted this year to shed light on possible conflicts of interest in the pharmaceutical industry and thereby limit pharmaceutical companies' undue influence on prescribing behavior. Thanks to extensive lobbying efforts on behalf of the market research industry, led by PMRG with support and participation from CASRO and other trade groups, the Federal Sunshine Act's definition of a "payment or other transfer of value" explicitly does not include payments made to physicians for their participation in research, as long as the payments are made indirectly "through a third party" (the research organization) and the pharmaceutical client "is unaware of the identity" of the research respondent. While the Federal Sunshine Act provides for preemption of similar state statutes, the preemption, unfortunately, may not extend to state legislation that imposes more restrictive disclosure requirements or prohibits such payments altogether.
The Federal Sunshine Act requires that, beginning on March 31, 2013, and annually thereafter, manufacturers of pharmaceutical drugs, medical devices, biologicals, and medical supplies that provide "payments or other transfers of value" to physicians or teaching hospitals provide a report to the Secretary of Health and Human Services ("HHS") that describes in detail the identity of all recipients, descriptions of the date, nature, amount of, and reason for the payments, and the name of the specific product with respect to which the relevant payment was made. The penalties on manufacturers for non-compliance can be as high as $1,000,000 annually.
Section 6002 of the Federal Sunshine Act, "Transparency Reports and Reporting Physician Ownership or Investment Interests," includes the following general definition:
The term 'payment or other transfer of value' means a transfer of anything of value. Such term does not include a transfer of anything of value that is made indirectly to a covered recipient through a third party in connection with an activity or service in the case where the applicable manufacturer is unaware of the identity of the covered recipient.
Consequently, in the case of survey research, no disclosure would be required where a fair market value payment from a research company is made to physicians in connection with their participation in survey research, and the research client does not know who the respondent is.
After January 1, 2012, the Federal Sunshine Act will preempt any state statute or regulation that mandates that a manufacturer disclose or report the types of information required to be disclosed by the Federal Sunshine Act. The preemption would not, on its face, apply to state statutes that completely prohibit such payments to physicians or that require additional disclosures beyond those required by the Federal Sunshine Act. As a result, preemption may create a confusing patchwork of requirements where it's unclear what information needs to be disclosed only to HHS or to the relevant state authorities or both. We will closely monitor how states with similar statutes view and respond to the Federal preemption when it begins in 2012.
California Health and Safety Code §§ 119400-119402 (the "California Act") applies only to pharmaceutical companies, and therefore market research companies do not have any responsibilities, obligations or requirements as a result of the California Act.
The California Act requires every pharmaceutical company to adopt a comprehensive compliance program (the "Program") in accordance with the U.S. Department of Health and Human Service's ("HHS") "Compliance Program Guidance for Pharmaceutical Manufacturers" (the "HHS Program"). A pharmaceutical company's Program must include policies for compliance with Pharmaceutical Research and Manufacturers of America's ("PhRMA") "Code on Interactions with Health Care Professionals" (the "PhRMA Code"). The Program must specify limits on gifts, promotional materials, and/or other items provided by a pharmaceutical company to a medical or health care professional in accordance with the PhRMA Code and the HHS Program. Pharmaceutical companies are required to annually declare compliance with their Programs and with the California Act. The declaration of compliance must be published on the pharmaceutical company's website and include a toll-free telephone number to enable the pharmaceutical company to receive requests for copies of its Program. The California Act includes exceptions to the self-imposed regulations including, without limitation, payments for legitimate professional services provided by a health care or medical professional including, without limitation, consulting services subject to the requirement that the compensation for such legitimate professional services not exceed fair market value and otherwise conform to the PhRMA Code and the HHS Program.
On June 10th of this year, Colorado enacted Senate Bill 10-126, which simply provides that upon receipt from the Secretary of HHS, the Colorado Department of Regulatory Agencies shall post on its web site the report required by the Federal Sunshine Act. Interestingly, Senate Bill 10-126, in its original form, had been drafted as a standard pharmaceutical disclosure statute. After the passage of the Federal Sunshine Act, it was subsequently amended to simply provide for the re-publication of the reports required under the Federal Sunshine Act.
