[Federal Register Volume 63, Number 2 (Monday, January 5, 1998)]
[Notices]
[Pages 236-239]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-85]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration
[Docket No. 97D-0525]


Draft Guidance for Industry: ``Promoting Medical Products in a 
Changing Healthcare Environment; I. Medical Product Promotion by 
Healthcare Organizations or Pharmacy Benefits Management Companies 
(PBMs)''

AGENCY: Food and Drug Administration, HHS.

ACTION: Notice.

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SUMMARY: The Food and Drug Administration (FDA) is announcing the 
availability of a draft guidance for industry entitled ``Promoting 
Medical Products in a Changing Healthcare Environment; I. Medical 
Product Promotion by Healthcare Organizations or Pharmacy Benefits 
Management Companies (PBMs).'' This document provides guidance to 
sponsors of regulated medical products (human drugs, biologics, and 
medical devices) by describing circumstances in which sponsors may be 
held responsible for promotional activities performed by healthcare 
organizations or PBM's that violate the Federal Food, Drug, and 
Cosmetic Act (the act) and regulations issued thereunder. The intent of 
this draft guidance is to provide clarification and consistency in the 
agency's regulation of medical product promotion in light of changes in 
the healthcare environment.

DATES: Written comments may be submitted on the draft guidance document 
by April 6, 1998. General comments on agency guidance documents are 
welcome at any time.

ADDRESSES: An electronic version of this draft guidance is available on 
the Internet using the World Wide Web (WWW) at http://www.fda.gov/cder/
guidance.htm. Submit written comments to the Dockets Management Branch 
(HFA-305), Food and Drug Administration, 12420 Parklawn Dr., rm 1-23, 
Rockville, MD 20857. Submit written requests for single copies of the 
draft guidance for industry entitled ``Promoting Medical Products in a 
Changing Healthcare Environment; I. Medical Product Promotion by 
Healthcare Organizations or Pharmacy Benefits Management Companies 
(PBMs)'' to the Drug Information Branch (HFD-210), Center for Drug 
Evaluation and Research, Food and Drug Administration, 5600 Fishers 
Lane, Rockville, MD 20857. Send one self-addressed adhesive label to 
assist that office in processing your request. Requests and comments 
should be identified with the docket number found in brackets in the 
heading of this document. A copy of the draft guidance and received 
comments are available for public examination in the Dockets Management 
Branch between 9 a.m. and 4 p.m., Monday through Friday.

FOR FURTHER INFORMATION CONTACT:
    Regarding prescription drugs: Laurie B. Burke, Center for Drug 
Evaluation and Research (HFD-40), Food and Drug Administration, 5600 
Fishers Lane, Rockville, MD 20857, 301-827-2828, or via Internet at 
[email protected];
    Regarding prescription biological products: Toni M. Stifano, Center 
for Biologics Evaluation and Research (HFM-200), Food and Drug 
Administration, 1401 Rockville Pike, Rockville, MD 20852-1448, 301-827-
3028, or via Internet at [email protected];
    Regarding restricted medical devices: Byron L. Tart, Center for 
Devices and Radiological Health (HFZ-302), Food and Drug 
Administration, 2098 Gaither Rd., Rockville, MD 20850, 301-594-4639, or 
via Internet at [email protected].
SUPPLEMENTARY INFORMATION:

I. Background

A. FDA's Guidance Document Development Process

    On March 28, 1997, as part of the agency's ongoing efforts to 
ensure meaningful public participation in the guidance document 
development process, FDA's Division of Drug Marketing, Advertising, and 
Communications (DDMAC) requested public comment on guidance documents 
relating to prescription drug advertising and labeling (Ref. 1). 
Included in the list of currently proposed guidance documents was 
``Promotion to Managed Care Organizations.'' The draft guidance 
document now being made available is the first draft document to be 
issued on this topic and addresses only one aspect of promotion to 
managed care, i.e., promotion by healthcare organizations or PBM's. 
Other related draft guidance documents will be issued separately under 
the general heading ``Promoting Medical Products in a Changing 
Healthcare Environment.''

