[Federal Register Volume 68, Number 86 (Monday, May 5, 2003)]
[Notices]
[Pages 23731-23743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10949]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Office of Inspector General
OIG Compliance Program Guidance for Pharmaceutical Manufacturers
AGENCY: Office of Inspector General (OIG), HHS.
ACTION: Notice
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SUMMARY: This Federal Register notice sets forth the recently issued
Compliance Program Guidance for Pharmaceutical Manufacturers developed
by the Office of Inspector General (OIG). 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.
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; individual and
small group physician practices; and 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 the Compliance Program Guidance for Pharmaceutical
Manufacturers
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. We carefully 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). In an effort to ensure that
all parties had a reasonable opportunity to provide input into a final
product, draft compliance program guidance for the pharmaceutical
industry was published in the Federal Register on October 3, 2002 (67
FR 62057) for further comments and recommendations.
Elements for an Effective Compliance Program
This compliance program 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 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 to represent binding standards for pharmaceutical manufacturers.
Office of Inspector General's 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\ (Endnotes appear at end of document)
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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 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
[[Page 23732]]
the Federal Register soliciting comments and recommendations on what
should be included in this compliance program guidance.\2\ Following
our review of comments received in response to the solicitation notice,
we published draft compliance guidance in the Federal Register in order
to solicit further comments and recommendations.\3\ In addition to
considering the comments received in response to that solicitation
notice and the draft compliance guidance, in finalizing this guidance
we reviewed previous OIG publications, including OIG advisory opinions,
safe harbor regulations (including the preambles) relating to the
federal anti-kickback statute,\4\ 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. We also held meetings with four groups of
industry stakeholders--Pharmaceutical Research and Manufacturers of
America (PhRMA) and pharmaceutical manufacturer representatives; health
plan and health plan association representatives; representatives of
pharmacy benefit managers (PBMs) and representatives of the American
Medical Association (AMA) and its member organizations.
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 engaging in 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.
B. 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.\5\
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 commitment to compliance (e.g., by including
adherence to the compliance
[[Page 23733]]
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 whistleblowers
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 individuals or entities excluded from
participation in federal health care programs, 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 noncompliance 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 and processes to report the
offense to relevant authorities in appropriate circumstances.
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 is intended to help prudent pharmaceutical
manufacturers identify areas of their operations that present potential
risk of liability under several key federal fraud and abuse statutes
and regulations.\6\ This section focuses on areas that are currently of
concern to the enforcement community and is not intended to address all
potential risk areas for pharmaceutical manufacturers. Importantly, the
identification of a particular practice or activity in this section is
not intended to imply that the practice or activity is necessarily
illegal in all circumstances or that it may not have a valid or lawful
purpose underlying it.
This section addresses the following areas of significant concern
for pharmaceutical manufacturers: (1) Integrity of data used by state
and federal governments to establish payment amounts; (2) kickbacks and
other illegal remuneration; and (3) compliance with laws regulating
drug samples.
This guidance does not create any new law or legal obligations, and
the discussions that follow are not intended to present detailed or
comprehensive summaries of lawful and unlawful activity. Rather, these
discussions should be used as a starting point for a manufacturer's
legal review of its particular practices and for development of
policies and procedures to reduce or eliminate potential risk.
a. Integrity of Data Used To Establish or Determine Government
Reimbursement. Many federal and state health care programs establish or
ultimately determine 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\7\ 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.
Where appropriate, manufacturers' reported prices should accurately
take into account price reductions, cash discounts, free goods
contingent on a purchase agreement, rebates, up-front payments,
coupons, goods in kind, free or reduced-price services, grants, or
[[Page 23734]]
other price concessions or similar benefits offered to some or all
purchasers. Any discount, price concession, or similar benefit offered
on purchases of multiple products should be fairly apportioned among
the products (and could potentially raise anti-kickback issues).
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 Program \8\), 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.\9\
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--A. General
Considerations. 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, including,
but not limited to, Medicare and Medicaid. In the health care sector,
many common business activities, including, for example, sales,
marketing, discounting, and purchaser relations, potentially implicate
the anti-kickback statute. Pharmaceutical manufacturers and their
employees and agents should be aware that the anti-kickback statute
prohibits in the health care industry some practices that are common in
other business sectors. In short, practices that may be common or
longstanding in other businesses are not necessarily acceptable or
lawful when soliciting federal health care program business.