4. District of Columbia
While the District of Columbia's Access Rx Act of 2004 (the "DC Act") does not by its terms apply to payments made to doctors as part of market research, the DC Department of Health has explicitly extended the disclosure obligations to payments made in connection with market research surveys.
The DC Act requires a manufacturer or a labeler of prescription drugs that employs, directs, or utilizes marketing representatives in the District of Columbia to annually report marketing costs for prescription drugs dispensed in the District of Columbia. The annual disclosure must include the value, nature, purpose and recipient of compensation or payments in connection with the following: (a) advertising, marketing and direct promotion of prescription drugs through radio, television, magazines, newspapers, direct mail, and telephone communications to residents of the District of Columbia; and/or (b) with regards to all persons and entities licensed to provide health care in the District of Columbia: (i) all expenses associated with educational or informational programs, materials and seminars, remuneration for promoting or participating in educational or informational sessions, regardless of whether the manufacturer or labeler provides the educational or informational sessions or materials; (ii) all expenses associated with food, entertainment, gifts valued at more than $25, and anything provided to a health care professional for less than market value; (iii) all expenses associated with trips and travel; and (iv) all expenses associated with product samples, except for samples that will be distributed free of charge to patients. Additionally the manufacturer or labeler must report in aggregate form the costs associated with all employees or contractors involved in the activities reported in the annual disclosure. The DC Act contains certain exceptions to the disclosure requirements, none of which are generally applicable to the market research industry. The information submitted by a manufacturer or labeler is treated as confidential information.
In its implementing regulations, the DC Department of Health has extended the reporting obligation to "payments made directly or indirectly to [all persons and entities licensed to provide health care in the District] in connection with market research surveys or other activities undertaken in support of developing advertising and/or marketing strategies". Consequently, payments made to doctors, hospitals and other health care professionals and entities in DC as part of pharmaceutical market research are currently subject to reporting, although such payments are permissible.
Like the DC Act, while Maine Statute Title 22, § 2698-A (the "Maine Act") does not by its terms apply to payments made to doctors as part of market research, the Maine Department of Health has explicitly extended the disclosure obligations to payments made in connection with market research surveys.
The Maine Act requires a manufacturer or labeler of prescription drugs that employs, directs or utilizes marketing representatives in Maine, to annually report marketing costs for prescription drugs dispensed within Maine. The annual disclosure must include the value, nature, purpose and recipient of compensation or payments in connection with the following: (a) advertising, marketing and direct promotion of prescription drugs through radio, television, magazines, newspapers, direct mail, and telephone communications to residents of Maine; and/or (b) with regards to all persons and entities licensed to provide health care in Maine: (i) all expenses associated with educational or informational programs, materials and seminars, remuneration for promoting or participating in educational or informational sessions, regardless of whether the manufacturer or labeler provides the educational or informational sessions or materials; (ii) all expenses associated with food, entertainment, gifts valued at more than $25, and anything provided to a health care professional for less than market value; (iii) all expenses associated with trips and travel; and (iv) all expenses associated with product samples, except for samples that will be distributed free of charge to patients. Additionally the manufacturer or labeler must report in aggregate form the costs associated with all employees or contractors involved in the activities reported in the annual disclosure. The Maine Act contains certain exceptions to the disclosure requirements, none of which are generally applicable to the market research industry. The information submitted by a manufacturer or labeler is treated as confidential information.
The Maine Department of Health in its implementing regulations uses the same exact language as that used by the DC Department of Health and has extended the reporting obligations to "payments made directly or indirectly to [health care professionals and persons employed by them in this State, carriers licensed under Title 24 or Title 24-A, health plans and benefits managers, pharmacies, hospitals, nursing facilities, clinics and other entities licensed to provide health care] in connection with market research surveys or other activities undertaken in support of developing advertising and/or marketing strategies" in its implementing regulations. Consequently, like DC, payments made to doctors, hospitals and other health care professionals and entities in Maine are subject to reporting, although such payments are permissible.
The Massachusetts Department of Health has promulgated regulations which can be found at 105 CMR 970.000 (the "Massachusetts Regulations") to implement Massachusetts General Laws c. 111N, regulating Pharmaceutical and Medical Device Manufacturer Conduct. We interpret the Massachusetts Regulations, as permitting Market Research Payments without disclosure, provided that the Market Research Payments are made subject to certain requirements (described below) and in connection with double-blind market research.
