Historically, biological, pharmaceutical and medical device firms (“firms”) marketed products to healthcare providers (“provider”) through provisions of clinical information as well as a variety of promotional marketing programs including incentives for free meals, trips, dinner meetings, office supplies, and honoraria, speaker fees, paid consulting agreements, etc., (“remuneration”).
Undisclosed paid endorsements of firm products by Key Opinion Leader (KOL) physicians at academic research institutions arguably resulted in inefficient utilization of resources.
A recent article by Alliance Life Sciences Consulting Group noted that, “by making such remuneration “transparent,” regulators will be able to identify and prosecute abusive and/or illegal remuneration practices by firms and academic KOLs, which will arguably be more likely to abide by applicable conflict of interest policies.”
Key Opinion Leader Marketing Paradigm Shift
The long‐standing firm practice of remunerating KOL physicians to assist in the marketing of products to other physicians is alleged to have harmed the public welfare. Without disclosing, KOL’s paid endorsement, the article noted that, “clinical demand is likely to be skewed without sufficient regard for the relative safety, clinical efficacy and cost of the product.”
While the Physician Payments Federal Sunshine Act (Sunshine Act) does not, per se, prohibit firm remuneration to academic medical centers and schools, the article asserted that, “the law will have that de facto impact given that nearly all have strict conflict of interest policies in place.”
As a result, the article maintained that, “the prior laissez faire enforcement practices in regard to firm paid honoraria, consulting engagement, lectures and endorsement s by KOLs will likely end because universities and other healthcare institutions will now have visibility into which of their faculty members or medical staff are violating policy by accepting firm remuneration.”
It is uncertain at this point whether Sunshine Act disclosures will spur talented researchers and teachers to exit medical academia in order to continue their collaboration with firms. Nevertheless, the article asserted that, “the Sunshine Act may have a chilling effect on continued partnerships between firms and physicians at medical schools that have produced a great deal of discoveries and innovative therapies.”
As the willingness and ability of academic KOL physicians to collaborate with them is diminished, the article noted that, “firms may wish to embrace new marketing paradigms, such as disease centric product offerings that enhance value propositions for physicians, patients and payers by offering bundles of products and services to improve patient health status and outcomes.”
The article also noted that “firms may wish to compile peer‐reviewed literature and comparative effectiveness research in drug monograph formats for use with pharmacy and therapeutics committees.”
Additionally, the article recognized that, “early collaboration with government and commercial payers, disease advocacy groups and KOLs will be essential in order to establish the pharmacoeconomic business case for early adoption of the new products.”
Consequently, Alliance Life Sciences noted that, “an evidence‐based medicine and patient‐centric product strategy shifts the focus to product‐driven models to market or evidence‐based models. This way, product strategy is segmented down to a more granular level that measures and delivers value to specific pools of patients based on inefficient utilization of resources or gaps in care as, perhaps, evidenced by the studies of John Wennberg and others at Dartmouth.”
The article noted that, “execution of such a “personalized medicine” strategy requires nimble execution and detailed understanding of patient and provider needs and conditions for specific patient populations.
Accordingly, the authors asserted that, “the identification of underserved patient populations with manifest clinical need for products that have demonstrable outcomes value will likely replace KOL‐driven marketing strategies.” Just as preferred drug lists and pharmacy and therapeutic committees rationalized and commoditized branded drug coverage for Medicaid State Supplemental Rebate Programs, so too may evidence‐based medicine and Accountable Care Organizations (ACOs) seek to commoditize and rationalize prescriber decision making in regard to the selection and utilization of biological, pharmaceutical and medical devices.
Therefore, the article asserted that, “the halo effect in the new marketing paradigm won’t come from having renowned academics present a firm’s PowerPoint deck to auditoriums of doctors, but from research demonstrating improved patient outcomes and avoided costs associated with better compliance that delays or reverses disease progression and acuity.”