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 the referral or generation of
federal health care business. The anti-kickback statute addresses 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. The statute extends
equally to the solicitation or acceptance of remuneration for
referrals. Liability under the anti-kickback statute is determined
separately for each party involved. In addition to criminal penalties,
violators may be subject to civil monetary sanctions and exclusion from
the federal health care programs. Under certain circumstances, a
violation of the anti-kickback statute may give rise to liability under
the False Claims Act.
Although liability under the anti-kickback statute ultimately turns
on a party's intent, it is possible to identify arrangements or
practices that may present a significant potential for abuse.
Initially, a manufacturer should identify any remunerative relationship
between itself (or its representatives) and persons or entities in a
position to generate federal health care business for the manufacturer
directly or indirectly. Persons or entities in a position to generate
federal health care business include, for example, purchasers, benefit
managers, formulary committee members, group purchasing organizations
(GPOs), physicians and certain allied health care professionals, and
pharmacists. The next step is to determine whether any one purpose of
the remuneration may be to induce or reward the referral or
recommendation of business payable in whole or in part by a Federal
health care program. Importantly, a lawful purpose will not legitimize
a payment that also has an unlawful purpose.
Although any arrangement satisfying both tests requires careful
scrutiny from a manufacturer, the courts have identified several
potentially aggravating considerations that can be useful in
identifying arrangements at greatest risk of prosecution. In
particular, manufacturers should ask the following questions, among
others, about any problematic arrangements or practices they identify:
[sbull] Does the arrangement or practice have a potential to
interfere with, or skew, clinical decision-making? Does it have a
potential to undermine the clinical integrity of a formulary process?
If the arrangement or practice involves providing information to
decision-makers, prescribers, or patients, is the information complete,
accurate, and not misleading?
[sbull] Does the arrangement or practice have a potential to
increase costs to the federal health care programs, beneficiaries, or
enrollees? Does the arrangement or practice have the potential to be a
disguised discount to circumvent the Medicaid Rebate Program Best Price
calculation?
[sbull] Does the arrangement or practice have a potential to
increase the risk of overutilization or inappropriate utilization?
[sbull] Does the arrangement or practice raise patient safety or
quality of care concerns?
Manufacturers that have identified problematic arrangements or
practices can take a number of steps to reduce or eliminate the risk of
an anti-kickback violation. Detailed guidance relating to a number of
specific practices is available from several sources. Most importantly,
the anti-kickback statute and the corresponding regulations establish a
number of ``safe harbors'' for common business arrangements, including
personal services and management contracts, 42 CFR 1001.952(d),
warranties, 42 CFR 1001.952(g), discounts, 42 CFR 1001.952(h),
employment, 42 CFR 1001.952(i), GPOs, 42 CFR 1001.952(j), and certain
managed care and risk sharing arrangements, 42 CFR 1001.952(m), (t),
and (u). Safe harbor protection requires strict compliance with all
applicable conditions set out in the relevant safe harbor. Although
compliance with a safe harbor is voluntary and failure to comply with a
safe harbor does not mean an arrangement is illegal, many arrangements
can be structured to fit in safe harbors, and we recommend that
pharmaceutical manufacturers structure arrangements to fit in a safe
harbor whenever possible. Other available guidance includes special
fraud alerts and advisory bulletins issued by the OIG identifying and
discussing particular practices or issues of concern and OIG advisory
opinions issued to specific parties about their particular business
arrangements. Parties may apply for an OIG advisory opinion using the
procedures set out at 42 CFR part 1008. The safe harbor regulations
(and accompanying Federal Register preambles), fraud alerts and
bulletins, advisory opinions (and instructions for obtaining them), and
other guidance are available on the OIG web site at http://oig.hhs.gov.
B. Key Areas of Potential Risk. The following discussion highlights
several known areas of potential risk. The propriety of any particular
arrangement can only be determined after a detailed examination of the
attendant facts and circumstances. The identification of a given
practice or activity as ``suspect'' or as an area of ``risk'' does not
mean it is necessarily illegal or unlawful, or that it
[[Page 23735]]
cannot be properly structured to fit in a safe harbor. Nor does it mean
that the practice or activity is not beneficial from a clinical, cost,
or other perspective. Rather, the areas identified below are those
areas of activity that have a potential for abuse based on historical
law enforcement experience and that should receive close scrutiny from
manufacturers. The discussion highlights potential risks under the
anti-kickback statute arising from pharmaceutical manufacturers'
relationships with three groups: purchasers (including those using
formularies) and their agents; persons and entities in a position to
make or influence referrals (including physicians and other health care
professionals); and sales agents.
