[Federal Register Volume 67, Number 192 (Thursday, October 3, 2002)]
[Notices]
[Pages 62057-62067]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25119]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General


Draft OIG Compliance Program Guidance for Pharmaceutical 
Manufacturers

AGENCY: Office of Inspector General (OIG), HHS.

ACTION: Notice and comment period.

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SUMMARY: This Federal Register notice seeks the comments of interested 
parties on draft compliance guidance developed by the Office of 
Inspector General (OIG) for the pharmaceutical industry. Through this 
notice, the OIG is setting forth its general views on the value and 
fundamental principles of compliance programs for pharmaceutical 
manufacturers and the specific elements that pharmaceutical 
manufacturers should consider when developing and implementing an 
effective compliance program.

DATES: To assure consideration, comments must be delivered to the 
address provided below by no later than 5 p.m. on December 2, 2002.

ADDRESSES: Please mail or deliver written comments to the following 
address: Office of Inspector General, Department of Health and Human 
Services, Attention: OIG-8-CPG, Room 5246, Cohen Building, 330 
Independence Avenue, SW., Washington, DC 20201.
    We do not accept comments by facsimile (FAX) transmissions. In 
commenting, please refer to file code OIGB8-CPG. Comments received 
timely will be available for public inspection as they are received, 
generally beginning

[[Page 62058]]

approximately 2 weeks after publication of a document, in Room 5541 of 
the Office of Inspector General at 330 Independence Avenue, SW., 
Washington, DC 20201 on Monday through Friday of each week from 8 a.m. 
to 4:30 p.m.

FOR FURTHER INFORMATION CONTACT: Mary E. Riordan or Nicole C. Hall, 
Office of Counsel to the Inspector General, (202) 619-2078.

SUPPLEMENTARY INFORMATION:

Background

    Compliance program guidance is a major initiative of the OIG in its 
effort to engage the health care community in preventing and reducing 
fraud and abuse in Federal health care programs. The purpose of the 
compliance program guidance is to encourage the use of internal 
controls to efficiently monitor adherence to applicable statutes, 
regulations and program requirements. In the last several years, the 
OIG has developed and issued compliance program guidance directed at 
the following segments of the health care industry: The hospital 
industry; home health agencies; clinical laboratories; third-party 
medical billing companies; the durable medical equipment, prosthetics, 
orthotics and supply industry; Medicare+Choice organizations offering 
coordinated care plans; hospices; nursing facilities; and individual 
and small group physician practices. The OIG has also issued draft 
guidance directed at ambulance suppliers. Copies of these compliance 
program guidances can be found on the OIG Web site at http://oig.hhs.gov/fraud/complianceguidance.html.

Developing Draft Compliance Program Guidance for the Pharmaceutical 
Industry

    On June 11, 2001, the OIG published a solicitation notice seeking 
information and recommendations for developing compliance program 
guidance for the pharmaceutical industry (66 FR 31246). In response to 
that solicitation notice, the OIG received eight comments from various 
outside sources. In developing this draft guidance for formal public 
comment, we have considered those comments, as well as previous OIG 
publications, such as other compliance program guidances and Special 
Fraud Alerts. In addition, we have taken into account past and ongoing 
fraud investigations conducted by the OIG's Office of Investigations 
and the Department of Justice, and have consulted with the Centers for 
Medicare and Medicaid Services (CMS) (formerly known as the Health Care 
Financing Administration).
    This draft guidance for pharmaceutical manufacturers contains seven 
elements that have been widely recognized as fundamental to an 
effective compliance program:
    [sbull] Implementing written policies and procedures;
    [sbull] Designating a compliance officer and compliance committee;
    [sbull] Conducting effective training and education;
    [sbull] Developing effective lines of communication;
    [sbull] Conducting internal monitoring and auditing;
    [sbull] Enforcing standards through well-publicized disciplinary 
guidelines; and
    [sbull] Responding promptly to detected problems and undertaking 
corrective action.
    These elements are included in previous guidances issued by the 
OIG. As with previously-issued guidances, this draft compliance program 
guidance represents the OIG's suggestions on how pharmaceutical 
manufacturers can establish internal controls to ensure adherence to 
applicable rules and program requirements. The contents of this 
guidance should not be viewed as mandatory or as an exclusive 
discussion of the advisable elements of a compliance program. The 
document is intended to present voluntary guidance to the industry and 
not represent binding standards for pharmaceutical manufacturers.
    Although the June 11, 2001, solicitation notice requested 
information and recommendations for developing a compliance program 
guidance for the pharmaceutical industry generally, the OIG has since 
decided to focus this draft compliance program guidance specifically on 
pharmaceutical manufacturers and not to address other segments of the 
pharmaceutical industry, such as retail pharmacies. This decision was 
reached, in part, in response to comments from both pharmaceutical 
manufacturers and retail pharmacy chains, suggesting that the 
differences between pharmaceutical manufacturers and retail pharmacy 
chains, both in terms of operational issues and compliance issues, are 
significant enough to warrant addressing them separately.

Public Input and Comment in Developing Final Guidance

    In an effort to ensure that all parties have an opportunity to 
provide input into the OIG's guidance, we are publishing this guidance 
in draft form. We welcome any comments from interested parties 
regarding this document. The OIG will consider all comments that are 
received within the above-cited time frame, incorporate any specific 
recommendations as appropriate, and prepare a final version of the 
guidance thereafter for publication in the Federal Register. The final 
version of the guidance will be available though the OIG Web site at 
http://oig.hhs.gov.

Draft Compliance Program Guidance for Pharmaceutical Manufacturers

I. Introduction

    The Office of Inspector General (OIG) of the Department of Health 
and Human Services is continuing in its efforts to promote voluntary 
compliance programs for the health care industry. This compliance 
guidance is intended to assist companies that develop, manufacture, 
market, and sell pharmaceutical drugs or biological products 
(pharmaceutical manufacturers) in developing and implementing internal 
controls and procedures that promote adherence to applicable statutes, 
regulations, and requirements of the Federal health care programs \1\ 
and in evaluating and, as necessary, refining existing compliance 
programs.
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    \1\ The term ``Federal health care programs,'' as defined in 42 
U.S.C. 1320.a-7b(f), includes any plan or program that provides 
health benefits, whether directly, through insurance, or otherwise, 
which is funded directly, in whole or in part, by the United States 
government or any state health plan (e.g., Medicaid or a program 
receiving funds from block grants for social services or child 
health services). In this document, the term ``Federal health care 
program requirements'' refers to the statutes, regulations and other 
rules governing Medicare, Medicaid, and all other Federal health 
care programs.
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    This guidance provides the OIG s views on the fundamental elements 
of pharmaceutical manufacturer compliance programs and principles that 
each pharmaceutical manufacturer should consider when creating and 
implementing an effective compliance program. This guide is not a 
compliance program. Rather, it is a set of guidelines that 
pharmaceutical manufacturers should consider when developing and 
implementing a compliance program or evaluating an existing one. For 
those manufacturers with an existing compliance program, this guidance 
may serve as a benchmark or comparison against which to measure ongoing 
efforts.
    A pharmaceutical manufacturer's implementation of an effective 
compliance program may require a significant commitment of time and 
resources by various segments of the organization. In order for a 
compliance program to be effective, it must have the

