Table Of ContentFederal Register / Vol. 68, No. 86 / Monday, May 5, 2003 / Notices 23731
Dated: April 18, 2003. Developing the Compliance Program to the industry and not to represent
Elizabeth M. Duke, Guidance for Pharmaceutical binding standards for pharmaceutical
Administrator.
Manufacturers manufacturers.
[FR Doc. 03–10934 Filed 5–2–03; 8:45 am]
On June 11, 2001, the OIG published
Office of Inspector General’s
BILLING CODE 4165–15–P a solicitation notice seeking information Compliance Program Guidance for
and recommendations for developing Pharmaceutical Manufacturers
compliance program guidance for the
I. Introduction
DEPARTMENT OF HEALTH AND
pharmaceutical industry (66 FR 31246).
HUMAN SERVICES
In response to that solicitation notice, The Office of Inspector General (OIG)
the OIG received eight comments from of the Department of Health and Human
Office of Inspector General
various outside sources. We carefully Services is continuing in its efforts to
considered those comments, as well as promote voluntary compliance
OIG Compliance Program Guidance for
previous OIG publications, such as programs for the health care industry.
Pharmaceutical Manufacturers
other compliance program guidances This compliance guidance is intended
AGENCY: Office of Inspector General and Special Fraud Alerts. In addition, to assist companies that develop,
(OIG), HHS. we have taken into account past and manufacture, market, and sell
ongoing fraud investigations conducted pharmaceutical drugs or biological
ACTION: Notice
by the OIG’s Office of Investigations and products (pharmaceutical
SUMMARY: This Federal Register notice the Department of Justice, and have manufacturers) in developing and
sets forth the recently issued consulted with the Centers for Medicare implementing internal controls and
Compliance Program Guidance for and Medicaid Services (CMS) (formerly procedures that promote adherence to
Pharmaceutical Manufacturers known as the Health Care Financing applicable statutes, regulations, and
developed by the Office of Inspector Administration). In an effort to ensure requirements of the federal health care
1
General (OIG). Through this notice, the that all parties had a reasonable programs and in evaluating and, as
OIG is setting forth its general views on opportunity to provide input into a final necessary, refining existing compliance
the value and fundamental principles of product, draft compliance program programs.
compliance programs for guidance for the pharmaceutical This guidance provides the OIG’s
pharmaceutical manufacturers and the industry was published in the Federal views on the fundamental elements of
specific elements that pharmaceutical Register on October 3, 2002 (67 FR pharmaceutical manufacturer
manufacturers should consider when 62057) for further comments and compliance programs and principles
developing and implementing an recommendations. that each pharmaceutical manufacturer
should consider when creating and
effective compliance program.
Elements for an Effective Compliance
implementing an effective compliance
FOR FURTHER INFORMATION CONTACT: Program
program. This guide is not a compliance
Mary E. Riordan or Nicole C. Hall,
This compliance program guidance program. Rather, it is a set of guidelines
Office of Counsel to the Inspector
for pharmaceutical manufacturers that pharmaceutical manufacturers
General, (202) 619–2078.
contains seven elements that have been should consider when developing and
SUPPLEMENTARY INFORMATION: widely recognized as fundamental to an implementing a compliance program or
effective compliance program: evaluating an existing one. For those
Background
• Implementing written policies and manufacturers with an existing
Compliance program guidance is a procedures; compliance program, this guidance may
major initiative of the OIG in its effort • Designating a compliance officer serve as a benchmark or comparison
to engage the health care community in and compliance committee; against which to measure ongoing
preventing and reducing fraud and • Conducting effective training and efforts.
abuse in federal health care programs. education; A pharmaceutical manufacturer’s
The purpose of the compliance program • Developing effective lines of implementation of an effective
guidance is to encourage the use of communication; compliance program may require a
internal controls to efficiently monitor • Conducting internal monitoring and significant commitment of time and
adherence to applicable statutes, auditing; resources by various segments of the
regulations and program requirements. • Enforcing standards through well- organization. In order for a compliance
In the last several years, the OIG has publicized disciplinary guidelines; and program to be effective, it must have the
developed and issued compliance • Responding promptly to detected support and commitment of senior
program guidance directed at the problems and undertaking corrective management and the company’s
following segments of the health care action. governing body. In turn, the corporate
industry: the hospital industry; home These elements are included in leadership should strive to foster a
health agencies; clinical laboratories; previous guidances issued by the OIG. culture that promotes the prevention,
third-party medical billing companies; As with previously issued guidances, detection, and resolution of instances of
the durable medical equipment, this compliance program guidance problems. Although an effective
prosthetics, orthotics and supply represents the OIG’s suggestions on how compliance program may require a
industry; Medicare+Choice pharmaceutical manufacturers can reallocation of existing resources, the
organizations offering coordinated care establish internal controls to ensure long-term benefits of establishing a
plans; hospices; nursing facilities; adherence to applicable rules and compliance program significantly
individual and small group physician program requirements. The contents of outweigh the initial costs.
practices; and ambulance suppliers. this guidance should not be viewed as In a continuing effort to collaborate
Copies of these compliance program mandatory or as an exclusive discussion closely with the pharmaceutical
guidances can be found on the OIG Web of the advisable elements of a industry, the OIG published a notice in
site at http://oig.hhs.gov/fraud/ compliance program. The document is
complianceguidance.html. intended to present voluntary guidance 1 (Endnotes appear at end of document)
23732 Federal Register / Vol. 68, No. 86 / Monday, May 5, 2003 / Notices
the Federal Register soliciting • An increased likelihood of establish payment; (2) kickbacks and
comments and recommendations on preventing, or at least identifying, and other illegal remuneration; and (3)
what should be included in this correcting unlawful and unethical compliance with laws regulating drug
compliance program guidance.2 behavior at an early stage; samples. The risk areas are discussed in
Following our review of comments • A mechanism to encourage greater detail in section II.B.2. below.
received in response to the solicitation employees to report potential problems The compliance measures adopted by a
notice, we published draft compliance and allow for appropriate internal pharmaceutical manufacturer should be
guidance in the Federal Register in inquiry and corrective action; and tailored to fit the unique environment of
order to solicit further comments and • Through early detection and the company (including its
3 reporting, minimizing any financial loss
recommendations. In addition to organizational structure, operations and
to the government and any
considering the comments received in resources, as well as prior enforcement
corresponding financial loss to the
response to that solicitation notice and experience). In short, the OIG
company.