(1) Relationships with Purchasers and their Agents--(a) Discounts
and Other Remuneration to Purchasers. Pharmaceutical manufacturers
offer purchasers a variety of price concessions and other remuneration
to induce the purchase of their products. Purchasers include direct
purchasers (e.g., hospitals, nursing homes, pharmacies, some
physicians), as well as indirect purchasers (e.g., health plans).
Inducements offered to purchasers potentially implicate the anti-
kickback statute if the purchased products are reimbursable to the
purchasers, in whole or in part, directly or indirectly, by any of the
federal health care programs. Any remuneration from a manufacturer
provided to a purchaser that is expressly or impliedly related to a
sale potentially implicates the anti-kickback statute and should be
carefully reviewed.
Discounting arrangements are prevalent in the pharmaceutical
industry and deserve careful scrutiny particularly because of their
potential to implicate the Best Price requirements of the Medicaid
Rebate Program. Because the Medicaid Rebate Program in many instances
requires that states receive rebates based on the Best Price offered by
a pharmaceutical manufacturer to other purchasers, manufacturers have a
strong financial incentive to hide de facto pricing concessions to
other purchasers to avoid passing on the same discount to the states.
Because of the potential direct and substantial effect of such
practices on federal health care program expenditures and the interest
of some manufacturers in avoiding price concessions that would trigger
rebates to the states, any remuneration from a manufacturer to a
purchaser, however characterized, should be carefully scrutinized.
Discounts. Public policy favors open and legitimate price
competition in health care. Thus, the anti-kickback statute contains an
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 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).
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) (and,
if relevant, the safe harbors for price reductions in the managed care
context, 42 CFR 1001.952(m), (t), and (u)). In particular,
manufacturers should pay attention to the discount 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).
Compliance with the safe harbor is determined separately for each
party.
Product Support Services. Pharmaceutical manufacturers sometimes
offer purchasers certain support services in connection with the sale
of their products. These services may include billing assistance
tailored to the purchased products, reimbursement consultation, and
other programs specifically tied to support of the purchased product.
Standing alone, services that have no substantial independent value to
the purchaser may not implicate the anti-kickback statute. However, 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 a reimbursement guarantee that
eliminates normal financial risks), the arrangement would raise
kickback concerns. For example, the anti-kickback statute would be
implicated if a manufacturer were to couple a reimbursement support
service with a promise that a purchaser will pay for ordered products
only if the purchaser is reimbursed by a federal health care program.
Educational Grants. Pharmaceutical manufacturers sometimes provide
grant funding for a wide range of educational activities. While
educational funding can provide valuable information to the medical and
health care industry, manufacturer grants to purchasers, GPOs, PBMs and
similar entities raise concerns under the anti-kickback statute.
Funding that is conditioned, in whole or in part, on the purchase of
product implicates the statute, even if the educational or research
purpose is legitimate. Furthermore, to the extent the manufacturer has
any influence over the substance of an educational program or the
presenter, there is a risk that the educational program may be used for
inappropriate marketing purposes.
To reduce the risks that a grant program is used improperly to
induce or reward product purchases or to market product
inappropriately, manufacturers should separate their grant making
functions from their sales and marketing functions. Effective
separation of these functions will help insure that grant funding is
not inappropriately influenced by sales or marketing motivations and
that the educational purposes of the grant are legitimate.
Manufacturers should establish objective criteria for making grants
that do not take into account the volume or value of purchases made by,
or anticipated from, the grant recipient and that serve to ensure that
the funded activities are bona fide. The manufacturer should have no
control over the speaker or content of the educational presentation.
Compliance with such procedures should be documented and regularly
monitored.