[[Page 62059]]

support and commitment of senior management and the company's governing 
body. In turn, the corporate leadership should strive to foster a 
culture that promotes the prevention, detection, and resolution of 
instances of problems. Although an effective compliance program may 
require a reallocation of existing resources, the long-term benefits of 
establishing a compliance program significantly outweigh the initial 
costs.
    In a continuing effort to collaborate closely with the 
pharmaceutical industry, the OIG published a notice in the Federal 
Register soliciting comments and recommendations on what should be 
included in this compliance program guidance.\2\ In addition to 
considering the comments received in response to that solicitation 
notice, in drafting this guidance we reviewed previous OIG 
publications, including OIG advisory opinions, safe harbor regulations 
(including the preambles) relating to the Federal anti-kickback 
statute,\3\ Special Fraud Alerts, as well as reports issued by the 
OIG's Office of Audit Services and Office of Evaluation and Inspections 
relevant to the pharmaceutical industry. (These materials are available 
on the OIG Web page at http://oig.hhs.gov.) In addition, we relied on 
the experience gained from investigations of pharmaceutical 
manufacturers conducted by OIG's Office of Investigations, the 
Department of Justice, and the state Medicaid Fraud Control Units.
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    \2\ See 66 FR 31246 (June 11, 2001), ``Notice for Solicitation 
of Information and Recommendations for Developing a Compliance 
Program Guidance for the Pharmaceutical Industry.''
    \3\ 42 U.S.C. 1320a-7b(b).
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A. Benefits of a Compliance Program

    The OIG believes a comprehensive compliance program provides a 
mechanism that addresses the public and private sectors' mutual goals 
of reducing fraud and abuse; enhancing health care provider operational 
functions; improving the quality of health care services; and reducing 
the cost of health care. Attaining these goals provides positive 
results to the pharmaceutical manufacturer, the government, and 
individual citizens alike. In addition to fulfilling its legal duty to 
avoid submitting false or inaccurate pricing or rebate information to 
any Federal health care program or illegal marketing activities, a 
pharmaceutical manufacturer may gain important additional benefits by 
voluntarily implementing a compliance program. The benefits may 
include:
    [sbull] A concrete demonstration to employees and the community at 
large of the company's commitment to honest and responsible corporate 
conduct;
    [sbull] An increased likelihood of preventing, or at least 
identifying, and correcting unlawful and unethical behavior at an early 
stage;
    [sbull] A mechanism to encourage employees to report potential 
problems and allow for appropriate internal inquiry and corrective 
action; and
    [sbull] Through early detection and reporting, minimizing any 
financial loss to the government and any corresponding financial loss 
to the company.
    The OIG recognizes that the implementation of a compliance program 
may not entirely eliminate improper conduct from the operations of a 
pharmaceutical manufacturer. However, a good faith effort by the 
company to comply with applicable statutes and regulations as well as 
Federal health care program requirements, demonstrated by an effective 
compliance program, significantly reduces the risk of unlawful conduct 
and any penalties that result from such behavior.

A. Application of Compliance Program Guidance

    Given the wide diversity within the pharmaceutical industry, there 
is no single best pharmaceutical manufacturer compliance program. The 
OIG recognizes the complexities of this industry and the differences 
among industry members. Some pharmaceutical manufacturers are small and 
may have limited resources to devote to compliance measures. 
Conversely, other companies are well-established, large multi-national 
corporations with a widely dispersed work force. Some companies may 
have well-developed compliance programs already in place; others only 
now may be initiating such efforts. The OIG also recognizes that 
pharmaceutical manufacturers are subject to extensive regulatory 
requirements in addition to fraud and abuse-related issues and that 
many pharmaceutical manufacturers have addressed these obligations 
through compliance programs. Accordingly, the OIG strongly encourages 
pharmaceutical manufactures to develop and implement or refine (as 
necessary) compliance elements that uniquely address the areas of 
potential problems, common concern, or high risk that apply to their 
own companies (or, as applicable, to the U.S. operations of their 
companies).
    For example, although they are not exhaustive of all potential risk 
areas, the OIG has identified three major potential risk areas for 
pharmaceutical manufacturers: (1) Integrity of data used by state and 
Federal governments to establish payment; (2) kickbacks and other 
illegal remuneration; and (3) compliance with laws regulating drug 
samples. The risk areas are discussed in greater detail in section 
II.B.2. below. The compliance measures adopted by a pharmaceutical 
manufacturer should be tailored to fit the unique environment of the 
company (including its organizational structure, operations and 
resources, as well as prior enforcement experience). In short, the OIG 
recommends that each pharmaceutical manufacturer should adapt the 
objectives and principles underlying the measures outlined in this 
guidance to its own particular circumstances.

II. Compliance Program Elements

A. The Basic Compliance Elements

    The OIG believes that every effective compliance program must begin 
with a formal commitment by the pharmaceutical manufacturer's board of 
directors or other governing body. Evidence of that commitment should 
include the allocation of adequate resources, a timetable for the 
implementation of the compliance measures, and the identification of an 
individual to serve as a compliance officer to ensure that each of the 
recommended and adopted elements is addressed. Once a commitment has 
been undertaken, a compliance officer should immediately be chosen to 
oversee the implementation of the compliance program.
    The elements listed below provide a comprehensive and firm 
foundation upon which an effective compliance program may be built. 
Further, they are likely to foster the development of a corporate 
culture of compliance. The OIG recognizes that full implementation of 
all elements may not be immediately feasible for all pharmaceutical 
manufacturers. However, as a first step, a good faith and meaningful 
commitment on the part of the company's management will substantially 
contribute to the program's successful implementation. As the 
compliance program is implemented, that commitment should filter down 
through management to every employee and contractor of the 
pharmaceutical manufacturer, as applicable for the particular 
individual.
    At a minimum, a comprehensive compliance program should include the 
following elements:
    (1) The development and distribution of written standards of 
conduct, as well as written policies, procedures and protocols that 
verbalize the company's

[[Page 62060]]

commitment to compliance (e.g., by including adherence to the 
compliance program as an element in evaluating management and 
employees) and address specific areas of potential fraud and abuse, 
such as the reporting of pricing and rebate information to the Federal 
health care programs, and sales and marketing practices;
    (2) The designation of a compliance officer and other appropriate 
bodies (e.g., a corporate compliance committee) charged with the 
responsibility for developing, operating, and monitoring the compliance 
program, and with authority to report directly to the board of 
directors and/or the president or CEO;
    (3) The development and implementation of regular, effective 
education and training programs for all affected employees;
    (4) The creation and maintenance of an effective line of 
communication between the compliance officer and all employees, 
including a process (such as a hotline or other reporting system) to 
receive complaints or questions, and the adoption of procedures to 
protect the anonymity of complainants and to protect whistle blowers 
from retaliation;
    (5) The use of audits and/or other risk evaluation techniques to 
monitor compliance, identify problem areas, and assist in the reduction 
of identified problems;
    (6) The development of policies and procedures addressing the non-
employment or retention of excluded individuals or entities, and the 
enforcement of appropriate disciplinary action against employees or 
contractors who have violated company policies and procedures and/or 
applicable Federal health care program requirements; and
    (7) The development of policies and procedures for the 
investigation of identified instances of non-compliance or misconduct. 
These should include directions regarding the prompt and proper 
response to detected offenses, such as the initiation of appropriate 
corrective action and preventive measures.

