Guest Column: Pharmaceutical marketing practices face new scrutiny

By Philip H. Lebowitz, JD
Pepper Hamilton LLP

Pharmaceutical manufacturers’ drug pricing and marketing activities — and the response of health care providers to these promotions — are under closer federal scrutiny than ever. Risk managers, physicians, and other professionals should review their own policies and practices carefully to avoid running afoul of the ever-stricter standards regarding manufacturer inducements.

One case is particularly instructive of the risks involved. On Oct. 3, 2001, federal officials announced the largest health care fraud settlement in history — TAP Pharmaceutical Products Inc. agreed to pay $875 million to resolve criminal and civil charges based on fraudulent drug pricing and marketing conduct. The agreement came after a four-year investigation into TAP’s marketing of Lupron, its drug used to treat prostate cancer and infertility. Two schemes drew the most attention. TAP provided free samples of Lupron to physicians who in turn sought Medicare reimbursement for administering the free sample. (While Medicare does not reimburse most prescription pharmaceuticals, Lupron is administered by the physician and is reimbursable.) Second, according to the government, TAP inflated the average wholesale price (AWP) of Lupron so that the physician’s Medicare reimbursement, which was based on the AWP, not the average sales price, would be higher. The free samples and the reimbursement spread were alleged to induce physicians to prescribe Lupron over its competitor, Zoladex.

The government also charged five doctors with conspiring with the company to receive excessive Medicare reimbursements. Four of the five doctors have pleaded guilty and are awaiting sentencing. The probe began when the medical director for pharmacy programs at Tufts Health Plan in Massachusetts alerted the U.S. Attorney’s office in Boston that he had been offered a $65,000 "educational grant" to be used for any purpose, to switch the plan from Zoladex to Lupron, as well as the opportunity to be reimbursed by the government at a price higher than that paid to TAP. Ultimately, TAP also was charged with giving physicians trips to expensive golf and ski resorts, free consulting services, medical equipment, and forgiveness of debt.

Some observers have long perceived ethical issues in the symbiotic relationship between physicians and drug suppliers. In 1990, the American Medical Association’s (AMA) Council on Ethical and Judicial Affairs created guidelines regarding gifts to physicians from industry. The guidelines were adopted by the AMA; however, by the late 1990s they were largely ignored by physicians and industry representatives. In 1999, an AMA task force recommended raising awareness of the guidelines among physicians. To fill this need, the AMA convened the Working Group for the Communication of Ethical Guidelines on Gifts to Physicians from Industry. The group includes more than 30 members representing physicians, corporations, medical associations, government, industry, and more.

Avoiding the appearance

The AMA initiative has been criticized for accepting funding and staff from pharmaceutical manufacturers and other industry sources. While this situation is not without irony, the issue is of prime importance to both the provider and the industry side. Not only does each hope to avoid the appearance of impropriety that may result from expensive gifts or cash payments to physicians, they also hope to avoid violating government regulations that would interpret a gift as a potential kickback.

The guidelines do not attempt to ban all exchanges of value between industry representatives and physicians. Manufacturers have a right to responsibly advertise and promote their products, most of which are of significant benefit to patients. The guidelines do, however, recognize that gift-giving can go too far, and seek to prohibit gifts that are unrelated to improving the physicians’ understanding of their patients’ conditions and cures. And while the guidelines are not binding, risk managers and providers could assume the guidelines cited in the enforcement or litigation areas as industry standards to be followed.

In 1994, the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) issued a Special Fraud Alert regarding the anti-kickback law’s application to prescription drug marketing programs. OIG cited such conduct as payments by drug companies to pharmacies that converted a prescription from one brand to another, frequent-flier miles provided to physicians for completing a form showing that a new patient was placed on the company’s drug, and a research grant program that rewarded physicians with substantial payments for minimal record-keeping tasks.

The OIG described as potentially improper gifts or payments 1) made to a person in a position to generate business for the paying party; 2) related to the volume of business generated; and 3) more than nominal in value or unrelated to any service other than the referral of a patient. The OIG threatened investigations of gifts of any kind in exchange for prescribing a particular product, and grants to physicians and clinicians for studies of prescription products when the studies are of questionable scientific value and require little effort.

Under some circumstances, remuneration to physicians can fall within one of the safe harbors published by HHS to protect permissible conduct that would technically violate the anti-kickback statute. Safe harbors for personal services and management contracts are sometimes appropriate if the manufacturer pays the physician for legitimate services that can be described in a written agreement, and if the compensation is unrelated to the volume or value of the manufacturer’s product used by the physician. For a safe harbor to apply, all criteria for inclusion must be met.

Prescription drug marketing is once again near the top of OIG’s agenda. In its 2002 Work Plan, the OIG specifies:

"We will evaluate the extent of gifts and payments to physicians from pharmaceutical companies. The pharmaceutical industry currently spends about $12 billion a year on marketing to physicians, and some of these gifts may present an inherent conflict of interest between the legitimate business goals of manufacturers and the ethical obligations of providers to prescribe drugs in the most rational way."

The OIG will examine any type of arrangement between a seller and a buyer or prescriber of pharmaceutical products to determine whether it contains overt or disguised incentive payments to prescribe a particular manufacturer’s product. Risk managers and physicians should review their current practices to see if they will withstand federal scrutiny.

(Philip H. Lebowitz is a partner in the law firm of Pepper Hamilton LLP, and chairman of the firm’s health care services practice group.)