Research Funding. Manufacturers often contract with purchasers of
their products to conduct research activities on behalf of the
manufacturer on a fee-for-service basis. These contracts should be
structured to fit in the personal services safe harbor whenever
possible. Payments for research services should be fair market value
for legitimate, reasonable, and necessary services. Post-marketing
research activities should be especially scrutinized to ensure that
they are legitimate and not simply a pretext to generate prescriptions
of a drug. Prudent manufacturers will develop contracting procedures
that
[[Page 23736]]
clearly separate the awarding of research contracts from marketing.
Research contracts that originate through the sales or marketing
functions--or that are offered to purchasers in connection with sales
contacts--are particularly suspect.
Pharmaceutical manufacturers sometimes provide funding to their
purchasers for use in the purchasers' own research. In many cases, the
research provides valuable scientific and clinical information,
improves clinical care, leads to promising new treatments, promotes
better delivery of health care, or otherwise benefits patients.
However, as with educational grants, if linked directly or indirectly
to the purchase of product, research grants can be misused to induce
the purchase of business without triggering Medicaid Best Price
obligations. To reduce risk, manufacturers should insulate research
grant making from sales and marketing influences.
Other remuneration to purchasers. As already noted, any
remuneration from a manufacturer provided to a purchaser that is
expressly or impliedly related to a sale potentially implicates the
anti-kickback statute and should be carefully reviewed. Examples of
remuneration in connection with a sale include, but are not limited to,
``prebates'' and ``upfront payments,'' other free or reduced-price
goods or services, and payments to cover the costs of ``converting''
from a competitor's product. Selective offers of remuneration (i.e.,
offers made to some but not all purchasers) may increase potential risk
if the selection criteria relate directly or indirectly to the volume
or value of business generated. In addition, manufacturers may contract
with purchasers to provide services to the manufacturer, such as data
collection services. These contracts should be structured whenever
possible to fit in the personal services safe harbor; in all cases, the
remuneration should be fair market value for legitimate, reasonable,
and necessary services.
(b) Formularies and Formulary Support Activities. To help control
drug costs while maintaining clinical appropriateness and quality of
patient care, many purchasers of pharmaceutical products, including
indirect purchasers such as health plans, have developed drug
formularies to promote rational, clinically appropriate, safe, and
cost-effective drug therapy. Formularies are a well-established tool
for the effective management of drug benefits. The formulary
development process--typically overseen by a committee of physicians,
pharmacists, and other health care professionals--determines the drugs
that are covered and, if tiered benefit levels are utilized, to which
tier the drugs are assigned. So long as the determination of clinical
efficacy and appropriateness of formulary drugs by the formulary
committee precedes, and is paramount to, the consideration of costs,
the development of a formulary is unlikely to raise significant issues
under the anti-kickback statute.
Formulary support activities, including related communications with
patients and physicians to encourage compliance, are an integral and
essential component of successful pharmacy benefits management. Proper
utilization of a formulary maximizes the cost-effectiveness of the
benefit and assures the quality and appropriateness of the drug
therapy. When provided by a PBM, these services are part of the PBM's
formulary and benefit management function--a service provided to its
customers--and markedly different from its purchasing agent/price
negotiator role. Most importantly, the benefits of these formulary
support activities inure directly to the PBM and its customers through
lower costs.
To date, Medicare and Medicaid involvement with outpatient drug
formularies has been limited primarily to Medicaid and Medicare managed
care plans. In light of the safe harbors under the anti-kickback
statute for those managed care arrangements, the financial arrangements
between health plans and pharmaceutical manufacturers or, where the
pharmacy benefit is managed by a PBM, the arrangements among the three
parties, have received relatively little scrutiny. However, as federal
program expenditures for, and coverage of, outpatient pharmaceuticals
increase, scrutiny under the anti-kickback statute has also increased.
Several practices appear to have the potential for abuse.
[sbull] Relationships with formulary committee members. Given the
importance of formulary placement for a manufacturer's products,
unscrupulous manufacturers and sales representatives may attempt to
influence committee deliberations. Any remuneration from a manufacturer
or its agents directly or indirectly to person in a position to
influence formulary decisions related to the manufacturer's products
are suspect and should be carefully scrutinized. Manufacturers should
also review their contacts with sponsors of formularies to ensure that
price negotiations do not influence decisions on clinical safety or
efficacy.