B. Written Policies and Procedures

    In developing a compliance program, every pharmaceutical 
manufacturer should develop and distribute written compliance 
standards, procedures, and practices that guide the company and the 
conduct of its employees in day-to-day operations. These policies and 
procedures should be developed under the direction and supervision of 
the compliance officer, the compliance committee, and operational 
managers. At a minimum, the policies and procedures should be provided 
to all employees who are affected by these policies, and to any agents 
or contractors who may furnish services that impact Federal health care 
programs (e.g., contractors involved in the co-promotion of a 
manufacturer's products).
1. Code of Conduct
    Although a clear statement of detailed and substantive policies and 
procedures is at the core of a compliance program, the OIG recommends 
that pharmaceutical manufacturers also develop a general corporate 
statement of ethical and compliance principles that will guide the 
company's operations. One common expression of this statement of 
principles is the code of conduct. The code should function in the same 
fashion as a constitution, i.e., as a document that details the 
fundamental principles, values, and framework for action within an 
organization. The code of conduct for a pharmaceutical manufacturer 
should articulate the company's expectations of commitment to 
compliance by management, employees, and agents, and should summarize 
the broad ethical and legal principles under which the company must 
operate. Unlike the more detailed policies and procedures, the code of 
conduct should be brief, easily readable, and cover general principles 
applicable to all employees.
    As appropriate, the OIG strongly encourages the participation and 
involvement of the pharmaceutical manufacturer s board of directors, 
CEO, president, members of senior management, and other personnel from 
various levels of the organizational structure in the development of 
all aspects of the compliance program, especially the code of conduct. 
Management and employee involvement in this process communicates a 
strong and explicit commitment by management to foster compliance with 
applicable Federal health care program requirements. It also 
communicates the need for all employees to comply with the 
organization's code of conduct and policies and procedures.
2. Specific Risk Areas
    This section addresses the following major risk areas for 
pharmaceutical manufacturers: (1) Integrity of data used by state and 
Federal governments to establish payment; (2) kickbacks and other 
illegal remuneration; and (3) compliance with laws regulating drug 
samples. This section focuses on areas that are currently of most 
concern to the enforcement community and is not intended to be 
exhaustive of all potential risk areas for pharmaceutical 
manufacturers.
    a. Integrity of Data Used to Establish Government Reimbursement. 
Many Federal and state health care programs establish reimbursement 
rates for pharmaceuticals, either prospectively or retrospectively, 
using price and sales data directly or indirectly furnished by 
pharmaceutical manufacturers. The government sets reimbursement with 
the expectation that the data provided are complete and accurate. The 
knowing submission of false, fraudulent, or misleading information is 
actionable. A pharmaceutical manufacturer may be liable under the False 
Claims Act,\4\ if government reimbursement (including, but not limited 
to, reimbursement by Medicare and Medicaid) for the manufacturer s 
product depends, in whole or in part, on information generated or 
reported by the manufacturer, directly or indirectly, and the 
manufacturer has knowingly (as defined in the False Claims Act) failed 
to generate or report such information completely and accurately. 
Manufacturers may also be liable for civil money penalties under 
various laws, rules and regulations. Moreover, in some circumstances, 
inaccurate or incomplete reporting may be probative of liability under 
the Federal anti-kickback statute.
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    \4\ The False Claims Act (31 U.S.C. 3729-33) prohibits knowingly 
presenting (or causing to be presented) to the Federal government a 
false or fraudulent claim for payment or approval. Additionally, it 
prohibits knowingly, making, or using (or causing to be made or 
used) a false record or statement to get a false or fraudulent claim 
paid or approved by the Federal government or its agents, like a 
carrier, other claims processor, or state Medicaid program.
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    Where appropriate, manufacturers reported prices should accurately 
take into account price reductions, rebates, up-front payments, 
coupons, goods in kind, free or reduced price services, grants, or 
other price concessions or similar benefits offered to some or all 
purchasers. If a discount, price concession, or similar benefit is 
offered on purchases of multiple products, the discount, price 
concession, or similar benefit should be fairly apportioned among the 
products. Underlying assumptions used in connection with reported 
prices should be reasoned, consistent, and appropriately documented, 
and pharmaceutical manufacturers should retain all relevant records 
reflecting reported prices and efforts to comply with Federal health 
care program requirements.
    Given the importance of the Medicaid Rebate Program, as well as 
other programs that rely on Medicaid Rebate Program benchmarks (such as 
the 340B

