Alert March 24, 2009

Massachusetts Issues Final Gift Ban Regulation Regarding Pharmaceutical and Medical Device

Massachusetts has issued a final regulation implementing a sweeping new regime affecting the way biotechnology, pharmaceutical and medical device companies can market their products within the Commonwealth. Among other things, the regulation significantly limits the promotional gifts, including meals, that companies can provide to doctors and other health care practitioners as part of their promotional programs.

The regulation, finalized by the Massachusetts Department of Public Health ("DPH") on March 11, 2009, implements relevant portions of "An Act to Promote Cost Containment, Transparency and Efficiency in the Delivery of Quality Healthcare" ("Act"), which was signed into law in August 2008. The final regulation will be published in the Code of Massachusetts Regulations on April 3, 2009. Below are some answers to general questions regarding the scope and applicability of the regulation. This Client Alert is not intended to be a comprehensive summary of the regulation. For more information on the Act and the final regulation, visit the regulation and policy section of the DPH website here.

Who is subject to the regulation?

The regulation applies to any pharmaceutical or medical device manufacturing company, whether located in Massachusetts or not ("Covered Company"), that directly or indirectly produces, extracts, synthesizes, or directly packages, labels or distributes prescription drugs, biologics or medical devices intended for use in humans ("Covered Products") and employs or is under contract with an agent that engages in detailing, marketing or promoting such a company’s Covered Products in Massachusetts to any person who is authorized to prescribe, dispense or purchase the Covered Products. The regulation makes it clear that a company need not be based, nor even have an office, in Massachusetts to be subject to the regulation’s marketing restrictions and training and disclosure requirements. Health care practitioners, hospitals, retail pharmacists and wholesale drug distributors are not considered Covered Companies.

Point of Interest: Pharmaceutical and medical device companies should note that the DPH made an important change in the final regulation when it eliminated the Act’s provision that only companies that "participate in a commonwealth health care program" — that is, accept reimbursement or coverage for their products under state Medicaid or other insurance programs — would be subject to the provisions of the law. As a result, pharmaceutical and medical device companies that initially determined that the regulation would not apply to their activities because they do not participate in a commonwealth health care program should reevaluate that determination in light of the final regulation.

What must Covered Companies do under the regulation?

The regulation requires that Covered Companies:

  • Adopt a marketing code of conduct that complies with the requirements of the regulation (the "Code of Conduct") by July 1, 2009
  • Develop programs by July 1, 2009 for training employees on and demonstrating compliance with the Code of Conduct
  • Adopt and submit policies and procedures for investigating and responding to instances of non-compliance
  • Appoint a compliance officer and submit his or her contact information to DPH
  • Commencing July 1, 2010, and annually thereafter, certify (i) that they have conducted an annual compliance audit for the preceding calendar year and (ii) their compliance with the regulation, and disclose to the DPH fees, payments, subsidies or other benefits with an economic value of at least $50 that have been paid or made to Covered Recipients during the prior calendar year1. A "Covered Recipient" is a person authorized to dispense, prescribe or purchase prescription drugs or medical devices in Massachusetts, including, but not limited to, hospitals, nursing homes, pharmacists and health care practitioners.

Point of Interest: Each of the above requirements are discussed in more detail below, but Covered Companies should note that they need to take action promptly in order to meet the timetables established by the Act and the regulation.

What are the requirements for the Code of Conduct?

Codes of Conduct must comply with the requirements set forth in the regulation, which describes prohibited and permissible activities for a Covered Company’s interactions with health care practitioners. A Covered Company is prohibited from directly or indirectly compensating health care practitioners for prescribing or using the Covered Company’s Covered Products. These prohibitions range from the obvious (e.g., prohibiting payments or remuneration (in cash or in kind) prohibited under the federal "Anti-Kickback Statute" and equivalent state laws), to the less obvious (e.g., providing tangible complimentary items, such as pens, coffee mugs, gift cards, etc. to health care practitioners, except as compensation for bona fide services). The regulation also places limits on the types of meals that a Covered Company can provide to health care practitioners and limits the funding that a Covered Company can provide for continuing medical education, third-party scientific or educational conferences and professional meetings.

Although a Covered Company is allowed to provide certain financial benefits to health care practitioners in very limited circumstances, such benefits are subject to important restrictions. For example, a Covered Company is allowed to compensate health care practitioners for bona fide services or reimburse them for attending technical training on a medical device, provided that the compensation or reimbursement is documented in a written agreement. Other permissible activities include providing prescription drugs for the health care practitioner’s patients, providing medical device demonstration and evaluation units for their assessment, providing charitable donations and providing rebates and discounts in the normal course of business.

The regulation places additional compliance-related burdens on pharmaceutical manufacturing companies if they use non-patient identified prescriber data for facilitating communications with health care practitioners or hire a health care practitioner who is also a member of a committee that sets formularies or develops clinical guidelines.