B. Statutory and Regulatory Requirements

    Under the act, FDA has responsibility for regulating the labeling 
and, in many cases, the advertising of medical

[[Page 237]]

products (human drugs, biologics, and medical devices). Section 301 of 
the act (21 U.S.C. 331) prohibits the introduction or delivery for 
introduction into interstate commerce of an adulterated or misbranded 
drug or device and of an unapproved new drug; the adulteration or 
misbranding of a drug or device in interstate commerce; and the doing 
of any act that results in the adulteration or misbranding of a drug or 
device while such article is held for sale after shipment in interstate 
commerce. The introductory phrase of section 301 provides that the 
``causing'' of any prohibited act, as well as the act itself, is 
prohibited.
    A drug or device is misbranded if its labeling is false or 
misleading (section 502(a) of the act (21 U.S.C. 352(a)) or if its 
labeling fails to bear adequate directions for use (section 502(f) of 
the act). A change or modification in the intended use of a device may 
cause the device to be adulterated (section 501(f)(1)(B) of the act (21 
U.S.C. 351(f)(1)(B)) and misbranded (section 502(o) of the act). 
Labeling and advertising include promotional information that is 
disseminated by a sponsor or by other persons on behalf of the sponsor 
(see 21 CFR 202.1(l)(1) and (l)(2)).

C. FDA's Information-Gathering Activities

    In August 1994, FDA invited four product sponsors to meet with the 
agency individually to discuss regulatory issues in light of their 
newly established relationships with PBM's. Since that time, FDA has 
continued to gather information about changes in the process of 
healthcare delivery. In so doing, the agency has participated in 
programs, meetings, and workshops with managed care experts and other 
parties, including medical product sponsors, managed care 
organizations, academia, consumer advocacy groups, and health 
professional organizations. FDA has also participated in the design and 
review of studies and reports funded and/or performed by other Federal 
organizations to address various aspects of medical benefits 
management. These organizations included the Health Care Financing 
Administration (HCFA), the Office of the Inspector General of Health 
and Human Services (OIG-HHS), and the Federal Trade Commission (FTC) 
staff. FDA has also reviewed documents pertaining to the General 
Accounting Office (GAO) and the National Association of Attorneys 
General (NAAG) investigations, as well as court proceedings that 
examined contractual arrangements between medical product sponsors and 
other healthcare entities.
    On October 19 and 20, 1995, FDA held a public hearing on 
``Pharmaceutical Marketing and Information Exchange in Managed Care 
Environments'' (Ref. 2). The purpose of this hearing was to solicit 
information and views concerning the potential impact of changing 
organizational structures and information dissemination channels in the 
managed care setting on the agency's responsibilities to regulate drug 
marketing and promotion. FDA heard testimony from 26 individuals 
representing sponsors, PBM's, managed care organizations, national 
pharmacy organizations, advertising agencies, academia, law firms, 
State and Federal agencies, and consumer advocacy groups. The agency 
reviewed an additional 38 comments from similar organizations that were 
submitted to the hearing docket. Since the public hearing, the agency 
has held individual discussions about the changing healthcare 
environment with representatives from the pharmaceutical industry, a 
State attorney general's office, retail and institutional pharmacists, 
representatives from several professional organizations, 
representatives from several consumer advocacy organizations, and 
representatives from medical insurer organizations who provide pharmacy 
benefits. FDA continues to participate in several interagency work 
groups that address policy development issues relevant to the influence 
of managed care.