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Program \5\), manufacturers should pay particular attention to ensuring 
that they are calculating Average Manufacturer Price and Best Price 
accurately and that they are paying appropriate rebate amounts for 
their drugs.\6\
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    \5\ The 340 B program, contained as part of the Public Health 
Services Act and codified at 42 U.S.C. 256b, is administered by the 
Health Resources and Services Administration (HRSA).
    \6\ 42 U.S.C. 1396r-8. Average Manufacturer Price are defined in 
the statute at 42 U.S.C. 1396r-8(k)(1) and 1396r-8(c)(1), 
respectively. CMS has provided further guidance on these terms in 
the National Drug Rebate Agreement and in Medicaid Program Releases 
available through its Web site at http:www.hcfa.gov/medicaid/drugs/drug.mpg.htm.
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    In sum, pharmaceutical manufacturers are responsible for ensuring 
the integrity of data they generate that is used for government 
reimbursement purposes.
    b. Kickbacks and Other Illegal Remuneration. Pharmaceutical 
manufacturers, as well as their employees and agents, should be aware 
of the Federal anti-kickback statute, and the constraints it places on 
the marketing and promotion of products reimbursable by the Federal 
health care programs. The anti-kickback statute is a criminal 
prohibition against payments (in any form, whether the payments are 
direct or indirect) made purposefully to induce or reward referrals of 
Federal health care business. The anti-kickback statute potentially 
implicates not only the offer or payment of anything of value for 
patient referrals, but also the offer or payment of anything of value 
in return for purchasing, leasing, ordering, or arranging for or 
recommending the purchase, lease, or ordering of any item or service 
reimbursable in whole or part by a Federal health care program. Under 
certain circumstances, a violation of the anti-kickback statute may 
give rise to liability under the False Claims Act.
    Activities that fit squarely in one of the safe harbors set forth 
in 42 CFR 1001.952 are deemed immune from sanction under the anti-
kickback statute. We recommend that pharmaceutical manufacturers 
structure their arrangements to fit in a safe harbor whenever possible. 
Potentially relevant safe harbors include: personal services and 
management contracts, warranties, discounts, employees, group 
purchasing organization arrangements, and shared risk arrangements. 
Even where an arrangement cannot be structured to fit in a safe harbor, 
the safe harbor regulations (and accompanying Federal Register 
preambles) provide valuable guidance for assessing risk of abuse under 
the anti-kickback statute. In addition, parties seeking guidance about 
their particular arrangements may apply for an OIG advisory opinion 
using the procedures set out at 42 CFR part 1008.
    The following discussion addresses key areas of potential risk 
under the anti-kickback statute arising from pharmaceutical 
manufacturers relationships with three groups: purchasers; physicians 
and other health care professionals; and sales agents. This discussion 
is intended to be illustrative, not exhaustive, of potential risk 
areas.
    (1) Relationships with Purchasers. (a) Discounts and Other Terms of 
Sale. Pharmaceutical manufacturers offer customers a variety of price 
concessions and similar benefits to induce the purchase of their 
products. Such inducements potentially implicate the anti-kickback 
statute if the products are reimbursable to the customers, in whole or 
in part, directly or indirectly, by any of the Federal health care 
programs. Moreover, price concessions and similar benefits offered to a 
wholesaler potentially implicate the statute if the concessions or 
benefits are offered to induce the wholesaler to purchase the products 
and to recommend the products to, or arrange for the purchase of the 
products by, customers that submit claims to the Federal health care 
programs. Finally, incentive payments to GPOs, PBMs, and other persons 
or entities in a position to influence the purchase of a 
manufacturers's products, but that do not themselves purchase the 
products, also potentially implicate the anti-kickback statute.
    Discounts. The anti-kickback statute contains a broad exception for 
discounts offered to customers that submit claims to the Federal health 
care programs, if the discounts are properly disclosed and accurately 
reported. See 42 U.S.C. 1320a-7b(b)(3)(A); 42 CFR 1001.952(h). However, 
to qualify for the exception, the discount must be in the form of a 
reduction in the price of the good or service based on an arms-length 
transaction. In other words, the exception covers only actual 
reductions in the product's price. Moreover, the regulations provide 
that the discount must be given at the time of sale or, in certain 
cases, set at the time of sale, even if finally determined subsequent 
to the time of sale (i.e., a rebate). Other kinds of price concessions 
(including, but not limited to, discounts on other products, other free 
or reduced price goods or services, ``educational'' or other grants, 
``conversion payments,'' signing bonuses, or ``up-front rebates'') do 
not qualify for the discount exception and should be carefully 
reviewed.
    Manufacturers offering discounts should thoroughly familiarize 
themselves, and have their sales and marketing personnel familiarize 
themselves, with the discount safe harbor at 42 CFR 1001.952(h). In 
particular, manufacturers should pay attention to the safe harbor 
requirements applicable to ``sellers'' and ``offerors'' of discounts. 
Under the safe harbor, sellers and offerors have specific obligations 
that include (i) informing a customer of any discount and of the 
customer's reporting obligations with respect to that discount and (ii) 
refraining from any action that would impede a customer's ability to 
comply with the safe harbor. To fulfill the safe harbor requirements, 
manufacturers will need to know how their customers submit claims to 
the Federal health care programs (e.g., whether the customer is a 
managed care, cost-based, or charge-based biller).
    Other terms of sale. Any remuneration provided as part of a sale, 
other than a price reduction covered by the discount exception, 
potentially implicates the anti-kickback statute. Non-price terms of 
sale make it difficult to ensure that the value of the remuneration is 
appropriately apportioned and accurately reported and that costs are 
not shifted disproportionately from private payers to the Federal 
health care programs. Arrangements involving such non-price terms 
should be evaluated on a case-by-case basis. Arrangements that may 
increase the risk of overutilization, higher government program costs, 
inappropriate steering of Federal health care business, or unfair 
competition are particularly suspect.
    Pharmaceutical manufacturers sometimes offer certain services in 
connection with the sale of their products. Such services include, 
among other things, product-related billing assistance programs, 
reimbursement consultation, or other types of programs. Any time a 
pharmaceutical manufacturer provides free or below market rate goods or 
services to a purchaser (or other potential referral source, such as a 
physician who might prescribe a manufacturer s product or a PBM that 
might put it on a formulary), it should examine whether it is providing 
a valuable tangible benefit to the recipient with the intent to induce 
or reward referrals. For example, a manufacturer should examine whether 
the services are made available to all customers or only to a select 
group (e.g., high volume prescribers). If the purchaser or referral 
source is in a position to make or influence referrals, and if the 
goods or services provided by the manufacturer eliminate an expense 
that the purchaser or referral source

[[Page 62062]]

would have otherwise incurred, the arrangement is likely to be 
problematic from a kickback perspective. Similarly, if a manufacturer 
provides a service having no independent value (such as limited 
reimbursement support services in connection with its own products) in 
tandem with another service or program that confers a benefit on a 
referring provider (such as one that eliminates normal financial 
risks), the arrangement could raise kickback concerns. For example, the 
anti-kickback statute would be implicated if a manufacturer were to 
couple a reimbursement support service with (i) a requirement that a 
purchaser pay for ordered products only if the purchaser is paid or 
(ii) a guarantee of a minimum ``spread'' between the purchase price and 
third party reimbursement levels.
    (b) Average Wholesale Price. The ``spread'' is the difference 
between the amount a customer pays for a product and the amount the 
customer receives upon resale of the product to the patient or other 
payer. In many situations under the Federal programs, pharmaceutical 
manufacturers control not only the amount at which they sell a product 
to their customers, but also the amount those customers who purchase 
the product for their own accounts and thereafter bill the Federal 
health care programs will be reimbursed. A subset of the manufacturer's 
customers, including certain medical specialists, PBMs, HMOs, and 
institutional providers, are also in a position to influence 
substantially a physician's or other health care professional's 
selection of the product. To the extent that a manufacturer controls 
the ``spread,'' it controls its customer's profit.
    Average Wholesale Price (AWP) is the benchmark often used to set 
reimbursement for prescription drugs under the Medicare Part B program. 
For covered drugs and biologicals, Medicare Part B generally reimburses 
at ``95 percent of average wholesale price.'' 42 U.S.C. 1395u(o). 
Similarly many state Medicaid programs and other payers base 
reimbursement for drugs and biologicals on AWP. Generally, AWP is 
reported directly by pharmaceutical manufacturers.
    A pharmaceutical manufacturer's purposeful manipulation of the AWP 
to increase its customers profits by increasing the amount the Federal 
health care programs reimburse its customers implicates the anti-
kickback statute. Unlike bona fide discounts, which transfer 
remuneration from a seller to a buyer, manipulation of the AWP 
transfers remuneration to a seller's immediate customer from a 
subsequent purchaser (the Federal or state government). Under the anti-
kickback statute, offering remuneration to a purchaser or referral 
source is improper if one purpose is to induce the purchase or referral 
of program business.
    In the light of this risk, the OIG recommends that manufacturers 
review their AWP reporting practices and methodology to confirm that 
marketing considerations do not influence the process. Furthermore, 
manufacturers should review their marketing practices. Manipulation of 
the AWP to induce customers to purchase a product, coupled with active 
marketing of the spread is evidence of the unlawful intent necessary to 
trigger the anti-kickback statute. Active marketing of the spread 
includes, for example, sales representatives promoting the spread as a 
reason to purchase the product or guaranteeing a certain profit or 
spread in exchange for the purchase of a product.
    (2) Relationships with Physicians and Other Health Care 
Professionals. Pharmaceutical manufacturers and their agents may have a 
variety of remunerative relationships with physicians and other health 
care professionals who order or prescribe their products. As these 
relationships may implicate the anti-kickback statute, they should be 
examined carefully. Relationships with particular parties should be 
evaluated individually and in the aggregate. The following discussion 
highlights some of the most significant areas of potential risk.
    ``Switching'' arrangements. As noted in the 1994 Special Fraud 
Alert (59 FR 65372; December 19, 1994), product conversion arrangements 
(also known as ``switching'' arrangements) are suspect under the anti-
kickback statute. Switching arrangements involve pharmaceutical 
manufacturers offering pharmacies, PBMs, physicians or other 
prescribers cash payments or other benefits each time a patient's 
prescription is changed to the manufacturer's product from a competing 
product. This activity implicates the statute, and, while such programs 
may be permissible in certain managed care arrangements, manufacturers 
should review any marketing practices utilizing ``switching'' payments 
in connection with products reimbursable by Federal health care 
programs very carefully. In addition, arrangements that have the effect 
of rewarding switching indirectly should also be carefully reviewed. 
Such arrangements include payments by pharmaceutical manufacturers to 
pharmacies, PBMs, or others for contacting patients or their physicians 
to encourage them change a prescription from another product to the 
company's product, and discounts or rebates based on movement of market 
share.
    Consulting and advisory payments. Pharmaceutical manufacturers 
frequently engage physicians and other health care professionals to act 
as ``consultants,'' ``advisors,'' or ``researchers'' in connection with 
various types of marketing and research activities. For instance, 
pharmaceutical manufacturers may engage physicians to perform research, 
data collection, and consulting services, to serve on advisory boards, 
to participate in focus groups, or to speak at meetings. While there 
may be legitimate purposes to these arrangements, they pose a 
substantial risk of fraud and abuse; without appropriate safeguards, 
they can result in payments for referrals.
    Pharmaceutical manufacturers should ensure that they (and their 
sales agents) compensate health care professionals only for providing 
actual, reasonable, and necessary services and that the arrangements 
are not merely token arrangements created to disguise otherwise 
improper payments. Moreover, payments should be fair market value for 
the services rendered, and manufacturers should take steps to ensure 
appropriate documentation of the fair market value determination, as 
well as the performance of the services. Whenever possible, the OIG 
recommends that consulting and advisory arrangements be structured to 
fit in the personal services safe harbor (42 CFR 1001.952(d)).
    Other remuneration. Pharmaceutical companies and their employees 
and agents engage in a number of other arrangements that offer 
benefits, directly or indirectly, to physicians or others in a position 
to make or influence referrals. These arrangements potentially 
implicate the anti-kickback statute. They include:
    [sbull] Entertainment, recreation, travel, meals, or other benefits 
in association with information or marketing presentations;
    [sbull] Sponsorship or other financing related to third-party 
educational conferences and meetings attended or taught by physicians 
or others in a position to generate or influence referrals;
    [sbull] Scholarships and educational funds;
    [sbull] Grants for research and education; and
    [sbull] Gifts, gratuities, and other business courtesies.
    These practices raise a particular risk where they involve parties 
in a position to prescribe or order the manufacturer's

