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By Bari Faye Siegel

The practice of pharmaceutical sales representatives giving gifts and other compensation to physicians is as old as the healthcare industry itself. Field reps buy meals, offer show tickets and trips – anything that might "encourage" the doctors to prescribe their particular drugs.

The race is on! Drugs have a limited patent life and companies have to use time wisely to get the word out about their products. Until now, physician marketing has promised a great bang for the buck, allowing companies to maximize time and resources – and, of course, revenue—in the limited time before a drug goes generic.

Add to all of this the fact that there has long been a "spin in the media" that companies are trying to unfairly influence physicians with these gifts. "But they have to get the word out about their drugs," said Linda Pissott Reig, Esq., a principal at Porzio Bromberg & Newman, P.C., counters. "These doctors need to know that the drug is available, what the benefits and side effects are and more."

Now, calls for transparency in physician marketing practices are coming from every corner of the country and laws aimed at regulating them are being enacted and amended at a rapid pace. But, experts say pharmaceutical and medical device companies are far from prepared to manage existing, much less rapidly changing, regulations.

Many states have already mandated that drug companies track, control, and report this data. "These new reporting mandates will hold companies accountable for documenting their interactions with healthcare professionals. Companies that don't track this data will see the repercussions—such as fines of up to $10,000 or injunctions on their products," explained Jeff Brady, president of Advanced Health Media. New Jersey-based AHM is a leading supplier of technology solutions for pharmaceutical compliance.

Many states have legislation pending with distinct requirements. There are bills currently under review in the Pennsylvania Legislature regarding gift giving practices and clinical trial oversight. And, in New Jersey, Attorney General Anne Milgram recently convened a task force to explore this issue to determine what impact, if any, such practices have on patient care in the state. The task force will study the impact of gift-giving and compensation practices on the physician-patient relationship and the extent to which such arrangements legitimately advance the medical profession's knowledge of new therapies and devices.

It will also examine potential steps to prevent and identify abuses in the area of physician gifts and "incentives" including public disclosure of data, direct physician disclosure to patients, and/or a limitation on payments accepted by these professionals.

"As regulators of health care professionals in New Jersey, we want to ensure that patient care is guided by the unbiased exercise of the physician's best judgment," Attorney General Milgram said in announcing the creation of the task force.

To date, reporting laws related to payments made to physicians by pharmaceutical and medical device providers have been enacted in Vermont, Maine, Minnesota, California, West Virginia, and the District of Columbia.

The New Jersey attorney general's task force plans to take a close look at the regulations passed in these states. The Pennsylvania bills are in committee.

Why the Focus on "Marketing Costs" and Physician Gifts? Why Now?

An incredible amount of attention is being focused on the rising costs of healthcare. With the attention comes a strong desire on the part of legislators and the public at-large for greater transparency.

In 1997, when laws began to permit drug companies to advertise directly to consumers, money and marketing became the name of the game. If a company could get its product in front of the potential buyer, sales went up. Soon after, physicians became a target for similar marketing.

Legislators now believe that if companies are required to report how much is being spent on marketing and promotional efforts to doctors, the playing field will be leveled for all companies – big and small.

What's the Big Deal?

The biggest challenge, explained Reig, who is also vice president of her firm's Pharmaceutical Compliance Services, is that all of these companies are required to follow the laws of the states they are doing business in – regardless of where the "selling" company is headquartered.

"Pharmaceutical and biotech as well as medical device companies in New Jersey (and Pennsylvania) – big or small – are being required to follow laws where their products are sold," Reig said. "We've got 50 states doing 50 different things regarding these issues. And, it doesn't matter where the company is based; if they are doing business in other states they must follow federal and state laws that cover the marketing and sale of drugs and medical devices in those states.

"This is becoming a real costly challenge to keep up to date, to make sure companies are properly tracking the information and to make the appropriate regulatory filings properly and on time in the various states."

A further complication is that the laws are being amended rapidly in these jurisdictions – too quickly, Reig added, for pharmaceutical and biotech companies to keep pace.

Cases in point:

• The District of Columbia passed a ruling on May 25, 2007 requiring that any company doing pharmaceutical and medical device business in D.C. had to file a report on activity by July 1, 2007. The report had to include information dating back one year – to July 1, 2006. "Companies that weren't keeping an eye out for pending rules had a big problem. First, they could have missed the ruling. Regardless, they might not have had the information required in the report dating back a year, " Reig noted.

This rule, she noted, wasn't proposed until the last quarter of 2006 but went into effect six months later. "The challenge is not only to keep up with existing laws but also stay on top of what is in the pike because laws are made without much lead time. You have to keep an eye out so you are prepared to collect and report the correct in a timely fashion. If you are not on top of this, you can be in violation. Violations can be extremely costly."

• California has its own set of regulations based on the Pharmaceutical Research and Manufacturers of America's Pharma Code of 2002. The Office of the Inspector General of the U.S. Department of Health and Human Services, published an interpretation of the U.S. Anti-Kickback Law. Based on these two guidance documents, California passed physician marketing rules that took effect on July 1, 2005. In California, a company has to post on its website that it is in compliance with the Pharma Code of 2002.

Additionally, drug companies doing business in California are required to post and annually declare that they are in compliance with annual per physician spend limits.

• Vermont's law requires that companies report on continuing medical education expenditures, addresses restrictions on use of physician-specific prescriber data for promoting prescription drugs, and related topics.
  
  
• In Louisiana, pharmaceutical reps are potentially required to register with the state as lobbyists.