The Massachusetts Regulations provide as follows:
1. (a) Each pharmaceutical or medical device manufacturing company (each a "Manufacturing Company" and collectively "Manufacturing Companies") shall adopt a marketing code of conduct in compliance with the Massachusetts Regulations; shall adopt a training program and submit the training program to the Massachusetts Department of Public Health (the "Department"); shall adopt policies and procedures for investigating compliance issues and submit such policies and procedures to the Department; shall disclose to the Department the identity and contact information of the Manufacturing Company's compliance officer; and shall certify to the Department, to the best of its knowledge, that it is in compliance with the Massachusetts Regulations.
2. (b) A Manufacturing Company is prohibited from providing payments of any kind including, without limitation cash and cash equivalents, to health care practitioners either directly or indirectly, except as compensation for bona fide services.
3. (c) Each Manufacturing Company shall annually disclose to the Department the value, nature, purpose and particular recipient of any fee, payment, subsidy or other economic benefit with a value of at least $50, which the Manufacturing Company provides, directly or through its agents, to any covered recipient in connection with the Manufacturing Company's sales and marketing activities.
The Massachusetts Regulations provide an exception to the ban on payments to health care practitioners for bona fide services. In order to qualify for the exception for bona fide services, the health care practitioner and the research company should enter into a written agreement setting forth the business arrangement, including without limitation the nature of the services and the compensation due and owing for such services, and the compensation for the health care practitioner's services should be reasonable, based on the fair market value for such services. Additionally, the business arrangement should be based on the following: (i) the legitimate need for the services; (ii) a connection between the competence and expertise of the health care practitioner and the purpose of the arrangement; (iii) the number of health care practitioners retained should not be more than reasonably necessary to achieve the identified purpose; (iv) the research company should make appropriate use of the services provided by the health care practitioners and should retain records concerning the arrangement; (v) the venue and circumstances for any meeting with the health care practitioner should be conducive to the services and activities related to the services should be the primary focus of any such meeting; and (vi) the decision to retain a health care practitioner should not be unduly influenced by the Manufacturing Company's sales personnel. If the foregoing requirements are complied with, Market Research Payments should be permitted.
The Massachusetts Regulations require each Manufacturing Company to disclose payments of at least $50 made to covered recipients in connection with "sales and marketing activities." The Massachusetts Regulations define the term "sales and marketing activities" to include: (i) advertising, promotion or other activity that is intended to be used or is used to influence sales or the market share of a prescription drug, biologic, or medical device, or to influence or evaluate the prescribing behavior of a covered recipient to promote a prescription drug, biologic or medical device, or to evaluate a professional pharmaceutical or medical device detailing sales team; (ii) product education, training, or research project designed or sponsored by the marketing department/division of a Manufacturing Company or has marketing, product promotion, or advertising as its purpose; or (iii) the provision of any fee, payment, subsidy, or other economic benefit with a value of at least $50 to a covered recipient, subject to certain exceptions that are not applicable to market research. Pharmaceutical market research services generally fall within parts (ii) and (iii) of the definition of "sales and marketing activities;" therefore, subject to the Department's interpretation of the foregoing disclosure requirements as set forth in the Department's Frequently Asked Questions ("FAQs") (as discussed below), Market Research Payments are subject to reporting by Manufacturing Companies to the Department.
In the Department's FAQs, the Department states that (i) the Massachusetts Regulations seek to create transparency around payments to health care practitioners by Manufacturing Companies that may influence prescriber behavior; and (ii) where a health care practitioner participates in a market research study, but is not paid by the Manufacturing Company and is not aware of the Manufacturing Company's involvement in the market research study, the payment does not need to be reported by the Manufacturing Company. Accordingly, notwithstanding anything contained in the Massachusetts Regulations to the contrary, Market Research Payments in connection with double-blind pharmaceutical market research, are not required to be disclosed or reported by the Manufacturing Company to the Department and therefore, research companies are not required or otherwise obligated to disclose any Market Research Payments to Manufacturing Companies.
There have been substantial changes to the interpretation of Minnesota's pharmaceutical gift statute over the past year that are extremely beneficial to the market research industry.