[sbull] Payments to PBMs. Any rebates or other payments by drug
manufacturers to PBMs that are based on, or otherwise related to, the
PBM's customers' purchases potentially implicate the anti-kickback
statute. Protection is available by structuring such arrangements to
fit in the GPO safe harbor at 42 CFR 1001.952(j). That safe harbor
requires, among other things, that the payments be authorized in
advance by the PBM's customer and that all amounts actually paid to the
PBM on account of the customer's purchases be disclosed in writing at
least annually to the customer. In addition, arrangements with PBMs
that assume risk may raise different issues; depending on the
circumstances, protection for such arrangements may be available under
the managed care safe harbors at 42 CFR 1001.952(m), (t) and (u).
[sbull] Formulary placement payments. Lump sum payments for
inclusion in a formulary or for exclusive or restricted formulary
status are problematic and should be carefully scrutinized.
In addition, some manufacturers provide funding for purchasers' or
PBMs' formulary support activities, especially communications with
physicians and patients. While the communications may indirectly
benefit the manufacturer, the primary economic beneficiary is typically
the formulary sponsor. In other words, the manufacturer's dollars
appear to replace dollars that would or should be spent by the sponsor.
To the extent the manufacturers' payments are linked to drug purchases
directly or indirectly, they potentially implicate the anti-kickback
statute. Among the questions that should be examined by a manufacturer
in connection with these activities are: Is the funding tied to
specific drugs or categories? If so, are the categories especially
competitive? Is the formulary sponsor funding similar activities for
other drug categories? Has funding of PBM activities increased as
rebates are increasingly passed back to PBM customers?
(c) 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. To the extent that a
manufacturer controls the ``spread,'' it controls its customer's
profit.
[[Page 23737]]
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 or
pricing information used by commercial price reporting services to
determine AWP is reported by pharmaceutical manufacturers.
If a pharmaceutical manufacturer purposefully manipulates the AWP
to increase its customers' profits by increasing the amount the federal
health care programs reimburse its customers, the anti-kickback statute
is implicated. 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 other words, it is illegal for a manufacturer
knowingly to establish or inappropriately maintain a particular AWP if
one purpose is to manipulate the ``spread'' to induce customers to
purchase its product.
In the light of this risk, we recommend 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. The conjunction of
manipulation of the AWP to induce customers to purchase a product with
active marketing of the spread is strong 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 Persons and Entities in
a Position to Make or Influence Referrals. Pharmaceutical manufacturers
and their agents may have a variety of remunerative relationships with
persons or entities in a position to refer, order, or prescribe--or
influence the referral, ordering, or prescribing of--the manufacturers'
products, even though the persons or entities may not themselves
purchase (or in the case of GPOs or PBMs, arrange for the purchase of)
those products. These remunerative relationships potentially implicate
the anti-kickback statute. The following discussion focuses on
relationships with physicians, but the same principles would apply when
evaluating relationships with other parties in a position to influence
referrals, including, without limitation, pharmacists and other health
care professionals.
Manufacturers, providers, and suppliers of health care products and
services frequently cultivate relationships with physicians in a
position to generate business for them through a variety of practices,
including gifts, entertainment, and personal services compensation
arrangements. These activities have a high potential for fraud and
abuse and, historically, have generated a substantial number of anti-
kickback convictions. There is no substantive difference between
remuneration from a pharmaceutical manufacturer or from a durable
medical equipment or other supplier--if the remuneration is intended to
generate any federal health care business, it potentially violates the
anti-kickback statute.
Any time a pharmaceutical manufacturer provides anything of value
to a physician who might prescribe the manufacturer's product, the
manufacturer should examine whether it is providing a valuable tangible
benefit to the physician with the intent to induce or reward referrals.
For example, if goods or services provided by the manufacturer
eliminate an expense that the physician would have otherwise incurred
(i.e., have independent value to the physician), or if items or
services are sold to a physician at less than their fair market value,
the arrangement may be problematic if the arrangement is tied directly
or indirectly to the generation of federal health care program business
for the manufacturer. Moreover, under the anti-kickback statute,
neither a legitimate purpose for an arrangement (e.g., physician
education), nor a fair market value payment, will necessarily protect
remuneration if there is also an illegal purpose (i.e., the purposeful
inducement of business).