the draft compliance guidance, in recommends that each pharmaceutical
The OIG recognizes that the
finalizing this guidance we reviewed manufacturer should adapt the
implementation of a compliance
previous OIG publications, including objectives and principles underlying the
program may not entirely eliminate
OIG advisory opinions, safe harbor measures outlined in this guidance to its
improper conduct from the operations 5
regulations (including the preambles) own particular circumstances.
of a pharmaceutical manufacturer.
relating to the federal anti-kickback
4 However, a good faith effort by the II. Compliance Program Elements
statute, Special Fraud Alerts, as well as
company to comply with applicable
reports issued by the OIG’s Office of A. The Basic Compliance Elements
statutes and regulations as well as
Audit Services and Office of Evaluation
The OIG believes that every effective
federal health care program
and Inspections relevant to the
requirements, demonstrated by an compliance program must begin with a
pharmaceutical industry. (These
effective compliance program, formal commitment by the
materials are available on the OIG Web
significantly reduces the risk of pharmaceutical manufacturer’s board of
page at http://oig.hhs.gov.) In addition,
unlawful conduct and any penalties that directors or other governing body.
we relied on the experience gained from
result from such behavior. Evidence of that commitment should
investigations of pharmaceutical
include the allocation of adequate
manufacturers conducted by OIG’s B. Application of Compliance Program
resources, a timetable for the
Office of Investigations, the Department Guidance
implementation of the compliance
of Justice, and the state Medicaid Fraud
Given the wide diversity within the measures, and the identification of an
Control Units. We also held meetings
pharmaceutical industry, there is no individual to serve as a compliance
with four groups of industry
single ‘‘best’’ pharmaceutical officer to ensure that each of the
stakeholders—Pharmaceutical Research
manufacturer compliance program. The recommended and adopted elements is
and Manufacturers of America (PhRMA)
OIG recognizes the complexities of this addressed. Once a commitment has
and pharmaceutical manufacturer
industry and the differences among been undertaken, a compliance officer
representatives; health plan and health
industry members. Some should immediately be chosen to
plan association representatives;
pharmaceutical manufacturers are small oversee the implementation of the
representatives of pharmacy benefit
and may have limited resources to compliance program.
managers (PBMs) and representatives of
devote to compliance measures. The elements listed below provide a
the American Medical Association
Conversely, other companies are well- comprehensive and firm foundation
(AMA) and its member organizations.
established, large multi-national upon which an effective compliance
A. Benefits of a Compliance Program corporations with a widely dispersed program may be built. Further, they are
work force. Some companies may have likely to foster the development of a
The OIG believes a comprehensive
well-developed compliance programs corporate culture of compliance. The
compliance program provides a
already in place; others only now may OIG recognizes that full implementation
mechanism that addresses the public
be initiating such efforts. The OIG also of all elements may not be immediately
and private sectors’ mutual goals of
recognizes that pharmaceutical feasible for all pharmaceutical
reducing fraud and abuse; enhancing
manufacturers are subject to extensive manufacturers. However, as a first step,
health care provider operational
regulatory requirements in addition to a good faith and meaningful
functions; improving the quality of
fraud and abuse-related issues and that commitment on the part of the
health care services; and reducing the
many pharmaceutical manufacturers company’s management will
cost of health care. Attaining these goals
have addressed these obligations substantially contribute to the program’s
provides positive results to the
through compliance programs. successful implementation. As the
pharmaceutical manufacturer, the
Accordingly, the OIG strongly compliance program is implemented,
government, and individual citizens
encourages pharmaceutical that commitment should filter down
alike. In addition to fulfilling its legal
manufactures to develop and implement through management to every employee
duty to avoid submitting false or
or refine (as necessary) compliance and contractor of the pharmaceutical
inaccurate pricing or rebate information
elements that uniquely address the areas manufacturer, as applicable for the
to any federal health care program or
of potential problems, common concern, particular individual.
engaging in illegal marketing activities,
or high risk that apply to their own At a minimum, a comprehensive
a pharmaceutical manufacturer may
companies (or, as applicable, to the U.S. compliance program should include the
gain important additional benefits by
operations of their companies). following elements:
voluntarily implementing a compliance For example, although they are not (1) The development and distribution
program. The benefits may include: exhaustive of all potential risk areas, the of written standards of conduct, as well
• A concrete demonstration to OIG has identified three major potential as written policies, procedures and
employees and the community at large risk areas for pharmaceutical protocols that verbalize the company’s
of the company’s commitment to honest manufacturers: (1) Integrity of data used commitment to compliance (e.g., by
and responsible corporate conduct; by state and federal governments to including adherence to the compliance
Federal Register / Vol. 68, No. 86 / Monday, May 5, 2003 / Notices 23733
program as an element in evaluating At a minimum, the policies and manufacturers. Importantly, the
management and employees) and procedures should be provided to all identification of a particular practice or
address specific areas of potential fraud employees who are affected by these activity in this section is not intended
and abuse, such as the reporting of policies, and to any agents or to imply that the practice or activity is
pricing and rebate information to the contractors who may furnish services necessarily illegal in all circumstances
federal health care programs, and sales that impact federal health care programs or that it may not have a valid or lawful
and marketing practices; (e.g., contractors involved in the co purpose underlying it.
(2) The designation of a compliance promotion of a manufacturer’s This section addresses the following
officer and other appropriate bodies products). areas of significant concern for
(e.g., a corporate compliance committee) pharmaceutical manufacturers: (1)
1. Code of Conduct
charged with the responsibility for Integrity of data used by state and
developing, operating, and monitoring Although a clear statement of detailed federal governments to establish
the compliance program, and with and substantive policies and procedures payment amounts; (2) kickbacks and
authority to report directly to the board is at the core of a compliance program, other illegal remuneration; and (3)
of directors and/or the president or the OIG recommends that compliance with laws regulating drug
CEO; pharmaceutical manufacturers also samples.