[[Page 62063]]

products or to influence such prescriptions or orders. These parties 
include physicians and other health care professionals, as well as 
PBMs, GPOs, hospital systems, and the like.
    With respect to these practices, a good starting point for 
compliance purposes is the ``PhRMA Code on Interactions with Healthcare 
Professionals'' (the ``PhRMA Code'' ), a voluntary code promulgated by 
the Executive Committee of the Pharmaceutical Research and 
Manufacturers of America (PhRMA), that became effective July 1, 2002. 
It is available through PhRMA's Web site at http://www.phrma.org. The 
PhRMA Code provides useful guidance for evaluating relationships with 
physicians and other health care professionals. The OIG recommends that 
pharmaceutical manufacturers at a minimum comply with the standards set 
by the PhRMA Code. Arrangements that fail to meet the minimum standards 
set out in the PhRMA Code are likely to receive increased scrutiny from 
government authorities.
    While the PhRMA Code provides important and practicable benchmarks 
for manufacturers and government when evaluating practices involving 
gifts, gratuities, and other benefits, it must be understood that 
compliance with the relevant sections of the PhRMA Code will not 
necessarily protect a manufacturer from prosecution or liability for 
illegal conduct. Thus, all arrangements should be reviewed with the 
following issues, among others, in mind:
    [sbull] Is the gift or other benefit made to a person in a position 
to generate or influence business for the paying party?
    [sbull] Does the gift or other benefit take into account, directly 
or indirectly, the volume or value of business generated (e.g., is the 
payment or gift only given to persons who have prescribed or agree to 
prescribe the product)?
    [sbull] Is the gift or benefit more than nominal in value and/or 
does it exceed the fair market value of any legitimate service rendered 
to payer?
    [sbull] Is the gift or benefit unrelated to any services at all 
other than the referral of Federal health care business?
    (3) Relationships with Sales Agents. Sales agents, whether 
employees or independent contractors, are in the business of 
recommending or arranging for the purchase of the items or services 
they offer for sale on behalf of the pharmaceutical manufacturer they 
represent. Accordingly, any compensation arrangement between a 
pharmaceutical manufacturer and a sales agent for the purpose of 
selling health care items or services that are directly or indirectly 
reimbursable by a Federal health care program potentially implicates 
the anti-kickback statute, irrespective of the methodology used to 
compensate the agent. In addition, sales agents may engage in improper 
marketing and promotional activities that may give rise to manufacturer 
liability. Of particular concern are situations in which a sales 
agent's express or implied duties include offering or paying 
remuneration (in any form) to purchasers or prescribers of the 
pharmaceutical manufacturer's products or in which a sales agent's 
compensation methodology creates an undue incentive to engage in 
aggressive marketing or promotional practices.
    As an initial matter, the safe harbors for personal services 
arrangements and employment, 42 CFR 1001.952(d) and (i), are available 
to protect many compensation arrangements with sales agents. While 
compliance with safe harbors is voluntary and failure to comply does 
not necessarily mean that an arrangement violates the anti-kickback 
statute, the OIG strongly recommends that manufacturers structure their 
relationships with their sales force to fit in a safe harbor whenever 
possible. Compensation arrangements with sales personnel that do not 
fit in a safe harbor should be reviewed carefully.
    It is in a pharmaceutical manufacturer's best interests to: (i) 
Develop a regular and comprehensive training program for its sales 
force, including refresher and updated training on a regular basis, 
either in person or through newsletters, memoranda, or the like; (ii) 
institute and implement corrective action and disciplinary policies 
applicable to sales agents who engage in improper marketing; (iii) 
avail itself of the advisory opinion process if it has questions about 
particular practices used by its sales force; and (iv) establish an 
effective system for tracking, compiling, and reviewing information 
about sales force activities.
    c. Drug Samples. The provision of drug samples is a widespread 
industry practice that can benefit patients, but can also be an area of 
potential risk to a pharmaceutical manufacturer. The Prescription Drug 
Marketing Act of 1987 (PDMA) governs the distribution of drug samples 
and forbids their sale. 21 U.S.C. 353(c)(1). A drug sample is defined 
to be a unit of the drug ``that is not intended to be sold * * * and is 
intended to promote the sale of the drug''. 21 U.S.C. 353(c)(1). 
Failure to comply with the requirements of PDMA can result in PDMA 
sanctions. In some circumstances, if the samples have monetary value to 
the recipient (e.g., a physician) and are used to treat Federal health 
care program beneficiaries, the provision of samples may also trigger 
potential False Claims Acts or kickback liability.
    Pharmaceutical manufacturers should closely follow the PDMA 
requirements (including all documentation requirements). In addition, 
manufacturers can minimize their risk of liability by (i) training 
their sales force to inform sample recipients in a meaningful manner 
that samples may not be sold or billed; (ii) clearly and conspicuously 
labeling individual samples as units that may not be sold; and (iii) 
including on packaging and any documentation related to the samples 
(such as shipping notices or invoices) a clear and conspicuous notice 
that the samples are subject to PDMA and may not be sold. Recent 
government enforcement activity has focused on instances in which drug 
samples were provided to physicians who, in turn, sold them to the 
patient or billed them to the Federal health care programs on behalf of 
the patient.

