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Regulatory revolution

Eye on the US: The industry is experiencing a turbulent time of its own, facing the 'headwinds' of prosecution for illegal business practices and enforcement of new legislation

A report published recently by Public Citizen (a not-for-profit US citizens' rights, information and lobbying group), 'Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry: 1991-2010', cited that in that 20-year period, the US pharmaceutical industry had settled 165 civil and criminal actions, brought by federal and state governments. These lawsuits alleged illegal activities by the industry. Examples included overcharging government health programmes, unlawful promotion, monopoly practices, bribes, concealed study findings, substandard manufacturing practices, environmental violations, financial violations and illegal distribution.

Public Citizen also found that the financial penalties paid out by the industry during this period totalled $19.8bn. Shockingly, in the last five years, 73 per cent of these settlements (121), amounting to $14.8bn, have occurred. In reaching settlements with the US authorities, companies have been obliged to enter into Corporate Integrity Agreements (CIAs), the scope and nature of which are changing practice, and thinking, in the US pharmaceutical market.

Scrutiny of interactions
In addition, during that time, the US government has debated and eventually agreed upon an entirely new legislative framework to manage the interactions between the industry, which has been found to be engaged in an increasing number of illegal activities, and the medical profession. The ensuing Sunshine Act, with its transparency objectives, will change the approach in the US over the next few years and may impact practice and thinking in Europe too.

Back in the 1990s, the US government set out to recoup lost funds resulting from fraud and abuse in the healthcare sector. Efforts were made to enforce healthcare statutes and this led to the evolution of CIAs. In 1996, the Health Insurance Portability and Accountability Act (HIPAA) increased the power of the federal agencies involved, including the Office of Inspector General (OIG), the largest inspector general's office in the government and part of the Department of Health and Human Services.

The Federal Sentencing Guidelines of 1995 initially acted as a foundation for CIAs, but the need emerged for greater awareness regarding compliance and sanctions to avoid misinterpretation of guidelines and foster self-regulation. In 2001, the OIG issued the criteria for assessing whether a CIA was appropriate. These asked:

  1. Did the provider self-disclose the alleged misconduct or wrongdoing?

  2. How long ago did the wrongdoing occur?

  3. Did the company have an effective compliance scheme and would it agree to annual compliance or integrity measures to certify adherence to the OIG?

  4. What was the financial damage to federal healthcare programmes (like Medicare and Medicaid trust funds)?

  5. Did the case involve successor liability?

  6. Was the company still involved in the federal healthcare programmes or 'in the line of business that gave rise to the fraudulent conduct'?

  7. Was it likely that the misconduct would be repeated?

Each resulting CIA and civil settlement is slightly different, depending on the misconduct and company circumstances. Broadly, a CIA requires the company to appoint a chief compliance officer (reporting directly to an independent board committee) and develop written standards and policies.

A comprehensive employee training programme is usually required, along with a confidential disclosure scheme. Billings to federal healthcare programmes also need to be audited and financial transactions disclosed on an accessible website. The OIG website lists all agreed CIAs at

Pre-emptive CIAs
Interestingly, the increase in the number of CIAs over the past five years appears to have jolted some companies into pre-emptive action. There is evidence to suggest that a number of them, although not currently subject to a CIA, have established their own Corporate Compliance Programmes (CCPs). Structured broadly around CIAs that have formally been agreed by the OIG, these CCPs specify policies, procedures and actions to help prevent and detect violations of federal and state laws.

In the European context, there are a number of questions to be addressed:

  • Is the legislative environment suitably equipped to detect and prevent illegal activities by the pharmaceutical industry?

  • Can something similar to a US-styled CIA be established across Europe or within each member state?

  • To what extent should European companies be proactively implementing Corporate Compliance Programmes along the lines of those created or imposed in the US? The next few months and years will reveal the extent to which this issue is a passing fad or a fundamental matter.

Physician Payments Sunshine Act
Under President Obama's recently-passed Patient Protection Affordable Care Act, the Physician Payments Sunshine Act is another key headwind for the US industry. This law states that any organisation that buys, arranges or negotiates the purchase of a covered drug, biological agent, device or medical supply in the US and its territories is required to disclose gifts and payments to physicians publicly.

Any payments made under a product development agreement must also be reported, as well as payments for services furnished in connection with the development of a new drug, biological or medical supply and an annual report must be submitted to both US and State Congress.

'Qui tam' cases
Fraud statistics from the US (Fraud statistics - overview: October 1, 1986, to September 30, 2007. Washington, DC: Civil Division, Department of Justice, November 2007) state that 90 per cent of healthcare misconduct cases are qui tam lawsuits in which whistleblowers with direct knowledge of the alleged fraud initiate the litigation on behalf of the government.

It can be argued that the nature and extent of the CIAs being imposed on the US … are likely to have a greater effect on European thinking

Whistleblowers who risk reporting fraud on the government are potentially entitled to monetary rewards under the US False Claims Act, which provides that individuals can file civil lawsuits on behalf of the government against an individual, company or other organisation that commits fraud. The person who initiates a successful lawsuit (the 'relator') may receive between 10 and 30 per cent for bringing the qui tam action.

In a recent study of whistleblowers in fraud litigation cases against US Pharma by the New England Journal of Medicine (N Engl J Med 2010;362:1832-39), most were found to have tried to pursue a case internally. The Securities and Exchange Commission (SEC) has tried to encourage this by offering employees greater sums of money if they go through internal corporate channels than if they do not. The most common motives for reporting a case were personal values and self-preservation rather than financial incentives.

Despite all the talk about the impact of the Sunshine Act, it can be argued that the nature and extent of the CIAs being imposed on the US pharma industry are likely to have a greater effect on European thinking. For example, under the revised code of practice from the Association of the British Pharmaceutical Industry, pharma companies operating in the UK will also be obliged to declare doctor payments from 2013.

Changing dynamics
In light of the changes in legislation, the responsibility of engaging with key opinion leaders (KOLs) within a pharmaceutical company seems to have shifted from the marketing department to the medical department. This shift suggests a recognition that medical affairs personnel would be more objective and scientific in their interactions with leading clinicians and researchers in a particular therapeutic area.

External experts
In order to foster a culture of compliance within the pharma industry and to make the shift from marketing to medical, many companies appear to be changing the terminology they use for KOLs. Indeed, the term KOL has been abandoned by many, as have familiar alternatives such as key thought leaders (KTLs), stakeholders, influencers, endorsers and advocates. The favoured approach is to recognise all the key groups and individuals that companies interact with throughout the life cycle of their product as 'external experts'. It should be recognised that these changes are not simply semantic, but indicative of a cultural shift in building long-term transparent associations with clinicians and experts across the entire spectrum of R&D. Whatever the terminology, the reasons behind collaborations with external experts need to be justifiable, transparent and disclosed within the parameters of the Sunshine Act.

Compliance or effectiveness
As the US pharmaceutical industry encounters and responds to these headwinds, the challenge for management is to remain effective within a dramatically changing environment. Today, whether in the US or elsewhere, effective engagement with external experts is a matter of thoughtful management and strategy, not simply of compliance.

Peter Joshua
The Author
Peter Joshua
is a partner at Medical Marketing Research Group

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19th October 2011


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