(3) The development and develop a general corporate statement of This guidance does not create any
implementation of regular, effective ethical and compliance principles that new law or legal obligations, and the
education and training programs for all will guide the company’s operations. discussions that follow are not intended
affected employees; One common expression of this to present detailed or comprehensive
(4) The creation and maintenance of statement of principles is the code of summaries of lawful and unlawful
an effective line of communication conduct. The code should function in activity. Rather, these discussions
between the compliance officer and all the same fashion as a constitution, i.e., should be used as a starting point for a
employees, including a process (such as as a document that details the manufacturer’s legal review of its
a hotline or other reporting system) to fundamental principles, values, and particular practices and for
receive complaints or questions, and the framework for action within an development of policies and procedures
adoption of procedures to protect the organization. The code of conduct for a to reduce or eliminate potential risk.
anonymity of complainants and to pharmaceutical manufacturer should a. Integrity of Data Used To Establish
protect whistleblowers from retaliation; articulate the company’s expectations of or Determine Government
(5) The use of audits and/or other risk commitment to compliance by Reimbursement. Many federal and state
evaluation techniques to monitor management, employees, and agents, health care programs establish or
compliance, identify problem areas, and and should summarize the broad ethical ultimately determine reimbursement
assist in the reduction of identified and legal principles under which the rates for pharmaceuticals, either
problems; company must operate. Unlike the more prospectively or retrospectively, using
(6) The development of policies and detailed policies and procedures, the price and sales data directly or
procedures addressing the non- code of conduct should be brief, easily indirectly furnished by pharmaceutical
employment or retention of individuals readable, and cover general principles manufacturers. The government sets
or entities excluded from participation applicable to all employees. reimbursement with the expectation
in federal health care programs, and the As appropriate, the OIG strongly that the data provided are complete and
enforcement of appropriate disciplinary encourages the participation and accurate. The knowing submission of
action against employees or contractors involvement of the pharmaceutical false, fraudulent, or misleading
who have violated company policies manufacturer’s board of directors, CEO, information is actionable. A
and procedures and/or applicable president, members of senior pharmaceutical manufacturer may be
7
federal health care program management, and other personnel from liable under the False Claims Act if
requirements; and various levels of the organizational government reimbursement (including,
(7) The development of policies and structure in the development of all but not limited to, reimbursement by
procedures for the investigation of aspects of the compliance program, Medicare and Medicaid) for the
identified instances of noncompliance especially the code of conduct. manufacturer’s product depends, in
or misconduct. These should include Management and employee involvement whole or in part, on information
directions regarding the prompt and in this process communicates a strong generated or reported by the
proper response to detected offenses, and explicit commitment by manufacturer, directly or indirectly, and
such as the initiation of appropriate management to foster compliance with the manufacturer has knowingly (as
corrective action and preventive applicable federal health care program defined in the False Claims Act) failed
measures and processes to report the requirements. It also communicates the to generate or report such information
offense to relevant authorities in need for all employees to comply with completely and accurately.
appropriate circumstances. the organization’s code of conduct and Manufacturers may also be liable for
policies and procedures. civil money penalties under various
B. Written Policies and Procedures
laws, rules and regulations. Moreover,
2. Specific Risk Areas
In developing a compliance program, in some circumstances, inaccurate or
every pharmaceutical manufacturer This section is intended to help incomplete reporting may be probative
should develop and distribute written prudent pharmaceutical manufacturers of liability under the federal anti-
compliance standards, procedures, and identify areas of their operations that kickback statute.
practices that guide the company and present potential risk of liability under Where appropriate, manufacturers’
the conduct of its employees in day-to- several key federal fraud and abuse reported prices should accurately take
6
day operations. These policies and statutes and regulations. This section into account price reductions, cash
procedures should be developed under focuses on areas that are currently of discounts, free goods contingent on a
the direction and supervision of the concern to the enforcement community purchase agreement, rebates, up-front
compliance officer, the compliance and is not intended to address all payments, coupons, goods in kind, free
committee, and operational managers. potential risk areas for pharmaceutical or reduced-price services, grants, or
23734 Federal Register / Vol. 68, No. 86 / Monday, May 5, 2003 / Notices
other price concessions or similar arranging for or recommending the arrangement or practice have the
benefits offered to some or all purchase, lease, or ordering of any item potential to be a disguised discount to
purchasers. Any discount, price or service reimbursable in whole or part circumvent the Medicaid Rebate
concession, or similar benefit offered on by a federal health care program. The Program Best Price calculation?
purchases of multiple products should statute extends equally to the • Does the arrangement or practice
be fairly apportioned among the solicitation or acceptance of have a potential to increase the risk of
products (and could potentially raise remuneration for referrals. Liability overutilization or inappropriate
anti-kickback issues). Underlying under the anti-kickback statute is utilization?
assumptions used in connection with determined separately for each party • Does the arrangement or practice
reported prices should be reasoned, involved. In addition to criminal raise patient safety or quality of care
consistent, and appropriately penalties, violators may be subject to concerns?