In addition, the article acknowledged that, “successful companies will ‐‐ pursuant to evolving FDA and FTC guidance ‐‐ utilize social media technologies to disseminate studies to assure that affected prescribers and patients and social media KOLs are aware of opportunities to improve outcomes.” The authors also noted that successful firms will be those that bundle their products—such as medical foods, nutritional counseling, disease management programs and case management services—to leverage opportunities, thereby increasing patient adherence and improving patient outcomes.
Federal Law
The Sunshine Act did not standardize, curtail, or rationalize pre‐existing state‐specific aggregate‐spend reporting obligations and there is no federal pre‐emption in regard to more restrictive state statutes.
As a result, the article noted that firms will therefore need to review the adequacy of their compliance infrastructures to meet both federal and state mandates. The Sunshine Act requires that as of Jan. 1, 2012, firms begin tracking all payments or transfers of value to all U.S.‐based physicians and teaching hospitals and report aggregate spend on or before March 31, 2013, for the 2012 calendar year. Reports will be available to the public and states as of Sept. 30, 2013.
Under the Federal Sunshine Act, penalties for Non‐ Compliance are stiff for even inadvertent lapses (up to $150K annually for failure to file reportable payments). For knowing violations of the reporting requirements, fines can be up to $1.0m annually. Of course, failure to file would be a “red flag” for auditors and investigators that could subject the firm to additional scrutiny and regulatory piling on, making non‐ or partial compliance not a viable business option or effective strategy.
Regulatory Environment and Industry Response
Many recent Corporate Integrity Agreements (CIAs) contain mandatory disclosure of remuneration to healthcare providers. Moreover, several firms have adopted a proactive compliance posture and are voluntarily disclosing all remuneration to healthcare providers or curtailing the use of reimbursement altogether in favor of detailing patients and healthcare providers with relevant comparative effectiveness research via social media channels. Proponents for curtailing healthcare practitioner and KOL remuneration argue there are considerable risks when:
- A firm supplies data to prosecution‐oriented regulatory agencies;
- State and federal regulators lack clear guidance and prosecutors have the ability to fill in gaps with their judgments about whether or not a specific remuneration should be prohibited or allowable;
- State and federal prosecutors will be able to mine data to identify suspects for targeted enforcement based upon total dollars spent in order to derive large “voluntary” settlements from firms that might encompass related violations of fraud and abuse laws;
- There is reason to assume that prosecutors will utilize disclosure reporting regarding remuneration to physicians and other healthcare providers as a potential gateway to federal and state Anti‐kickback and False Claims Act allegations;
- Enhanced PPACE/HCERA‐based fraud and abuse enforcement and penalty provisions include increases in oversight funding and firm penalties and sanctions;
- Violations of the Federal Anti‐Kickback Statute are now deemed to be False Claims pursuant to PPACA/HCERA; and
- It is likely that officials at DHHS OIG who zealously oversee Anti‐Kickback and Stark Law enforcement will do likewise with the Sunshine Act.
Recommendations
Based on the above analysis, Alliance Life Sciences made the following recommendations for life sciences firms.
1. Firms that have not already done so should consider building out IT infrastructure and/or investing in human capital to maintain compliance and should establish clearly demarcated delegations of accountability to departments and empowered individuals to assure their capability to maintain continued compliance with state and federal “Sunshine Acts.”
2. Firms should establish an industry benchmark for aggregate‐spend on healthcare provider remuneration and seek to stay well within industry norms in order to avoid outlier status and unwelcome regulatory scrutiny.
3. Firms should consider curtailing remuneration that could potentially cause adverse publicity for KOLs, clinics, hospitals, medical schools and other entities.
4. Firms should understand that these laws significantly erode the KOL relationship and revisit their reliance on them to assure continued market share capture and revenue.
5. Firms may wish to consider new product marketing paradigms that do not implicate aggregate‐spend disclosure laws, such as efforts to leverage social media to disseminate Comparative Effectiveness Research in compliance with FDA and FTC rules.
6. Firms should revisit their marketing paradigms for overreliance and seek to expand their value offering by building the pharmacoeconomics case for early adoption not just with physician KOLs, but also with government and commercial payers and patients and disease advocacy groups early in the development cycle by bundling new products with patient education and counseling services and disease management to improve outcomes.