C. Designation of a Compliance Officer and a Compliance Committee

1. Compliance Officer
    Every pharmaceutical manufacturer should designate a compliance 
officer to serve as the focal point for compliance activities. This 
responsibility may be the individual's sole duty or added to other 
management responsibilities, depending upon the size and resources of 
the company and the complexity of the task. If the individual has 
additional management responsibilities, the pharmaceutical manufacturer 
should ensure that the individual is able to dedicate adequate and 
substantive time and attention to the compliance functions. Similarly, 
if the compliance officer delegates some of the compliance duties, he 
or she should, nonetheless, remain sufficiently involved to fulfill the 
compliance oversight function.
    Designating a compliance officer with the appropriate authority is 
critical to the success of the program, necessitating the appointment 
of a high-level official with direct access to the company's president 
or CEO, board of directors, all other senior management, and legal 
counsel. The compliance officer should have sufficient funding, 
resources, and staff to perform his or her responsibilities fully. The 
compliance officer should be able to effectuate change within the 
organization as necessary or appropriate and to exercise independent 
judgment. Optimal placement of the compliance officer within the 
organization will vary

[[Page 62064]]

according to the particular situation of a manufacturer.\7\
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    \7\ The OIG believes it is generally not advisable for the 
compliance function to be subordinate to the pharmaceutical 
manufacturer's general counsel, or comptroller or similar financial 
officer. Separation of the compliance function helps to ensure 
independent and objective legal reviews and financial analysis of 
the company's compliance efforts and activities. By separating the 
compliance function from the key management positions of general 
counsel or chief financial officer (where the size and structure of 
the pharmaceutical manufacturer make this a feasible option), a 
system of checks and balances is established to more effectively 
achieve the goals of the compliance program.
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    Coordination and communication with other appropriate individuals 
or business units are the key functions of the compliance officer with 
regard to planning, implementing or enhancing, and monitoring the 
compliance program. The compliance officer's primary responsibilities 
should include:
    [sbull] Overseeing and monitoring implementation of the compliance 
program; \8\
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    \8\ For companies with pharmaceutical manufacturers multiple 
divisions or regional offices, the OIG encourages coordination with 
each company location through the use of a compliance officer 
located in corporate headquarters who is able to communicate with 
parallel compliance liaisons in each division or regional office, as 
appropriate.
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    [sbull] Reporting on a regular basis to the company's board of 
directors, CEO or president, and compliance committee (if applicable) 
on compliance matters and assisting these individuals or groups to 
establish methods to reduce the company's vulnerability to fraud and 
abuse;
    [sbull] Periodically revising the compliance program, as 
appropriate, to respond to changes in the company's needs and 
applicable Federal health care program requirements, identified 
weakness in the compliance program, or identified systemic patterns of 
non-compliance;
    [sbull] Developing, coordinating, and participating in a 
multifaceted educational and training program that focuses on the 
elements of the compliance program, and seeking to ensure that all 
affected employees and management understand and comply with pertinent 
Federal and state standards;
    [sbull] Ensuring that independent contractors and agents, 
particularly those agents and contractors who are involved in sales and 
marketing activities, are aware of the requirements of the company's 
compliance program with respect to sales and marketing activities, 
among other things;
    [sbull] Coordinating personnel issues with the company's Human 
Resources/Personnel office (or its equivalent) to ensure that the List 
of Excluded Individuals/Entities \9\ has been checked with respect to 
all employees and independent contractors;
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    \9\ As part of its commitment to compliance, a pharmaceutical 
manufacturer should carefully consider whether to hire or do 
business with individuals or entities that have been sanctioned by 
the OIG. The List of Excluded Individuals and Entities can be 
checked electronically and is accessible through the OIG's Web site 
at: http://oig.hhs.gov.
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    [sbull] Assisting the company's internal auditors in coordinating 
internal compliance review and monitoring activities;
    [sbull] Reviewing and, where appropriate, acting in response to 
reports of non-compliance received through the hotline (or other 
established reporting mechanism) or otherwise brought to his or her 
attention (e.g., as a result of an internal audit or by corporate 
counsel who may have been notified of a potential instance of non-
compliance);
    [sbull] Independently investigating and acting on matters related 
to compliance. To that end, the compliance officer should have the 
flexibility to design and coordinate internal investigations (e.g., 
responding to reports of problems or suspected violations) and any 
resulting corrective action (e.g., making necessary improvements to 
policies and practices, and taking appropriate disciplinary action) 
with various company divisions or departments;
    [sbull] Participating with the company s counsel in the appropriate 
reporting of any self-discovered violations of Federal health care 
program requirements; and
    [sbull] Continuing the momentum and, as appropriate, revision or 
expansion of the compliance program after the initial years of 
implementation.\10\
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    \10\ There are many approaches the compliance officer may enlist 
to maintain the vitality of the compliance program. Periodic on-site 
visits of regional operations, bulletins with compliance updates and 
reminders, distribution of audiotapes, videotapes, CD-ROMs, or 
computer notifications about different risk areas, lectures at 
management and employee meetings, and circulation of recent articles 
or publications discussing fraud and abuse are some examples of 
approaches the compliance officer may employ.
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    The compliance officer must have the authority to review all 
documents and other information relevant to compliance activities. This 
review authority should enable the compliance officer to examine 
interactions with government programs to determine whether the company 
is in compliance with Federal health care program reporting and rebate 
requirements and to examine interactions with health care professionals 
that could violate kickback prohibitions or other Federal health care 
programs requirements. Where appropriate, the compliance officer should 
seek the advice of competent legal counsel about these matters.
2. Compliance Committee
    The OIG recommends that a compliance committee be established to 
advise the compliance officer and assist in the implementation of the 
compliance program.\11\ When developing an appropriate team of people 
to serve as the pharmaceutical manufacturer s compliance committee, the 
company should consider a variety of skills and personality traits that 
are expected from the team members. The company should expect its 
compliance committee members and compliance officer to demonstrate high 
integrity, good judgment, assertiveness, and an approachable demeanor, 
while eliciting the respect and trust of company employees. These 
interpersonal skills are as important as the professional experience of 
the compliance officer and each member of the compliance committee.
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    \11\ The compliance committee benefits from having the 
perspectives of individuals with varying responsibilities and areas 
of knowledge in the organization, such as operations, finance, 
audit, human resources, legal, and sales and marketing, as well as 
employees and managers of key operating units. The compliance 
officer should be an integral member of the committee. All committee 
members should have the requisite seniority and comprehensive 
experience within their respective departments to recommend and 
implement any necessary changes to policies and procedures.
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    Once a pharmaceutical manufacturer chooses the people who will 
accept the responsibilities vested in members of the compliance 
committee, the company needs to train these individuals on the policies 
and procedures of the compliance program, as well as how to discharge 
their duties. The OIG recognizes that some pharmaceutical manufacturers 
(e.g., small companies or those with limited budgets) may not have the 
resources or the need to establish a compliance committee. However, 
when potential problems are identified at such companies, the OIG 
recommends the creation of a task force to address the particular 
issues. The members of the task force may vary depending upon the area 
of concern. For example, if the compliance officer identifies issues 
relating to improper inducements to the company's purchasers or 
prescribers, the OIG recommends that a task force be organized to 
review the arrangements and interactions with those purchasers or 
prescribers. In essence, the compliance committee is an extension of 
the compliance officer and provides the organization with increased 
oversight.