documented, and pharmaceutical civil monetary sanctions and exclusion Manufacturers that have identified
manufacturers should retain all relevant from the federal health care programs. problematic arrangements or practices
records reflecting reported prices and Under certain circumstances, a violation can take a number of steps to reduce or
efforts to comply with federal health of the anti-kickback statute may give eliminate the risk of an anti-kickback
care program requirements. rise to liability under the False Claims violation. Detailed guidance relating to
Given the importance of the Medicaid Act. a number of specific practices is
Rebate Program, as well as other Although liability under the anti- available from several sources. Most
programs that rely on Medicaid Rebate kickback statute ultimately turns on a importantly, the anti-kickback statute
Program benchmarks (such as the 340B party’s intent, it is possible to identify and the corresponding regulations
Program 8), manufacturers should pay arrangements or practices that may establish a number of ‘‘safe harbors’’ for
particular attention to ensuring that they present a significant potential for abuse. common business arrangements,
are calculating Average Manufacturer Initially, a manufacturer should identify including personal services and
Price and Best Price accurately and that any remunerative relationship between management contracts, 42 CFR
they are paying appropriate rebate itself (or its representatives) and persons 1001.952(d), warranties, 42 CFR
amounts for their drugs.9 or entities in a position to generate 1001.952(g), discounts, 42 CFR
In sum, pharmaceutical federal health care business for the 1001.952(h), employment, 42 CFR
manufacturers are responsible for manufacturer directly or indirectly. 1001.952(i), GPOs, 42 CFR 1001.952(j),
ensuring the integrity of data they Persons or entities in a position to and certain managed care and risk
generate that is used for government generate federal health care business sharing arrangements, 42 CFR
reimbursement purposes. include, for example, purchasers, 1001.952(m), (t), and (u). Safe harbor
b. Kickbacks and Other Illegal benefit managers, formulary committee protection requires strict compliance
Remuneration—A. General members, group purchasing with all applicable conditions set out in
Considerations. Pharmaceutical organizations (GPOs), physicians and the relevant safe harbor. Although
manufacturers, as well as their certain allied health care professionals, compliance with a safe harbor is
employees and agents, should be aware and pharmacists. The next step is to voluntary and failure to comply with a
of the federal anti-kickback statute and determine whether any one purpose of safe harbor does not mean an
the constraints it places on the the remuneration may be to induce or arrangement is illegal, many
marketing and promotion of products reward the referral or recommendation arrangements can be structured to fit in
reimbursable by the federal health care of business payable in whole or in part safe harbors, and we recommend that
programs, including, but not limited to, by a Federal health care program. pharmaceutical manufacturers structure
Medicare and Medicaid. In the health Importantly, a lawful purpose will not arrangements to fit in a safe harbor
care sector, many common business legitimize a payment that also has an whenever possible. Other available
activities, including, for example, sales, unlawful purpose. guidance includes special fraud alerts
marketing, discounting, and purchaser Although any arrangement satisfying and advisory bulletins issued by the
relations, potentially implicate the anti- both tests requires careful scrutiny from OIG identifying and discussing
kickback statute. Pharmaceutical a manufacturer, the courts have particular practices or issues of concern
manufacturers and their employees and identified several potentially and OIG advisory opinions issued to
agents should be aware that the anti- aggravating considerations that can be specific parties about their particular
kickback statute prohibits in the health useful in identifying arrangements at business arrangements. Parties may
care industry some practices that are greatest risk of prosecution. In apply for an OIG advisory opinion using
common in other business sectors. In particular, manufacturers should ask the the procedures set out at 42 CFR part
short, practices that may be common or following questions, among others, 1008. The safe harbor regulations (and
longstanding in other businesses are not about any problematic arrangements or accompanying Federal Register
necessarily acceptable or lawful when practices they identify: preambles), fraud alerts and bulletins,
soliciting federal health care program • Does the arrangement or practice advisory opinions (and instructions for
business. have a potential to interfere with, or obtaining them), and other guidance are
The anti-kickback statute is a criminal skew, clinical decision-making? Does it available on the OIG web site at
prohibition against payments (in any have a potential to undermine the http://oig.hhs.gov.
form, whether the payments are direct clinical integrity of a formulary process? B. Key Areas of Potential Risk. The
or indirect) made purposefully to If the arrangement or practice involves following discussion highlights several
induce or reward the referral or providing information to decision- known areas of potential risk. The
generation of federal health care makers, prescribers, or patients, is the propriety of any particular arrangement
business. The anti-kickback statute information complete, accurate, and not can only be determined after a detailed
addresses not only the offer or payment misleading? examination of the attendant facts and
of anything of value for patient referrals, • Does the arrangement or practice circumstances. The identification of a
but also the offer or payment of have a potential to increase costs to the given practice or activity as ‘‘suspect’’ or
anything of value in return for federal health care programs, as an area of ‘‘risk’’ does not mean it is
purchasing, leasing, ordering, or beneficiaries, or enrollees? Does the necessarily illegal or unlawful, or that it
Federal Register / Vol. 68, No. 86 / Monday, May 5, 2003 / Notices 23735
cannot be properly structured to fit in a health care. Thus, the anti-kickback eliminates normal financial risks), the
safe harbor. Nor does it mean that the statute contains an exception for arrangement would raise kickback
practice or activity is not beneficial from discounts offered to customers that concerns. For example, the anti-
a clinical, cost, or other perspective. submit claims to the federal health care kickback statute would be implicated if
Rather, the areas identified below are programs, if the discounts are properly a manufacturer were to couple a
those areas of activity that have a disclosed and accurately reported. See reimbursement support service with a
potential for abuse based on historical 42 U.S.C. 1320a–7b(b)(3)(A); 42 CFR promise that a purchaser will pay for
law enforcement experience and that 1001.952(h). However, to qualify for the ordered products only if the purchaser
should receive close scrutiny from exception, the discount must be in the is reimbursed by a federal health care
manufacturers. The discussion form of a reduction in the price of the program.
highlights potential risks under the anti- good or service based on an arms-length Educational Grants. Pharmaceutical
kickback statute arising from transaction. In other words, the manufacturers sometimes provide grant
pharmaceutical manufacturers’ exception covers only reductions in the funding for a wide range of educational
relationships with three groups: product’s price. Moreover, the activities. While educational funding
purchasers (including those using regulations provide that the discount can provide valuable information to the
formularies) and their agents; persons must be given at the time of sale or, in medical and health care industry,
and entities in a position to make or certain cases, set at the time of sale, manufacturer grants to purchasers,
influence referrals (including physicians even if finally determined subsequent to GPOs, PBMs and similar entities raise
and other health care professionals); and the time of sale (i.e., a rebate). concerns under the anti-kickback
sales agents. Manufacturers offering discounts statute. Funding that is conditioned, in
(1) Relationships with Purchasers and should thoroughly familiarize whole or in part, on the purchase of
their Agents—(a) Discounts and Other themselves, and have their sales and product implicates the statute, even if
Remuneration to Purchasers. marketing personnel familiarize the educational or research purpose is
Pharmaceutical manufacturers offer themselves, with the discount safe legitimate. Furthermore, to the extent
purchasers a variety of price harbor at 42 CFR 1001.952(h) (and, if the manufacturer has any influence over
concessions and other remuneration to relevant, the safe harbors for price the substance of an educational program
induce the purchase of their products. reductions in the managed care context, or the presenter, there is a risk that the
Purchasers include direct purchasers 42 CFR 1001.952(m), (t), and (u)). In educational program may be used for
(e.g., hospitals, nursing homes, particular, manufacturers should pay inappropriate marketing purposes.