In light of the obvious risks inherent in these arrangements,
whenever possible prudent manufacturers and their agents or
representatives should structure relationships with physicians to fit
in an available safe harbor, such as the safe harbors for personal
services and management contracts, 42 CFR 1001.952(d), or employees, 42
CFR 1001.952(i). An arrangement must fit squarely in a safe harbor to
be protected. In addition, arrangements that do not fit in a safe
harbor should be reviewed in light of the totality of all facts and
circumstances, bearing in mind the following factors, among others:
[sbull] Nature of the relationship between the parties. What degree
of influence does the physician have, directly or indirectly, on the
generation of business for the manufacturer? Does the manufacturer have
other direct or indirect relationships with the physician or members of
the physician's group?
[sbull] Manner in which the remuneration is determined. Does the
remuneration take into account, directly or indirectly, the volume or
value of business generated (e.g., is the remuneration only given to
persons who have prescribed or agreed to prescribe the manufacturer's
product)? Is the remuneration conditioned in whole or in part on
referrals or other business generated? Is there any service provided
other than referrals?
[sbull] Value of the remuneration. Is the remuneration more than
trivial in value, including all gifts to any individual, entity, or
group of individuals? \10\ Do fees for services exceed the fair market
value of any legitimate, reasonable, and necessary services rendered by
the physician to the manufacturer?
[sbull] Potential federal program impact of the remuneration. Does
the remuneration have the potential to affect costs to any of the
federal health care programs or their beneficiaries or to lead to
overutilization or inappropriate utilization?
[sbull] Potential conflicts of interest. Would acceptance of the
remuneration diminish, or appear to diminish, the objectivity of
professional judgment? Are there patient safety or quality of care
concerns? If the remuneration relates to the dissemination of
information, is the information complete, accurate, and not misleading?
These concerns are addressed in the PhRMA Code on Interactions with
Healthcare Professionals (the ``PhRMA Code''), adopted on April 18,
2002, which provides useful and practical advice for reviewing and
structuring these relationships. (The PhRMA Code is available through
PhRMA's Web site at http://www.phrma.org.) Although compliance with the
PhRMA Code will not protect a manufacturer as a matter of law under the
anti-kickback statute, it will substantially reduce the risk of fraud
and abuse and help demonstrate a good faith effort to comply with the
applicable federal health care program requirements.
[[Page 23738]]
The following paragraphs discuss in greater detail several common
or problematic relationships between manufacturers and physicians,
including ``switching'' arrangements, consulting and advisory payments,
payments for detailing, business courtesies and other gratuities, and
educational and research activities.
[sbull] Switching'' arrangements. As noted in the OIG's 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 physicians or others cash
payments or other benefits each time a patient's prescription is
changed to the manufacturer's product from a competing product. This
activity clearly implicates the statute, and, while such programs may
be permissible in certain managed care arrangements, manufacturers
should review very carefully any marketing practices utilizing
``switching'' payments in connection with products reimbursable by
federal health care programs.
Consulting and advisory payments. Pharmaceutical manufacturers
frequently engage physicians and other health care professionals to
furnish personal services as consultants or advisers to the
manufacturer. In general, fair market value payments to small numbers
of physicians for bona fide consulting or advisory services are
unlikely to raise any significant concern. Compensating physicians as
``consultants'' when they are expected to attend meetings or
conferences primarily in a passive capacity is suspect.
Also of concern are compensation relationships with physicians for
services connected directly or indirectly to a manufacturer's marketing
and sales activities, such as speaking, certain research, or preceptor
or ``shadowing'' services. While these arrangements are potentially
beneficial, they also pose a risk of fraud and abuse. In particular,
the use of health care professionals for marketing purposes--including,
for example, ghost-written papers or speeches--implicates the anti-
kickback statute. While full disclosure by physicians of any potential
conflicts of interest and of industry sponsorship or affiliation may
reduce the risk of abuse, disclosure does not eliminate the risk.
At a minimum, manufacturers should periodically review arrangements
for physicians' services to ensure that: (i) The arrangement is set out
in writing; (ii) there is a legitimate need for the services; (iii) the
services are provided; (iv) the compensation is at fair market value;
and (v) all of the preceding facts are documented prior to payment. In
addition, to further reduce their risk, manufacturers should structure
services arrangements to comply with a safe harbor whenever possible.