[[Page 62065]]

D. Conducting Effective Training and Education

    The proper education and training of officers, directors, 
employees, contractors, and agents, and periodic retraining of 
personnel at all levels are critical elements of an effective 
compliance program. A pharmaceutical manufacturer must take steps to 
communicate effectively its standards and procedures to all affected 
personnel by requiring participation in appropriate training programs 
and by other means, such as disseminating publications that explain 
specific requirements in a practical manner. These training programs 
should include general sessions summarizing the manufacturer's 
compliance program, written standards, and applicable Federal health 
care program requirements. All employees and, where feasible and 
appropriate, contractors should receive the general training. More 
specific training on issues, such as (i) the anti-kickback statute and 
how it applies to pharmaceutical sales and marketing practices and (ii) 
the calculation and reporting of pricing information and payment of 
rebates in connection with Federal health care programs, should be 
targeted at those employees and contractors whose job requirements make 
the information relevant. The specific training should be tailored to 
make it as meaningful as possible for the participants.
    Managers and employees of specific divisions can assist in 
identifying specialized areas that require training and in carrying out 
such training. Additional areas for training may also be identified 
through internal audits and monitoring and from a review of any past 
compliance problems of the pharmaceutical manufacturer or similarly-
situated companies. Training instructors may come from outside or 
inside the organization, but must be qualified to present the subject 
matter involved and sufficiently experienced in the issues presented to 
adequately field questions and coordinate discussions among those being 
trained. Ideally, training instructors should be available for follow-
up questions after the formal training session has been conducted.
    The pharmaceutical manufacturer should train new employees soon 
after they have started working. Training programs and materials should 
be designed to take into account the skills, experience, and knowledge 
of the individual trainees. The compliance officer should document any 
formal training undertaken by the company as part of the compliance 
program. The company should retain adequate records of its training of 
employees, including attendance logs, descriptions of the training 
sessions, and copies of the material distributed at training sessions.
    The OIG suggests that all relevant personnel (i.e., employees as 
well as agents of the pharmaceutical manufacturer) participate in the 
various educational and training programs of the company. For example, 
for sales representatives who are responsible for the sale and 
marketing of the company's products, periodic training in the anti-
kickback statute and its safe harbors should be required. Employees 
should be required to have a minimum number of educational hours per 
year, as appropriate, as part of their employment responsibilities.
    The OIG recognizes that the format of the training program will 
vary depending upon the size and resources of the pharmaceutical 
manufacturer. For example, a company with limited resources or whose 
sales force is widely dispersed may want to create a videotape or 
computer-based program for each type of training session so new 
employees and employees outside of central locations can receive 
training in a timely manner. If videos or computer-based programs are 
used for compliance training, the OIG suggests that the company make a 
qualified individual available to field questions from trainees. Also, 
large pharmaceutical manufacturers may find training via the Internet 
or video conference capabilities to be a cost-effective means of 
reaching a large number of employees. Alternatively, large companies 
may include training sessions as part of regularly scheduled regional 
meetings.
    The OIG recommends that participation in training programs be made 
a condition of continued employment and that failure to comply with 
training requirements should result in disciplinary action. Adherence 
to the training requirements as well as other provisions of the 
compliance program should be a factor in the annual evaluation of each 
employee.

E. Developing Effective Lines of Communication

1. Access to Supervisors and/or the Compliance Officer
    In order for a compliance program to work, employees must be able 
to ask questions and report problems. Supervisors play a key role in 
responding to employee concerns and it is appropriate that they serve 
as a first line of communications. Pharmaceutical manufacturers should 
consider the adoption of open-door policies in order to foster dialogue 
between management and employees. In order to encourage communications, 
confidentiality and non-retaliation policies should also be developed 
and distributed to all employees.\12\
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    \12\ In some cases, employees sue their employers under the 
False Claims Act's qui tam provisions after a failure or apparent 
failure by the company to take action when the employee brought a 
questionable, fraudulent, or abusive situation to the attention of 
senior corporate officials. Whistleblowers must be protected against 
retaliation, a concept embodied in the provisions of the False 
Claims Act. See 31 U.S.C. 3730(h).
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    Open lines of communication between the compliance officer and 
employees are equally important to the successful implementation of a 
compliance program and the reduction of any potential for fraud and 
abuse. In addition to serving as a contact point for reporting problems 
and initiating appropriate responsive action, the compliance officer 
should be viewed as someone to whom personnel can go to get 
clarification on the company's policies. Questions and responses should 
be documented and dated and, if appropriate, shared with other staff so 
that compliance standards or policies can be updated and improved to 
reflect any necessary changes or clarifications. Pharmaceutical 
manufacturers may also consider rewarding employees for appropriate use 
of established reporting systems as a way to encourage the use of such 
systems.
2. Hotlines and Other Forms of Communication
    The OIG encourages the use of hotlines, e-mails, newsletters, 
suggestion boxes, and other forms of information exchange to maintain 
open lines of communication. In addition, an effective employee exit 
interview program could be designed to solicit information from 
departing employees regarding potential misconduct and suspected 
violations of company policy and procedures. Pharmaceutical 
manufacturers may also identify areas of risk or concern through 
periodic surveys or communications with sales representatives about the 
current marketing environment. This could provide management with 
insight about and an opportunity to address conduct occurring in the 
field, either by the company's own sale representatives or those of 
other companies.
    If a pharmaceutical manufacturer establishes a hotline or other 
reporting mechanism, information regarding how to access the reporting 
mechanism should be made readily available to all employees and 
independent contractors by including that information in the code of 
conduct or by circulating the

[[Page 62066]]

information (e.g., by publishing the hotline number or e-mail address 
on wallet cards) or conspicuously posting the information in common 
work areas.\13\ Employees should be permitted to report matters on an 
anonymous basis.
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    \13\ Pharmaceutical manufacturers should also post in a 
prominent area the HHS-OIG Hotline telephone number, 1-800-447-8477 
(1-800-HHS-TIPS).
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    Reported matters that suggest substantial violations of compliance 
policies or applicable Federal health care program requirements should 
be documented and investigated promptly to determine their veracity and 
the scope and cause of any underlying problem. The compliance officer 
should maintain a detailed log that records such reports, including the 
nature of any investigation, its results, and any remedial or 
disciplinary action taken. Such information, redacted of individual 
identifiers, should be summarized and included in reports to the board 
of directors, the president or CEO, and compliance committee. Although 
the pharmaceutical manufacturer should always strive to maintain the 
confidentiality of an employee's identity, it should also make clear 
that there may be a point where the individual's identity may become 
known or need to be revealed in certain instances. The OIG recognizes 
that protecting anonymity may be infeasible for small companies. 
However, the OIG believes all employees, when seeking answers to 
questions or reporting potential instances of fraud and abuse, should 
know to whom to turn for a meaningful response and should be able to do 
so without fear of retribution.