pharmacies, some physicians), as well attention to the discount safe harbor To reduce the risks that a grant
as indirect purchasers (e.g., health requirements applicable to ‘‘sellers’’ and program is used improperly to induce or
plans). Inducements offered to ‘‘offerors’’ of discounts. Under the safe reward product purchases or to market
purchasers potentially implicate the harbor, sellers and offerors have specific product inappropriately, manufacturers
anti-kickback statute if the purchased obligations that include (i) informing a should separate their grant making
products are reimbursable to the customer of any discount and of the functions from their sales and marketing
purchasers, in whole or in part, directly customer’s reporting obligations with functions. Effective separation of these
or indirectly, by any of the federal respect to that discount, and (ii) functions will help insure that grant
health care programs. Any remuneration refraining from any action that would funding is not inappropriately
from a manufacturer provided to a impede a customer’s ability to comply influenced by sales or marketing
purchaser that is expressly or impliedly with the safe harbor. To fulfill the safe motivations and that the educational
related to a sale potentially implicates harbor requirements, manufacturers will purposes of the grant are legitimate.
the anti-kickback statute and should be need to know how their customers Manufacturers should establish
carefully reviewed. submit claims to the federal health care objective criteria for making grants that
Discounting arrangements are programs (e.g., whether the customer is do not take into account the volume or
prevalent in the pharmaceutical a managed care, cost-based, or charge- value of purchases made by, or
industry and deserve careful scrutiny based biller). Compliance with the safe anticipated from, the grant recipient and
particularly because of their potential to harbor is determined separately for each that serve to ensure that the funded
implicate the Best Price requirements of party. activities are bona fide. The
the Medicaid Rebate Program. Because Product Support Services. manufacturer should have no control
the Medicaid Rebate Program in many Pharmaceutical manufacturers over the speaker or content of the
instances requires that states receive sometimes offer purchasers certain educational presentation. Compliance
rebates based on the Best Price offered support services in connection with the with such procedures should be
by a pharmaceutical manufacturer to sale of their products. These services documented and regularly monitored.
other purchasers, manufacturers have a may include billing assistance tailored Research Funding. Manufacturers
strong financial incentive to hide de to the purchased products, often contract with purchasers of their
facto pricing concessions to other reimbursement consultation, and other products to conduct research activities
purchasers to avoid passing on the same programs specifically tied to support of on behalf of the manufacturer on a fee-
discount to the states. Because of the the purchased product. Standing alone, for-service basis. These contracts should
potential direct and substantial effect of services that have no substantial be structured to fit in the personal
such practices on federal health care independent value to the purchaser may services safe harbor whenever possible.
program expenditures and the interest not implicate the anti-kickback statute. Payments for research services should
of some manufacturers in avoiding price However, if a manufacturer provides a be fair market value for legitimate,
concessions that would trigger rebates to service having no independent value reasonable, and necessary services. Post-
the states, any remuneration from a (such as limited reimbursement support marketing research activities should be
manufacturer to a purchaser, however services in connection with its own especially scrutinized to ensure that
characterized, should be carefully products) in tandem with another they are legitimate and not simply a
scrutinized. service or program that confers a benefit pretext to generate prescriptions of a
Discounts. Public policy favors open on a referring provider (such as a drug. Prudent manufacturers will
and legitimate price competition in reimbursement guarantee that develop contracting procedures that
23736 Federal Register / Vol. 68, No. 86 / Monday, May 5, 2003 / Notices
clearly separate the awarding of health care professionals—determines to PBMs that are based on, or otherwise
research contracts from marketing. the drugs that are covered and, if tiered related to, the PBM’s customers’
Research contracts that originate benefit levels are utilized, to which tier purchases potentially implicate the anti-
through the sales or marketing the drugs are assigned. So long as the kickback statute. Protection is available
functions—or that are offered to determination of clinical efficacy and by structuring such arrangements to fit
purchasers in connection with sales appropriateness of formulary drugs by in the GPO safe harbor at 42 CFR
contacts—are particularly suspect. the formulary committee precedes, and 1001.952(j). That safe harbor requires,
Pharmaceutical manufacturers is paramount to, the consideration of among other things, that the payments
sometimes provide funding to their costs, the development of a formulary is be authorized in advance by the PBM’s
purchasers for use in the purchasers’ unlikely to raise significant issues under customer and that all amounts actually
own research. In many cases, the the anti-kickback statute. paid to the PBM on account of the
research provides valuable scientific Formulary support activities, customer’s purchases be disclosed in
and clinical information, improves including related communications with writing at least annually to the
clinical care, leads to promising new patients and physicians to encourage customer. In addition, arrangements
treatments, promotes better delivery of compliance, are an integral and with PBMs that assume risk may raise
health care, or otherwise benefits essential component of successful different issues; depending on the
patients. However, as with educational pharmacy benefits management. Proper
circumstances, protection for such
grants, if linked directly or indirectly to utilization of a formulary maximizes the
arrangements may be available under
the purchase of product, research grants cost-effectiveness of the benefit and
the managed care safe harbors at 42 CFR
can be misused to induce the purchase assures the quality and appropriateness
1001.952(m), (t) and (u).
of business without triggering Medicaid of the drug therapy. When provided by
• Formulary placement payments.
Best Price obligations. To reduce risk, a PBM, these services are part of the
Lump sum payments for inclusion in a
manufacturers should insulate research PBM’s formulary and benefit
formulary or for exclusive or restricted
grant making from sales and marketing management function—a service
formulary status are problematic and
influences. provided to its customers—and
should be carefully scrutinized.