Payments for detailing. Recently, some entities have been
compensating physicians for time spent listening to sales
representatives market pharmaceutical products. In some cases, these
payments are characterized as ``consulting'' fees and may require
physicians to complete minimal paperwork. Other companies pay
physicians for time spent accessing web sites to view or listen to
marketing information or perform ``research.'' All of these activities
are highly suspect under the anti-kickback statute, are highly
susceptible to fraud and abuse, and should be strongly discouraged.
Business Courtesies and Other Gratuities. Pharmaceutical companies
and their employees and agents often 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. Examples of
remunerative arrangements between pharmaceutical manufacturers (or
their representatives) and parties in a position to influence referrals
include:
[sbull] Entertainment, recreation, travel, meals, or other benefits
in association with information or marketing presentations; and
[sbull] Gifts, gratuities, and other business courtesies.
As discussed above, these arrangements potentially implicate the
anti-kickback statute if any one purpose of the arrangement is to
generate business for the pharmaceutical company. While the
determination of whether a particular arrangement violates the anti-
kickback statute depends on the specific facts and circumstances,
compliance with the PhRMA Code with respect to these arrangements
should substantially reduce a manufacturer's risk.
Educational and Research Funding. In some cases, manufacturers
contract with physicians to provide research services on a fee-for-
service basis. These contracts should be structured to fit in the
personal services safe harbor whenever possible. Payments for research
services should be fair market value for legitimate, reasonable, and
necessary services. Research contracts that originate through the sales
or marketing functions--or that are offered to physicians in connection
with sales contacts--are particularly suspect. Indicia of questionable
research include, for example, research initiated or directed by
marketers or sales agents; research that is not transmitted to, or
reviewed by, a manufacturer's science component; research that is
unnecessarily duplicative or is not needed by the manufacturer for any
purpose other than the generation of business; and post-marketing
research used as a pretense to promote product. Prudent manufacturers
will develop contracting procedures that clearly separate the awarding
of research contracts from marketing or promotion of their products.
In addition, pharmaceutical manufacturers also provide other
funding for a wide range of physician educational and research
activities. Manufacturers should review educational and research grants
to physicians similarly to educational and research grants to
purchasers (described above). As with grants to purchasers, the OIG
recognizes that many grant-funded activities are legitimate and
beneficial. When evaluating educational or research grants provided by
manufacturers to physicians, manufacturers should determine if the
funding is based, in any way, expressly or implicitly, on the
physician's referral of the manufacturer's product. If so, the funding
plainly implicates the anti-kickback statute. In addition, the
manufacturer should determine whether the funding is for bona fide
educational or research purposes. Absent unusual circumstances, grants
or support for educational activities sponsored and organized by
medical professional organizations raise little risk of fraud or abuse,
provided that the grant or support is not restricted or conditioned
with respect to content or faculty.
Pharmaceutical manufacturers often provide funding to other
sponsors of continuing medical education (CME) programs. Manufacturers
should take steps to ensure that neither they, nor their
representatives, are using these activities to channel improper
remuneration to physicians or others in a position to generate business
for the manufacturer or to influence or control the content of the
program.\11\ In addition, manufacturers and sponsors of educational
programs should be mindful of the relevant rules and regulations of the
Food and Drug Administration. Codes of conduct promulgated by the CME
industry may provide a useful starting point for manufacturers when
reviewing their CME arrangements.
(3) Relationships with Sales Agents. In large part, a
pharmaceutical manufacturer's commitment to an effective fraud and
abuse compliance program can be measured by its
[[Page 23739]]
commitment to training and monitoring its sales force. A pharmaceutical
manufacturer should: (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) familiarize its sales force with the minimum PhRMA
Code standards and other relevant industry standards; (iii) institute
and implement corrective action and disciplinary policies applicable to
sales agents who engage in improper marketing; (iv) avail itself of the
advisory opinion process if it has questions about particular practices
used by its sales force; and (v) establish an effective system for
tracking, compiling, and reviewing information about sales force
activities, including, if appropriate, random spot checking.