The Downside to Transparency

The bottom line is that trying to keep up with the various laws – that are changing quickly – is costly for companies in many ways. Costs arise not only because not being compliant means running the risk of violation fines, but also because there is considerable cost associated with staying on top of the laws and preparing associated documents and filings.

The impact of this kind of "transparency" is having an exponential impact on drug companies' balance sheets. "While the idea of regulating these practices in theory might mean the companies would be forced to spend less, the laws are forcing the companies to spend more in other ways," Reig explained.

There is huge money involved in complying with the various states' requirements. Who is minding the shop? Do the companies have to have in-house staff to stay on top of changing regulations? Do they have to hire outside contractors to monitor the laws and track information for on-time filing assurance?

"The goal of this call for transparency is to lower drug costs, but to put people and technology systems into place to track all of this is very costly," she added. "There is no one size fits all plan."

Another crucial concern is in regard to new, smaller companies. The barrier for entry for a smaller biotech or boutique pharmaceutical firm is clear. Transparency laws require all companies to put infrastructure in place to keep pace with changing physician marketing regulations. These rulings, however, might make it nearly impossible for a small company with an orphan drug to make any revenue while trying to keep up.

So, What's a Company to Do?

AHM's Brady explained that pharmaceutical sales representatives must be responsible for accurately reporting what they spend on marketing to physicians. They must also be aware of the laws and comply with limits. After all, the people in the field are the ones who interact directly with the doctors and they are the keepers of this information. They must, Brady maintained, "play a key role in meeting compliance requirements."

The method used by these field reps, however, is up for debate. While companies have systems and programs in place to collect and track data, the collection process doesn't keep up with changing laws. Therefore, companies are not necessarily collecting the appropriate information and reporting it in a timely fashion.

"Today, reps use multiple methods to input information, such as supplier websites and T&E systems, to meet these requirements. This can cause confusion, inefficiencies, and delays, which can lead to noncompliance."

He said the reps, on behalf of the companies, have to do more than collect and store this data. A system must be put into place wherein reps, and their managers, are able to oversee all marketing activities. Additionally, the system must be able to keep up with various differing laws around the country. Lastly, the system must be able to keep the sales reps' activities in line with spending limits to ensure compliance.

"Customizable technology can also be programmed to set alerts and warn sales reps and other field-based personnel when they are nearing pre-determined company limits," Brady said.

Customer Relationship Management & Technology – Perfect Together

Most healthcare companies already engage in Customer Relationship Management – methods and strategies to manage their relationships with customers. However, transparency laws raise the bar on CRM requirements.

Brady said, "While most companies know how to conduct at least basic customer relationship management, an unprecedented level of information sharing across the enterprise is now required. This, of course, is not something the typical pharmaceutical company—throughout its many therapeutic areas and other silos—is designed to accommodate."

Systems can be put into place that allow companies to work toward collecting the data needed to stay in compliance with multiple changing physician marketing laws. The key is integration – making sure that information is shared across a company's channels so that all information is logged, tracked and reported.

"Some companies have found a way to make complete reporting and documenting a standard procedure for their sales forces. They have implemented software-based systems that enable reps to document all of their interactions, and gives sales managers the ability to oversee reps' activities," Brady said. "The software enables data exchanges from existing systems to a centralized repository, allowing companies to gain a complete picture of its interactions with healthcare professionals."

There are even websites designed to allow for information to be plugged in – reducing administrative time for the sales representatives and further ensuring a central data bank for information.

Accounting Compliance Presents High-Tech Opportunity

Michael McLafferty, a partner in Amper, Politziner and Mattia's Healthcare Services Group, says the biggest issue for pharmaceutical, biotech and medical device companies is one of dollars and cents. There are implications for GAAP and other accounting rules, and companies must put in place systems that properly track and audit data to ensure that the costs associated with collection and filing are properly managed.

"The states are sending a strong message out to the pharmaceutical industry that their practices will have to change," McLafferty said. "It has not been uncommon for me to visit a healthcare client that was enjoying a catered lunch from a pharmaceutical rep. The pharmaceutical rep would be there talking to the entire practice. Other times, physicians would tell me about the front row tickets they got from the reps to see The Producers. We are talking limos, cash gifts, junkets."

But the new transparency laws are putting an end to all of that, he said. And, a big challenge – one that comes with a high front-end price tag – is finding a solution that uses the tools reps already have to collect the necessary information and report it in a timely, compliant manner.

"I see this as a real entrepreneurial opportunity," he said. "Someone is going to create a software that tracks compliance reporting to help deal with the confusion and complexity of data collection."

His vision calls for a platform that will help companies properly record information across the entire company and make sure they are compliant in every state.

Until such a software package is invented, Amper recommends that each company designate a compliance officer who reports to the legal department or oversight group. "They would get management reports, and make sure they are in compliance. That person would be in charge of staying on top of the changing laws, and they would probably have a staff under them – depending on the size of the pharmaceutical company."

Alternatively, there are non-profit and for-profit firms in the business of managing portions of the responsibilities described by Reig, Brady and McLafferty.

Oops – Are You Non-Compliant?

McLafferty added some practical real world advice: "As soon as a pharmaceutical organization believes they are not in compliance with the transparency laws and that they may have incurred a fine, pay it right away. Be assertive and make the payment to avoid further complications.

"We believe government organizations would look at those companies in a more positive light and not delve further. They will acknowledge, meet with them, accept payment and there will be an 'educational discussion.'"

If the government doesn't see a compliance plan in place and the codes are not being followed, you can be assured that they will be thinking fraud and abuse, he said.

"Get ready for them to go back three to five years. But if there is a plan in place and the organization is assertive, a lot of times the government organization will be more lenient and further penalties will be limited."