Other remuneration to purchasers. As markedly different from its purchasing
In addition, some manufacturers
already noted, any remuneration from a agent/price negotiator role. Most
provide funding for purchasers’ or
manufacturer provided to a purchaser importantly, the benefits of these
PBMs’ formulary support activities,
that is expressly or impliedly related to formulary support activities inure
especially communications with
a sale potentially implicates the anti- directly to the PBM and its customers
physicians and patients. While the
kickback statute and should be carefully through lower costs.
communications may indirectly benefit
reviewed. Examples of remuneration in To date, Medicare and Medicaid
the manufacturer, the primary economic
connection with a sale include, but are involvement with outpatient drug
beneficiary is typically the formulary
not limited to, ‘‘prebates’’ and ‘‘upfront formularies has been limited primarily
sponsor. In other words, the
payments,’’ other free or reduced-price to Medicaid and Medicare managed care
manufacturer’s dollars appear to replace
goods or services, and payments to plans. In light of the safe harbors under
dollars that would or should be spent by
cover the costs of ‘‘converting’’ from a the anti-kickback statute for those
the sponsor. To the extent the
competitor’s product. Selective offers of managed care arrangements, the
manufacturers’ payments are linked to
remuneration (i.e., offers made to some financial arrangements between health
drug purchases directly or indirectly,
but not all purchasers) may increase plans and pharmaceutical
they potentially implicate the anti-
potential risk if the selection criteria manufacturers or, where the pharmacy
kickback statute. Among the questions
relate directly or indirectly to the benefit is managed by a PBM, the
that should be examined by a
volume or value of business generated. arrangements among the three parties,
manufacturer in connection with these
In addition, manufacturers may contract have received relatively little scrutiny.
activities are: Is the funding tied to
with purchasers to provide services to However, as federal program
specific drugs or categories? If so, are
the manufacturer, such as data expenditures for, and coverage of,
the categories especially competitive? Is
collection services. These contracts outpatient pharmaceuticals increase,
the formulary sponsor funding similar
should be structured whenever possible scrutiny under the anti-kickback statute
activities for other drug categories? Has
to fit in the personal services safe has also increased. Several practices
funding of PBM activities increased as
harbor; in all cases, the remuneration appear to have the potential for abuse.
should be fair market value for • Relationships with formulary rebates are increasingly passed back to
legitimate, reasonable, and necessary committee members. Given the PBM customers?
services. importance of formulary placement for (c) Average Wholesale Price. The
(b) Formularies and Formulary a manufacturer’s products, ‘‘spread’’ is the difference between the
Support Activities. To help control drug unscrupulous manufacturers and sales amount a customer pays for a product
costs while maintaining clinical representatives may attempt to and the amount the customer receives
appropriateness and quality of patient influence committee deliberations. Any upon resale of the product to the patient
care, many purchasers of remuneration from a manufacturer or its or other payer. In many situations under
pharmaceutical products, including agents directly or indirectly to person in the federal programs, pharmaceutical
indirect purchasers such as health a position to influence formulary manufacturers control not only the
plans, have developed drug formularies decisions related to the manufacturer’s amount at which they sell a product to
to promote rational, clinically products are suspect and should be their customers, but also the amount
appropriate, safe, and cost-effective drug carefully scrutinized. Manufacturers those customers who purchase the
therapy. Formularies are a well- should also review their contacts with product for their own accounts and
established tool for the effective sponsors of formularies to ensure that thereafter bill the federal health care
management of drug benefits. The price negotiations do not influence programs will be reimbursed. To the
formulary development process— decisions on clinical safety or efficacy. extent that a manufacturer controls the
typically overseen by a committee of • Payments to PBMs. Any rebates or ‘‘spread,’’ it controls its customer’s
physicians, pharmacists, and other other payments by drug manufacturers profit.
Federal Register / Vol. 68, No. 86 / Monday, May 5, 2003 / Notices 23737
Average Wholesale Price (AWP) is the GPOs or PBMs, arrange for the purchase squarely in a safe harbor to be
benchmark often used to set of) those products. These remunerative protected. In addition, arrangements
reimbursement for prescription drugs relationships potentially implicate the that do not fit in a safe harbor should
under the Medicare Part B program. For anti-kickback statute. The following be reviewed in light of the totality of all
covered drugs and biologicals, Medicare discussion focuses on relationships with facts and circumstances, bearing in
Part B generally reimburses at ‘‘95 physicians, but the same principles mind the following factors, among
percent of average wholesale price.’’ 42 would apply when evaluating others:
U.S.C. 1395u(o). Similarly many state relationships with other parties in a • Nature of the relationship between
Medicaid programs and other payers position to influence referrals, the parties. What degree of influence
base reimbursement for drugs and including, without limitation, does the physician have, directly or
biologicals on AWP. Generally, AWP or pharmacists and other health care indirectly, on the generation of business
pricing information used by commercial professionals. for the manufacturer? Does the
price reporting services to determine Manufacturers, providers, and manufacturer have other direct or
AWP is reported by pharmaceutical suppliers of health care products and indirect relationships with the
manufacturers. services frequently cultivate physician or members of the physician’s
If a pharmaceutical manufacturer relationships with physicians in a group?
purposefully manipulates the AWP to position to generate business for them • Manner in which the remuneration
increase its customers’ profits by through a variety of practices, including is determined. Does the remuneration
increasing the amount the federal health gifts, entertainment, and personal take into account, directly or indirectly,
care programs reimburse its customers, services compensation arrangements. the volume or value of business
the anti-kickback statute is implicated. These activities have a high potential for generated (e.g., is the remuneration only
Unlike bona fide discounts, which fraud and abuse and, historically, have given to persons who have prescribed or
transfer remuneration from a seller to a generated a substantial number of anti- agreed to prescribe the manufacturer’s
buyer, manipulation of the AWP kickback convictions. There is no product)? Is the remuneration
transfers remuneration to a seller’s substantive difference between conditioned in whole or in part on
immediate customer from a subsequent remuneration from a pharmaceutical referrals or other business generated? Is
purchaser (the federal or state manufacturer or from a durable medical there any service provided other than
government). Under the anti-kickback equipment or other supplier—if the referrals?
statute, offering remuneration to a remuneration is intended to generate • Value of the remuneration. Is the
purchaser or referral source is improper any federal health care business, it remuneration more than trivial in value,
if one purpose is to induce the purchase potentially violates the anti-kickback including all gifts to any individual,
10
or referral of program business. In other statute. entity, or group of individuals? Do
words, it is illegal for a manufacturer Any time a pharmaceutical fees for services exceed the fair market
knowingly to establish or manufacturer provides anything of value of any legitimate, reasonable, and
inappropriately maintain a particular value to a physician who might necessary services rendered by the
AWP if one purpose is to manipulate prescribe the manufacturer’s product, physician to the manufacturer?