F. Auditing and Monitoring

    An effective compliance program should incorporate thorough 
monitoring of its implementation and an ongoing evaluation process. The 
compliance officer should document this ongoing monitoring, including 
reports of suspected noncompliance, and provide these assessments to 
company's senior management and the compliance committee. The extent 
and frequency of the compliance audits may vary depending on variables 
such as the pharmaceutical manufacturer's available resources, prior 
history of noncompliance, and the risk factors particular to the 
company. The nature of the reviews may also vary and could include a 
prospective systemic review of the manufacturer's processes, protocols, 
and practices or a retrospective review of actual practices in a 
particular area.
    Although many assessment techniques are available, it is often 
effective to have internal or external evaluators who have relevant 
expertise perform regular compliance reviews. The reviews should focus 
on those divisions or departments of the pharmaceutical manufacturer 
that have substantive involvement with or impact on Federal health care 
programs (such as the government contracts and sales and marketing 
divisions) and on the risk areas identified in this guidance. The 
reviews should also evaluate the company's policies and procedures 
regarding other areas of concern identified by the OIG (e.g., through 
Special Fraud Alerts) and Federal and state law enforcement agencies. 
Specifically, the reviews should evaluate whether: (1) The 
pharmaceutical manufacturer has policies covering the identified risk 
areas; (2) whether the policies were implemented and communicated; and 
(3) whether the policies were followed.

G. Enforcing Standards Through Well-Publicized Disciplinary Guidelines

    An effective compliance program should include clear and specific 
disciplinary policies that set out the consequences of violating the 
law or the pharmaceutical manufacturer's code of conduct or policies 
and procedures. A pharmaceutical manufacturer should consistently 
undertake appropriate disciplinary action across the company in order 
for the disciplinary policy to have the required deterrent effect. 
Intentional and material noncompliance should subject transgressors to 
significant sanctions. Such sanctions could range from oral warnings to 
suspension, termination or other sanctions, as appropriate. 
Disciplinary action also may be appropriate where a responsible 
employee's failure to detect a violation is attributable to his or her 
negligence or reckless conduct. Each situation must be considered on a 
case-by-case basis, taking into account all relevant factors, to 
determine the appropriate response.

H. Responding to Detected Problems and Developing Corrective Action 
Initiatives

    Violation of a pharmaceutical manufacturer's compliance program, 
failure to comply with applicable Federal or state law, and other types 
of misconduct threaten the company's status as a reliable, honest, and 
trustworthy participant in the health care industry. Detected but 
uncorrected misconduct can endanger the reputation and legal status of 
the company. Consequently, upon receipt of reasonable indications of 
suspected noncompliance, it is important that the compliance officer or 
other management officials immediately investigate the allegations to 
determine whether a material violation of applicable law or the 
requirements of the compliance program has occurred and, if so, take 
decisive steps to correct the problem.\14\ The exact nature and level 
of thoroughness of the investigation will vary according to the 
circumstances, but the review should be detailed enough to identify the 
root cause of the problem. As appropriate, the investigation may 
include a corrective action plan, a report and repayment to the 
government, and/or a referral to criminal and/or civil law enforcement 
authorities.
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    \14\ Instances of noncompliance must be determined on a case-by-
case basis. The existence or amount of a monetary loss to a Federal 
health care program is not solely determinative of whether the 
conduct should be investigated and reported to governmental 
authorities. In fact, there may be instances where there is no 
readily identifiable monetary loss, but corrective actions are still 
necessary to protect the integrity of the health care program.
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Reporting
    Where the compliance officer, compliance committee, or a member of 
senior management discovers credible evidence of misconduct from any 
source and, after a reasonable inquiry, believes that the misconduct 
may violate criminal, civil, or administrative law, the company should 
promptly report the existence of misconduct to the appropriate Federal 
and state authorities \15\ within a reasonable period, but not more 
than 60 days,\16\ after determining that there is credible evidence of 
a violation.\17\ Prompt

[[Page 62067]]

voluntary reporting will demonstrate the pharmaceutical manufacturer's 
good faith and willingness to work with governmental authorities to 
correct and remedy the problem. In addition, reporting such conduct 
will be considered a mitigating factor by the OIG in determining 
administrative sanctions (e.g., penalties, assessments, and exclusion), 
if the reporting company becomes the subject of an OIG 
investigation.\18\
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    \15\ Appropriate Federal and state authorities include the OIG, 
the Criminal and Civil Divisions of the Department of Justice, the 
U.S. Attorney in relevant districts, the Food and Drug 
Administration, the Federal Trade Commission, the Drug Enforcement 
Administration and the Federal Bureau of Investigation, and the 
other investigative arms for the agencies administering the affected 
Federal or state health care programs, such as the state Medicaid 
Fraud Control Unit, the Defense Criminal Investigative Service, the 
Department of Veterans Affairs, HRSA, and the Office of Personnel 
Management (which administers the Federal Employee Health Benefits 
Program).
    \16\ In contrast, to qualify for the ``not less than double 
damages'' provision of the False Claims Act, the provider must 
provide the report to the government within 30 days after the date 
when the provider first obtained the information. 31 U.S.C. 3729(a).
    \17\ Some violations may be so serious that they warrant 
immediate notification to governmental authorities prior to, or 
simultaneous with, commencing an internal investigation. By way of 
example, the OIG believes a provider should report misconduct that: 
(1) Is a clear violation of administrative, civil, or criminal laws; 
(2) has a significant adverse effect on the quality of care provided 
to Federal health care program beneficiaries; or (3) indicates 
evidence of a systemic failure to comply with applicable laws or an 
existing corporate integrity agreement, regardless of the financial 
impact on Federal health care programs.
    \18\ The OIG has published criteria setting forth those factors 
that the OIG takes into consideration in determining whether it is 
appropriate to exclude an individual or entity from program 
participation pursuant to 42 U.S.C. 1320a-7(b)(7) for violations of 
various fraud and abuse laws. See 62 FR 67392 (December 24, 1997).
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    When reporting to the government, a pharmaceutical manufacturer 
should provide all information relevant to the alleged violation of 
applicable Federal or state law(s) and the potential financial or other 
impact of the alleged violation. The compliance officer, under advice 
of counsel and with guidance from the governmental authorities, could 
be requested to continue to investigate the reported violation. Once 
the investigation is completed, and especially if the investigation 
ultimately reveals that criminal, civil or administrative violations 
have occurred, the compliance officer should notify the appropriate 
governmental authority of the outcome of the investigation, including a 
description of the impact of the alleged violation on the operation of 
the applicable Federal health care programs or their beneficiaries.

III. Conclusion

    In today's environment of increased scrutiny of corporate conduct 
and increasingly large expenditures for prescription drugs, it is 
imperative for pharmaceutical manufacturers to establish and maintain 
effective compliance programs. These programs should foster a culture 
of compliance that begins at the executive level and permeates 
throughout the organization. This compliance guidance is designed to 
provide assistance to all pharmaceutical manufacturers as they either 
implement compliance programs or re-assess existing programs. The 
essential elements outlined in this compliance guidance can be adapted 
to the unique environment of each manufacturer. It is the hope and 
expectation of the OIG that the resulting compliance programs will 
benefit not only Federal health care programs and their beneficiaries, 
but also pharmaceutical manufacturers themselves.

    Dated: September 26, 2002.
Janet Rehnquist,
Inspector General.
[FR Doc. 02-25119 Filed 10-2-02; 8:45 am]
BILLING CODE 4152-01-P