Minnesota statute § 151.461 makes it "unlawful for any manufacturer or wholesale drug distributor or any agent thereof, to offer or give any gift of value to a practitioner." Minnesota statute § 151.01(23) defines a "practitioner" as a licensed doctor of medicine, osteopathy, dentistry or optometry, podiatrists, veterinarians, and for the purposes of this section, a physician assistant or advanced practice nurse authorized to prescribe, dispense and administer drugs or medical devices.
Minnesota statute § 151.461 does not define the term "gift of value," but does set forth the following seven (7) exceptions to the prohibition:
1. Professional samples of a drug provided to a practitioner for free distribution to patients;
2. Items with a total combined value, in any calendar year, of not more than $50;
3. A payment to the sponsor of a medical conference, professional meeting, or other educational program, provided the payment is not made directly to a practitioner and is used solely for bona fide educational purposes;
4. Reasonable honoraria and payment of the reasonable expenses of a practitioner who serves on the faculty at a professional or educational conference or meeting;
5.Compensation for the substantial professional or consulting services of a practitioner in connection with a genuine research project;
6. Publications and educational materials; or
7. Salaries or other benefits paid to employees.
Minnesota statute § 151.47(f) requires that wholesale drug distributors file annual reports with the Board identifying all payments, honoraria, reimbursement or other compensation permitted under the exceptions listed in clauses 3 through 5 of Minnesota statute § 151.461, and having a value of $100 or more paid during the preceding calendar year. The annual report shall identify the recipient of any such payment.
Minnesota statute § 151.461 does not provide guidance on determining whether compensation or honoraria are "reasonable" or on what qualifies as a "genuine research project." The Minnesota Board of Pharmacy (the "Board") originally published frequently asked questions addressing issues related to § 151.461 that stated that "participating in 'marketing surveys' is not a 'substantial service' and likely does not involve a 'genuine research project' as intended by the legislature; therefore, payments for such participation would not fall under the non-gift exception for 'compensation for the substantial professional or consulting services' associated with a 'genuine research project'." However, the Board has reversed its original position after substantial lobbying by CASRO, PMRG and MRA and has updated the relevant frequently asked question to provide that "bona fide market research" conducted by independent survey research organizations constitutes a "genuine research project." As a result, compensation to physicians for survey research in Minnesota is now explicitly permitted. After the publication of the updated FAQs, there remained an open question as to whether such payments were required to be disclosed. In e-mail correspondence with CASRO, Dr. Cody Wiberg, Executive Director of the Board, stated that manufacturers DO NOT have any reporting obligations under the following circumstances: "if they make payments to a market research company; the research is done in a 'blinded' fashion - with the research company selecting the participants and the manufacturer never knowing which practitioners participated; and the market research company sets the rates and pays the practitioners that do participate." Dr. Wiberg also added, "Ideally, the practitioners who participated would also not know which manufacturer had funded the study. In that scenario, the manufacturer has made no direct payments to the practitioner, the manufacturer does not know who participated and the practitioner does not know from whence the funds came."
Consequently, pharmaceutical market research in which Minnesota health care practitioners are compensated to participate as confidential respondents is both permitted and not covered by the disclosure requirements for payments made by manufacturers and wholesalers because the practitioner is unidentified to the pharmaceutical company and is compensated directly by the independent research organization.
Similar to the California Act, Nevada Revised Statute § 639.570 (the "Nevada Act") only imposes requirements and obligations on pharmaceutical companies. Accordingly, research companies do not have any responsibilities, obligations or requirements as a result of the Nevada Act.
The Nevada Act imposes certain requirements on wholesalers and manufacturers who employ a person to sell or market a drug, medicine, chemical, device or appliance in Nevada. The Nevada Act requires the following:
1. The adoption of a written marketing code of conduct that establish the practices and standards that govern the marketing and sale of products.
2.The adoption of a training program to train employees and contractors on the requirements and obligations under the code of conduct.
3.The performance of annual audits to monitor compliance with the code of conduct.
4.The adoption and implementation of investigation and response policies and procedures for non-compliance with the code of conduct.
5.The identification of a compliance officer in connection with the code of conduct.
6. That an annual report be submitted which shall include: (i) a copy of the code of conduct; (ii) a description of the training program; (iii) a description of the investigative procedures; (iv) the name, address and contact information for the compliance officer; and (v) a certification that an annual audit has been conducted and that the certifying entity is in compliance with its code of conduct.