II. FDA's Findings Regarding Changes in the Healthcare Environment 
That Affect FDA's Regulation of Medical Product Promotion

    As a result of the activities outlined in section I.C of this 
document, several important changes in the healthcare marketplace were 
identified that affect FDA's regulatory approach with respect to 
promotional labeling and advertising. One such change is the 
acquisition of healthcare provider organizations and PBMs by medical 
product sponsors. Because of public concern about the effects of the 
merger of pharmaceutical sponsors with PBM's, GAO investigated, among 
other things, the objectives of these mergers. GAO reported that ``drug 
manufacturers have merged or allied with PBMs because they believe that 
the PBMs' market power will help maintain the manufacturers' profits at 
a time when their drugs face increased competition.'' GAO also reported 
that, in order ``to bolster profits, manufacturers are relying on their 
PBM partners to help them increase market share for their drugs and 
develop new programs for treating specific diseases (Ref. 3).'' This 
type of environment fosters medical product promotion by sponsor-
controlled PBM's on behalf of the sponsor.
    In 1995, FTC issued a consent order to address the antitrust 
implications of Eli Lilly's (the Lilly Order) acquisition of the PCS 
Health System (PCS), a large PBM. The FTC's Order was intended to 
minimize anticompetitive foreclosure by ensuring that PCS customers 
have an alternative to sponsor-controlled formularies. The Lilly Order 
therefore requires, among other things, that PCS offer an ``open'' 
formulary that is compiled by an independent pharmacy and therapeutics 
(P&T) committee utilizing only objective criteria. However, the Order 
does not restrict or ensure independence in the promotional practices 
of sponsor-controlled PBM's. Furthermore, FTC's Order explicitly 
permits Lilly-PCS to offer other more restrictive formularies to its 
customers and places no restrictions on the selection of drug products 
for those formularies.
    In addition to corporate ownership, many sponsors are pursuing 
marketing affiliations and pricing agreements with PBM's and other 
healthcare provider organizations. Some of these agreements provide 
product-specific incentives for the provider organizations to influence 
prescribing decisions. In some cases, patients on chronic drug therapy 
are switched from one product to another as a result of these 
incentives. Some agreements include variable pricing (via rebates) 
according to market share growth attained (Ref. 4). In an effort to 
affect the market share of specific products, a healthcare provider 
organization may enforce restrictions on prescribing decisions or 
disseminate promotional materials designed to influence prescribing 
decisions toward particular products and away from their competitors 
(Ref. 5).
    Additionally, PBM's are expanding their role beyond claims 
processing and mail-order pharmacy to other activities, such as 
treatment intervention and disease management programs. These 
activities include compiling and furnishing a wide range of materials 
about medical products to their clients (healthcare plans and 
providers) with the intent of providing information and services that 
will influence clinical outcomes and control healthcare costs (Ref. 6).
    As a result, promotional activities of medical product sponsors are 
often focused on managed care's demand for product-specific 
information.

[[Page 238]]