the ‘‘spread’’ to induce customers to the manufacturer should examine • Potential federal program impact of
purchase its product. whether it is providing a valuable the remuneration. Does the
In the light of this risk, we tangible benefit to the physician with remuneration have the potential to
recommend that manufacturers review the intent to induce or reward referrals. affect costs to any of the federal health
their AWP reporting practices and For example, if goods or services care programs or their beneficiaries or to
methodology to confirm that marketing provided by the manufacturer eliminate lead to overutilization or inappropriate
considerations do not influence the an expense that the physician would utilization?
process. Furthermore, manufacturers have otherwise incurred (i.e., have • Potential conflicts of interest.
should review their marketing practices. independent value to the physician), or Would acceptance of the remuneration
The conjunction of manipulation of the if items or services are sold to a diminish, or appear to diminish, the
AWP to induce customers to purchase a physician at less than their fair market objectivity of professional judgment?
product with active marketing of the value, the arrangement may be Are there patient safety or quality of
spread is strong evidence of the problematic if the arrangement is tied care concerns? If the remuneration
unlawful intent necessary to trigger the directly or indirectly to the generation relates to the dissemination of
anti-kickback statute. Active marketing of federal health care program business information, is the information
of the spread includes, for example, for the manufacturer. Moreover, under complete, accurate, and not misleading?
sales representatives promoting the the anti-kickback statute, neither a These concerns are addressed in the
spread as a reason to purchase the legitimate purpose for an arrangement PhRMA Code on Interactions with
product or guaranteeing a certain profit (e.g., physician education), nor a fair Healthcare Professionals (the ‘‘PhRMA
or spread in exchange for the purchase market value payment, will necessarily Code’’), adopted on April 18, 2002,
of a product. protect remuneration if there is also an which provides useful and practical
(2) Relationships with Physicians and illegal purpose (i.e., the purposeful advice for reviewing and structuring
Other Persons and Entities in a Position inducement of business). these relationships. (The PhRMA Code
to Make or Influence Referrals. In light of the obvious risks inherent is available through PhRMA’s Web site
Pharmaceutical manufacturers and their in these arrangements, whenever at http://www.phrma.org.) Although
agents may have a variety of possible prudent manufacturers and compliance with the PhRMA Code will
remunerative relationships with persons their agents or representatives should not protect a manufacturer as a matter
or entities in a position to refer, order, structure relationships with physicians of law under the anti-kickback statute,
or prescribe—or influence the referral, to fit in an available safe harbor, such it will substantially reduce the risk of
ordering, or prescribing of—the as the safe harbors for personal services fraud and abuse and help demonstrate
manufacturers’ products, even though and management contracts, 42 CFR a good faith effort to comply with the
the persons or entities may not 1001.952(d), or employees, 42 CFR applicable federal health care program
themselves purchase (or in the case of 1001.952(i). An arrangement must fit requirements.
23738 Federal Register / Vol. 68, No. 86 / Monday, May 5, 2003 / Notices
The following paragraphs discuss in (iv) the compensation is at fair market directed by marketers or sales agents;
greater detail several common or value; and (v) all of the preceding facts research that is not transmitted to, or
problematic relationships between are documented prior to payment. In reviewed by, a manufacturer’s science
manufacturers and physicians, addition, to further reduce their risk, component; research that is
including ‘‘switching’’ arrangements, manufacturers should structure services unnecessarily duplicative or is not
consulting and advisory payments, arrangements to comply with a safe needed by the manufacturer for any
payments for detailing, business harbor whenever possible. purpose other than the generation of
courtesies and other gratuities, and Payments for detailing. Recently, business; and post-marketing research
educational and research activities. some entities have been compensating used as a pretense to promote product.
• Switching’’ arrangements. As noted physicians for time spent listening to Prudent manufacturers will develop
in the OIG’s 1994 Special Fraud Alert sales representatives market contracting procedures that clearly
(59 FR 65372; December 19, 1994), pharmaceutical products. In some cases, separate the awarding of research
product conversion arrangements (also these payments are characterized as contracts from marketing or promotion
known as ‘‘switching’’ arrangements) ‘‘consulting’’ fees and may require of their products.
are suspect under the anti-kickback physicians to complete minimal In addition, pharmaceutical
statute. Switching arrangements involve paperwork. Other companies pay manufacturers also provide other
pharmaceutical manufacturers offering physicians for time spent accessing web funding for a wide range of physician
physicians or others cash payments or sites to view or listen to marketing educational and research activities.
other benefits each time a patient’s information or perform ‘‘research.’’ All Manufacturers should review
prescription is changed to the of these activities are highly suspect educational and research grants to
manufacturer’s product from a under the anti-kickback statute, are physicians similarly to educational and
competing product. This activity clearly highly susceptible to fraud and abuse, research grants to purchasers (described
implicates the statute, and, while such and should be strongly discouraged. above). As with grants to purchasers, the
programs may be permissible in certain Business Courtesies and Other OIG recognizes that many grant-funded
managed care arrangements, Gratuities. Pharmaceutical companies activities are legitimate and beneficial.
manufacturers should review very and their employees and agents often When evaluating educational or
carefully any marketing practices engage in a number of other research grants provided by
utilizing ‘‘switching’’ payments in arrangements that offer benefits, directly manufacturers to physicians,
connection with products reimbursable or indirectly, to physicians or others in manufacturers should determine if the
by federal health care programs. a position to make or influence referrals. funding is based, in any way, expressly
Consulting and advisory payments. Examples of remunerative arrangements or implicitly, on the physician’s referral
Pharmaceutical manufacturers between pharmaceutical manufacturers of the manufacturer’s product. If so, the
frequently engage physicians and other (or their representatives) and parties in funding plainly implicates the anti-
health care professionals to furnish a position to influence referrals include: kickback statute. In addition, the
personal services as consultants or • Entertainment, recreation, travel, manufacturer should determine whether
advisers to the manufacturer. In general, meals, or other benefits in association the funding is for bona fide educational
fair market value payments to small with information or marketing or research purposes. Absent unusual
numbers of physicians for bona fide presentations; and circumstances, grants or support for
consulting or advisory services are • Gifts, gratuities, and other business educational activities sponsored and
unlikely to raise any significant courtesies. organized by medical professional
concern. Compensating physicians as As discussed above, these organizations raise little risk of fraud or
‘‘consultants’’ when they are expected arrangements potentially implicate the abuse, provided that the grant or
to attend meetings or conferences anti-kickback statute if any one purpose support is not restricted or conditioned
primarily in a passive capacity is of the arrangement is to generate with respect to content or faculty.