Point of Interest: A Covered Company may already have a code of business conduct or a code of ethics that was put in place because it is a public company or a member of an industry group or association. In most instances, an existing code will not address all the matters required by the regulation. In addition, many Covered Companies are considering adopting codes of conduct approved by the Advanced Medical Technology Association (AdvaMed), the Pharmaceutical Research and Manufacturers of America (PhRMA) and other bodies as a solution to the requirements of the Act and its implementing regulation. However, careful thought should be given when developing and adopting a Code of Conduct to ensure that the Massachusetts requirements are satisfied as they go further in certain areas than do most industry developed codes. Further, combining the Massachusetts code of conduct provisions with an existing code of business conduct or ethics that was put in place for other reasons, such as compliance with the Sarbanes-Oxley Act, may result in unintended consequences. Accordingly, determining exactly how and where to implement the Code of Conduct requirement should be a careful exercise in order to avoid unintended consequences.

What does a Covered Company need to do to demonstrate compliance with its Code of Conduct?

A Covered Company is required to institute several measures to ensure compliance with its Code of Conduct.

Training Programs: A Covered Company must adopt and submit to the DPH by July 1, 2009 a description of its training programs, which have been designed to educate its employees on its Code of Conduct. The training programs should be regularly scheduled and should ensure that any representative of a Covered Company who visits health care practitioners has sufficient knowledge of the Code of Conduct, general science and product-specific information. Neither the regulation nor the Q&A published by the DPH discusses what "sufficient knowledge of general science" means and any such knowledge will likely need to bear on what the product is intended to do, what condition it is intended to diagnose, monitor, manage or treat and how the product accomplishes these objectives. In addition, the training programs need to have a mechanism for providing regular assessments of the participants.

Investigation and Response Policies and Procedures: By July 1, 2009, a Covered Company must adopt and submit to the DPH policies and procedures for investigating and responding to instances of non-compliance with the regulation.

Appointment of Compliance Officer: A Covered Company must appoint a compliance officer and submit his or her contact information to the DPH by July 1, 2009. As with codes of conduct in general, many companies already have appointed a compliance officer. Each company’s circumstances will vary and an existing compliance officer may or may not be the right person to serve as the compliance officer required by the regulation.

Annual Compliance Audit and Certification: By July 1 of each calendar year commencing July 1, 2010, a Covered Company must perform an annual compliance audit for the preceding calendar year and must certify to the DPH that it has performed the compliance audit and is in compliance with the regulation, subject to a knowledge qualification.2

What must a Covered Company disclose to the DPH pursuant to the disclosure provisions of the regulation?

A Covered Company must disclose the value, nature, purpose and recipient of any fee, payment or other economic benefit with a value of at least $50 (on an individual transactional basis), which is provided to a Covered Recipient in connection with the Covered Company’s sales and marketing activities. Sales and marketing activities are defined broadly in the regulation to include any activity that could influence prescriptions, use, sales of or market share of a Covered Product, including product education and training or research projects that are designed or sponsored by the marketing division of a Covered Company, or have marketing, product promotion or advertising as their purpose. Payments for clinical trials and genuine research (i.e., that does not have marketing or product promotion as its primary purpose), providing of prescription drugs for use by the Covered Recipient’s patients, providing medical device demonstration or evaluation units, and providing price concessions are not considered sales or marketing activities for purposes of the disclosure provisions of the regulation.

When does a Covered Company need to comply with the provisions of the regulation?

Now

  • Determine whether the company is a "Covered Company."

By July 1, 2009

  • Adopt a Code of Conduct; develop Code of Conduct training programs and investigation and response procedures; and notify the DPH of the foregoing.
  • Appoint a compliance officer and identify this person to the DPH.
  • Pay annual $2,000 fee to the DPH (see below for payments made in successive years).

By July 1 of each calendar year beginning in 2010

  • Conduct annual compliance audit for the preceding
  • calendar year (only the period from July 1, 2009 through December 31, 2009 for the 2010 compliance audit).
  • Certify to DPH that (i) the annual compliance audit has been conducted, and (ii) to the best of the company’s knowledge, information and belief, the company is in compliance with the regulation.
  • Provide to the DPH the company’s annual disclosure statement regarding payments made to Covered Recipients during the preceding calendar year in connection with sales and marketing activities (only the period from July 1, 2009 through December 31, 2009 for the 2010 statement).
  • Pay the annual $2,000 fee to the DPH.

What are the consequences of not complying with the regulation?

Any Covered Company that knowingly and willfully violates any provision of the regulation will be punished by a fine of up to $5,000 for each transaction, occurrence or event. Covered Companies will have an informal opportunity to dispute such fines before they are imposed and will have the ability to seek judicial review of such fines after they have been imposed.

Is it possible that this regulation will be preempted by federal legislation? There appears to be a trend towards imposing legislation requiring disclosure of and/or limiting the financial relationship between pharmaceutical and medical device companies and health care practitioners. Several other states have adopted legislation which is similar to the Massachusetts legislation and similar bills have been introduced at the federal level, although this legislation has not yet been acted upon. At present, the proposed federal legislation would only pre-empt the Act and the related regulation to the extent the matter is expressly addressed in the federal legislation. As a result, the currently proposed federal legislation will not pre-empt the Act and the related regulation in those areas, such as disclosure, that go beyond the scope of the proposed federal legislation.

 

1 The initial compliance audit and report to the DPH by July 1, 2010 will only cover the period from July 1, 2009 – December 31, 2009.

2 The initial compliance audit and report to the DPH by July 1, 2010 will only cover the period from July 1, 2009 – December 31, 2009.