 Increasingly, promotional activities are being directed to, and 
channeled through, providers who make coverage policies and treatment 
recommendations for groups of insured individuals in managed healthcare 
organizations. Coverage policies may include the use of specified drug 
formularies \1\ or preferred product lists. \2\ Treatment 
recommendations or decisions may be enforced by a number of 
interventions, (Ref. 7) such as the dissemination of materials to 
healthcare providers and patients, implementation of disease management 
\3\ programs, prior authorization requirements, \4\ interchange 
programs, \5\ and drug utilization reviews. \6\ The incentive to 
promote medical products is extended by product sponsors to other 
persons in cases where contracts include sliding rebate scales based on 
the proportion of claims processed that conform to the formulary or 
declared product preferences (Ref. 8).
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    \1\ A formulary is a list of drug products. An open formulary 
includes all (or nearly all) available products yielding a minimal 
amount of formulary restrictiveness. A closed formulary is a limited 
list of drugs approved for use or covered under the drug plan.
    \2\ A preferred product list is sometimes called a ``managed'' 
formulary because, even though product use is unrestricted, 
incentives exist to increase utilization of the ``preferred'' 
products. Insurers and their clients often benefit financially from 
the use of preferred products through rebates from manufacturers and 
reduced drug costs.
    \3\ Disease management directs product use and patient behaviors 
to minimize the total cost of illness and improve medical and 
pharmaceutical care.
    \4\ Prior authorization is a mechanism to restrict the use of 
services by requiring advance approval before coverage is granted.
    \5\ Interchange programs direct treatment choices to preferred 
products at the point of dispensing or product use.
    \6\ Utilization review interventions change patterns of product 
use by contacting the clinician who ordered the product. Utilization 
review may be retrospective or prospective at the point of 
dispensing or product use. Educational tools may be included.
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    FDA was told at the October 1995 public hearing that promotional 
efforts are now being directed toward P&T committee members in hopes of 
influencing decisions about formulary inclusion of particular 
product(s) (Ref. 9). FDA is also aware that some benefits management 
companies who have business relationships with medical product sponsors 
are distributing product-specific information to P&T committees (as 
well as to managed care professionals and patients) that is false or 
misleading and would be considered violative if distributed directly by 
the product sponsor (Ref. 10).
    A survey of 368 health maintenance organization (HMO) 
decisionmakers \7\ in the United States (Ref. 11) found that the 
biggest concern of HMO's about PBM's is the potential for bias 
resulting from alliances of the PBM's with drug manufacturers. 
Preferred or restricted product lists or formularies are sometimes 
established without objective criteria and without review by 
independent bodies who utilize deliberative scientific decisionmaking 
processes (Ref. 12). In some situations, formulary decisions are made 
to serve the economic needs of the healthcare organization or of the 
sponsors whose drugs are found on those formularies (Ref. 13). Despite 
the concerns of HMO's, however, HMO's rely primarily on PBM-supplied 
data and reports for overseeing performance of their PBM's. They rely 
less on independent assessments from their own clinicians and patients 
(Ref. 14).
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    \7\ An HMO decisionmaker represented either the chief executive 
or head pharmacy services.
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III. Conclusions

    During the past several years, there have been many changes in the 
way healthcare is delivered and in the role medical product sponsors 
play in that marketplace. For example, some product sponsors have 
acquired or entered into agreements with healthcare organizations or 
PBM's. Medical product sponsors often cause subsidiaries and other 
persons acting on their behalf to participate in promotional 
activities, including the dissemination of promotional labeling and 
advertising, and, in some instances, such arrangements are utilized as 
a means to avoid regulatory oversight of these activities.
    FDA is particularly concerned about promotional activities that may 
create a public health risk. For example, promotional materials 
disseminated to healthcare providers and patients may result in 
inappropriate medical decisions if the information is false, 
misleading, or promotes an unapproved use. FDA is also concerned that 
sponsors are not submitting all such materials to the agency under the 
existing postmarketing reporting requirements. Furthermore, FDA seeks 
to maintain ``a level playing field'' for all medical product sponsors 
with respect to the regulation of their promotional activities. In 
public testimony, a pharmaceutical industry representative suggested to 
FDA that sponsors should be held accountable for promotional material 
related to their product(s) even when such material is prepared by or 
disseminated through a PBM or other healthcare provider (Ref. 15).
    Therefore, this draft guidance document clarifies circumstances in 
which FDA may hold a medical product sponsor responsible for 
promotional activities performed by a healthcare organization/PBM 
subsidiary of the sponsor, and by a nonsubsidiary healthcare 
organization/PBM on behalf of the sponsor that violate the act and 
regulations. The draft guidance lists several factors that the agency 
will use to determine sponsor responsibility for medical product 
promotion performed by a nonsubsidiary healthcare organization/PBM on 
behalf of the sponsor.
    The draft guidance for industry also reminds medical product 
sponsors of their responsibility to submit or, in the case of some 
devices maintain historical files of, promotional labeling and 
advertising. This responsibility includes those activities performed by 
subsidiaries or, in certain cases, by healthcare organizations/PBM's.