suspect. business for the pharmaceutical Pharmaceutical manufacturers often
Also of concern are compensation company. While the determination of provide funding to other sponsors of
relationships with physicians for whether a particular arrangement continuing medical education (CME)
services connected directly or indirectly violates the anti-kickback statute programs. Manufacturers should take
to a manufacturer’s marketing and sales depends on the specific facts and steps to ensure that neither they, nor
activities, such as speaking, certain circumstances, compliance with the their representatives, are using these
research, or preceptor or ‘‘shadowing’’ PhRMA Code with respect to these activities to channel improper
services. While these arrangements are arrangements should substantially remuneration to physicians or others in
potentially beneficial, they also pose a reduce a manufacturer’s risk. a position to generate business for the
risk of fraud and abuse. In particular, Educational and Research Funding. manufacturer or to influence or control
the use of health care professionals for In some cases, manufacturers contract the content of the program.11 In
marketing purposes—including, for with physicians to provide research addition, manufacturers and sponsors of
example, ghost-written papers or services on a fee-for-service basis. These educational programs should be
speeches—implicates the anti-kickback contracts should be structured to fit in mindful of the relevant rules and
statute. While full disclosure by the personal services safe harbor regulations of the Food and Drug
physicians of any potential conflicts of whenever possible. Payments for Administration. Codes of conduct
interest and of industry sponsorship or research services should be fair market promulgated by the CME industry may
affiliation may reduce the risk of abuse, value for legitimate, reasonable, and provide a useful starting point for
disclosure does not eliminate the risk. necessary services. Research contracts manufacturers when reviewing their
At a minimum, manufacturers should that originate through the sales or CME arrangements.
periodically review arrangements for marketing functions—or that are offered (3) Relationships with Sales Agents.
physicians’ services to ensure that: (i) to physicians in connection with sales In large part, a pharmaceutical
The arrangement is set out in writing; contacts—are particularly suspect. manufacturer’s commitment to an
(ii) there is a legitimate need for the Indicia of questionable research include, effective fraud and abuse compliance
services; (iii) the services are provided; for example, research initiated or program can be measured by its
Federal Register / Vol. 68, No. 86 / Monday, May 5, 2003 / Notices 23739
commitment to training and monitoring c. Drug Samples. The provision of officer delegates some of the compliance
its sales force. A pharmaceutical drug samples is a widespread industry duties, he or she should, nonetheless,
manufacturer should: (i) Develop a practice that can benefit patients, but remain sufficiently involved to fulfill
regular and comprehensive training can also be an area of potential risk to the compliance oversight function.
program for its sales force, including a pharmaceutical manufacturer. The Designating a compliance officer with
refresher and updated training on a Prescription Drug Marketing Act of 1987 the appropriate authority is critical to
regular basis, either in person or (PDMA) governs the distribution of drug the success of the program, necessitating
through newsletters, memoranda, or the samples and forbids their sale. 21 U.S.C. the appointment of a high-level official
like; (ii) familiarize its sales force with 353(c)(1). A drug sample is defined to be with direct access to the company’s
the minimum PhRMA Code standards a unit of the drug ‘‘that is not intended president or CEO, board of directors, all
and other relevant industry standards; to be sold * * * and is intended to other senior management, and legal
(iii) institute and implement corrective promote the sale of the drug.’’ 21 U.S.C. counsel. The compliance officer should
action and disciplinary policies 353(c)(1). Failure to comply with the have sufficient funding, resources, and
applicable to sales agents who engage in requirements of PDMA can result in staff to perform his or her
improper marketing; (iv) avail itself of sanctions. In some circumstances, if the responsibilities fully. The compliance
the advisory opinion process if it has samples have monetary value to the officer should be able to effectuate
questions about particular practices recipient (e.g., a physician) and are used change within the organization as
used by its sales force; and (v) establish to treat federal health care program necessary or appropriate and to exercise
an effective system for tracking, beneficiaries, the improper use of independent judgment. Optimal
compiling, and reviewing information samples may also trigger liability under placement of the compliance officer
about sales force activities, including, if other statutes, including the False within the organization will vary
appropriate, random spot checking. Claims Act and the anti-kickback statue. according to the particular situation of
13
In addition, manufacturers should Pharmaceutical manufacturers should a manufacturer.
carefully review their compensation closely follow the PDMA requirements Coordination and communication
arrangements with sales agents. Sales (including all documentation with other appropriate individuals or
agents, whether employees or requirements). In addition, business units are the key functions of
independent contractors, are paid to manufacturers can minimize their risk the compliance officer with regard to
recommend and arrange for the of liability by: (i) Training their sales planning, implementing or enhancing,
purchase of the items or services they force to inform sample recipients in a and monitoring the compliance
offer for sale on behalf of the meaningful manner that samples may program. The compliance officer’s
pharmaceutical manufacturer they not be sold or billed (thus vitiating any primary responsibilities should include:
represent. Many arrangements can be monetary value of the sample); (ii) • Overseeing and monitoring
structured to fit in the employment or clearly and conspicuously labeling implementation of the compliance
14
personal services safe harbor. individual samples as units that may program;
• Reporting on a regular basis to the
Arrangements that cannot fit into a safe not be sold (thus minimizing the ability
company’s board of directors, CEO or
harbor should be carefully reviewed. of recipients to advertently or
president, and compliance committee (if
Among the factors that should be inadvertently commingle samples with
applicable) on compliance matters and
evaluated are: purchased product); and (iii) including
• The amount of compensation; assisting these individuals or groups to
on packaging and any documentation
• The identity of the sales agent establish methods to reduce the
related to the samples (such as shipping
engaged in