In addition, manufacturers should carefully review their
compensation arrangements with sales agents. Sales agents, whether
employees or independent contractors, are paid to recommend and arrange
for the purchase of the items or services they offer for sale on behalf
of the pharmaceutical manufacturer they represent. Many arrangements
can be structured to fit in the employment or personal services safe
harbor. Arrangements that cannot fit into a safe harbor should be
carefully reviewed. Among the factors that should be evaluated are:
[sbull] The amount of compensation;
[sbull] The identity of the sales agent engaged in the marketing or
promotional activity (e.g., is the agent a ``white coat'' marketer or
otherwise in a position of exceptional influence);
[sbull] The sales agent's relationship with his or her audience;
[sbull] The nature of the marketing or promotional activity;
[sbull] The item or service being promoted or marketed; and
[sbull] The composition of the target audience.
Manufacturers should be aware that a compensation arrangement with
a sales agent that fits in a safe harbor can still be evidence of a
manufacturer's improper intent when evaluating the legality of the
manufacturer's relationships with persons in a position to influence
business for the manufacturer. For example, if a manufacturer provides
sales employees with extraordinary incentive bonuses and expense
accounts, there may well be an inference to be drawn that the
manufacturer intentionally motivated the sales force to induce sales
through lavish entertainment or other remuneration.
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
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 improper use of samples may also
trigger liability under other statutes, including the False Claims Act
and the anti-kickback statue.
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 (thus vitiating any monetary
value of the sample); (ii) clearly and conspicuously labeling
individual samples as units that may not be sold (thus minimizing the
ability of recipients to advertently or inadvertently commingle samples
with purchased product); 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.\12\ 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 according to the particular situation of a
manufacturer.\13\
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; \14\
[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
noncompliance;
[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/
[[Page 23740]]
Personnel office (or its equivalent) to ensure that the List of
Excluded Individuals/Entities \15\ has been checked with respect to all
employees and independent contractors;
[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 noncompliance 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
noncompliance);
[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.\16\
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.\17\ 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.
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.
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 each group of 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. A pharmaceutical manufacturer should regularly
review its training and, where appropriate, update the training to
reflect issues identified through audits or monitoring and any relevant
changes in federal health care program requirements. 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.
[[Page 23741]]
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.\18\
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 polices 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 information (e.g., by publishing the
hotline number or e-mail address on wallet cards) or conspicuously
posting the information in common work areas. Employees should be
permitted to report matters on an anonymous basis.
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 might 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 the: (1)
Pharmaceutical manufacturer has policies covering the identified risk
areas; (2) policies were implemented and communicated; and (3) 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
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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.\19\ 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.
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\20\ within a reasonable period, but not more than
60 days,\21\ after determining that there is credible evidence of a
violation.\22\ Prompt 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.\23\
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: April 23, 2003.
Janet Rehnquist,
Inspector General.
Endnotes
1. The term ``Federal health care programs,'' as defined in 42
U.S.C. 1320a-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.
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. See 67 FR 62057 (October 3, 2002), ``Draft OIG Compliance
Program Guidance for Pharmaceutical Manufacturers.''
4. 42 U.S.C. 1320a-7b(b).
5. In addition, the compliance program elements and potential
risk areas addressed in this compliance program guidance may also
have application to manufacturers of other products that may be
reimbursed by federal health care programs, such as medical devices
and infant nutritional products.
6. In addition, pharmaceutical manufacturers should be mindful
that many states have fraud and abuse statutes--including false
claims, anti-kickback and other statutes--that are not addressed in
this guidance.
7. 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.
8. The 340B 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).
9. 42 U.S.C. 1396r-8. Average Manufacturer Price and Best 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.
10. In this regard, pharmaceutical manufacturers should note
that the exception for non-monetary compensation under the Stark law
(42 U.S.C. 1395nn; 42 CFR 411.357(k)) is not a basis for protection
under the anti-kickback statute.
11. CME programs with no industry sponsorship, financing, or
affiliation should not raise anti-kickback concerns, although
tuition payments by manufacturers (or their representatives) for
persons in a position to influence referrals (e.g., physicians or
medical students) may raise concerns.
12. It is also advisable to designate as a compliance officer an
individual with prior experience or knowledge of compliance and
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operational issues relevant to pharmaceutical manufacturers.
13. 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.
14. For companies with 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.
15. 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.
16. 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.
17. 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.
18. 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).
19. 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.
20. 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).
21. 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).
22. 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.
23. 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).
[FR Doc. 03-10949 Filed 5-2-03; 8:45 am]
BILLING CODE 4152-01-P