IV. References

    The following references have been placed on display in the Dockets 
Management Branch (address above) and may be seen by interested persons 
between 9 a.m. and 4 p.m., Monday through Friday.
    1. ``Prescription Drug Advertising and Promotional Labeling, 
Development and Use of FDA Guidance Documents; Request for 
Comments,'' (62 FR 14912 to 14917, March 28, 1997).
    2. ``Pharmaceutical Marketing and Information Exchange in 
Managed Care Environments, Public Hearing,'' (60 FR 41891 to 41893, 
August 14, 1995).
    3. Pharmacy Benefit Managers, Early Results on Ventures with 
Drug Manufacturers, United States General Accounting Office, 
Washington, DC 20548, GAO/HEHS-96-45, November 195.
    4. ``Assessment of the Impact of Pharmacy Benefit Managers,'' 
HCFA-95-023/PK, September 30, 1996.
    5. Testimony by Stephen Stefano, Vice President and General 
Manager, Health Management Division, Glaxo Wellcome, at FDA public 
hearing, p.25, October 19, 1995.
    6. Testimony by Per Lofberg, President, Medco Containment 
Services, at FDA public hearing,
p. 43, October 20, 1995.
    7. ``Assesment of the Impact of Pharmacy Benefit Managers,'' 
HCFA-95-023/PK, September 30, 1996.
    8. See Pfizer, Inc. v. PCS Health Sys., Inc., No. 126154/95 
(N.Y. Sup. Ct. October 27, 1995).
    9. Testimony by Richard Jay, Vice President of Corporate 
Pharmacy Services, FHP, Inc., and representing the Group Health 
Association of America (GHAA), at FDA public hearing, p. 14, October 
20, 1995. (This association is currently called the American 
Association of Health Plans (AAHP).)

[[Page 239]]

    10. Testimony by Stephen Stefano, Vice President and General 
Manager, Health Management Division, Glaxo Wellcome, at FDA public 
hearing, October 19, 1995, p. 22; and complaints directed to DDMAC 
by other drug sponsors.
    11. Brown, J. G., ``Experiences of Health Maintenance 
Organizations with Pharmacy Benefit Management Companies,'' 
Department of Health and Human Services Office of Inspector General, 
Office of Evaluation and Inspections, Boston Regional Office; OEI-
01-95-00110; April 1997.
    12. See Pfizer, Inc. v. PCS Health Sys., Inc., No. 126154/95 
(N.Y. Sup. Ct. October 27, 1995) (Pfizer Complaint).
    13. See Pfizer, Inc. v. PCS Health Sys., Inc., No 126154/95, at 
5-11 (N.Y. Sup. Ct. November 21, 1995) (Pfizer's supplemental 
memorandum).
    14. Brown, J. G., ``Experiences of Health Maintenance 
Organizations with Pharmacy Benefit Management Companies,'' 
Department of Health and Human Services Office of Inspector General, 
Office of Evaluation and Inspections, Boston Regional Office; OEI-
01-95-00110; April 1997.
    15. Testimony by Stephen Stefano, Vice President and General 
Manager, Health Management Division, Glaxo Wellcome, at FDA public 
hearing, October 19, 1995, p. 21-22; and a complaint directed to 
DDMAC by another pharmaceutical sponsor.

V. Comments

    Interested persons may submit written comments on the draft 
guidance to the Dockets Management Branch (address above).Two copies of 
any comments are to be submitted, except that individuals may submit 
one copy. Comments are to be identified with the docket number found in 
brackets in the heading of this document. The draft guidance and 
received comments may be seen in the office above between 9 a.m. and 4 
p.m., Monday through Friday.

    Dated: December 29, 1997.
William B. Schultz,
Deputy Commissioner for Policy.
[FR Doc. 98-85 Filed 1-2-98; 8:45 am]
BILLING CODE 4160-01-F