On June 8, 2009, Vermont Governor Jim Douglas signed into law, Senate Bill 48, which amends Vermont's statute 18 V.S.A. §§ 4631 and 4632 (the "Vermont Law"). While the Vermont Law permits Market Research Payments, the Vermont Law does require research companies to disclose to their clients who qualify as a Manufacturer (as defined by the Vermont Law), the value, nature, and purpose of each Market Research Payment and the required recipient information.
The Vermont Law imposes a ban on gifts to health care providers, subject to certain exceptions, and requires the reporting of allowable expenditures and permitted gifts. The Vermont Law makes it "unlawful for any manufacturer (as defined herein) of a prescribed product or any wholesale distributor of medical devices, or any agent thereof, to offer or give any gift (as defined herein) to a health care provider." The term "manufacturer" is defined as a "pharmaceutical, biological product, or medical device manufacturer or any other person who is engaged in the production, preparation, propagation, compounding, processing, packaging, repacking, distributing, or labeling of prescribed products," but does not include a "wholesale distributor of biological products or a licensed pharmacist." The term "gift" includes "anything of value provided to a health care provider for free or any payment, food, entertainment, travel, subscription, advance, service, or anything else of value provided to a health care provider," unless the foregoing qualifies as an "allowable expenditures" or "the health care provider reimburses the cost at fair market value."
Based on our interpretation of the Vermont law, we believe that Market Research Payments should be classified as an allowable expenditure. Market Research Payments should fall into one of the following categories of allowable expenditures: either (1) "other reasonable fees, payments, subsidies, or other economic benefits provided by a manufacturer of prescribed products at fair market value;" or (2) "for a research project that constitutes a systematic investigation, is designed to develop or contribute to general knowledge, and reasonably can be considered to be of significant interest or value to scientists or health care professionals working in the particular field of inquiry." Accordingly, Market Research Payments should not be prohibited under the Vermont Law.
The Vermont Law requires manufacturers to annually disclose to the office of the Attorney General (the "Vermont AG") certain information concerning allowable expenditures and permitted gifts. The Vermont Law requires Manufacturers to disclose the value, nature, and purpose of any allowable expenditure or permitted gift; the name of the recipient; the recipient's address; the recipient's institutional affiliation; the prescribed product(s) being marketed, if any; and the recipient's state board number. Unlike in Massachusetts, the Vermont Law has not been interpreted to exclude Market Research Payments made in connection with double-blind market research; therefore, research companies are required to disclose to their clients who qualify as a Manufacturer, the value, nature, and purpose of each Market Research Payment and the required recipient information. Based on the annual disclosures received by the Vermont AG, the Vermont AG will submit annual reports to the Vermont Governor and the Vermont General Assembly. Additionally, the Vermont AG will make the disclosed information publicly available and searchable through an Internet web site. Each failure to disclose the required information is punishable by a fine of not more than $10,000.
10. West Virginia
The West Virginia Pharmaceutical Availability and Affordability Act of 2004, cited as § 5A-3C-1 (the "West Virginia Act"), created the West Virginia Pharmaceutical Cost Management Council (the "Council"), which has as one of its goals exploring methods by which West Virginia may manage the increasing cost of prescription drugs for its citizens and requires that advertising costs for prescription drugs, based on aggregate national data must be reported to the Council by all manufacturers and labelers of prescription drugs in West Virginia that employ, direct or utilize marketing representatives. Pursuant to Legislative Rule 206, the Council established disclosure rules and requirements for all drug manufacturers, pharmaceutical manufacturers or labelers (each referred to as a "Reporting Entity") of prescription drugs dispensed in West Virginia, who employ, direct or utilize marketing representatives (the "Rule"). The Rule requires that on or before April 1, 2009, and every April 1 thereafter, Reporting Entities shall disclose all advertising expenses for the previous year. The reporting requirements require disclosure in the aggregate and does not require the Reporting Entity to disclose the identity of recipients of gifts, payments, or other economic benefits.
The West Virginia Act and the Rule should not impact research companies. Research companies do not fall within the definition of a Reporting Entity and are not required to provide information on Market Research Payments.