What Are the Conflicts of Interest Involving Relationships with Medical Device Manufacturers and Pharmaceutical Companies?
Relationships between healthcare providers and medical device manufacturers and pharmaceutical companies can result in conflicts of interest if the relationship personally benefits the provider and unduly influences the provider’s clinical judgment or actions. These conflicts of interest ultimately could lead to patient harm as well as potential compliance issues that could result in civil, criminal, or administrative enforcement actions and financial penalties. The same can be true for relationships between healthcare organizations that are recipients of funding or other compensation from medical device manufacturers and pharmaceutical companies. The financial relationship could cloud the decision-making of healthcare organization leadership because of the incentive.
In fact, the Department of Health & Human Services Office of Inspector General (OIG) issued a special fraud alert November 16, 2020, highlighting the fraud and abuse risks associated with pharmaceutical and medical device companies offering remuneration to healthcare providers for participating in company-sponsored speaker programs about drugs or devices targeted at other healthcare providers.[2] The alert notes that over the past three years, drug and device companies have reported paying nearly $2 billion to healthcare providers for speaking engagements, and the OIG and Department of Justice (DOJ) have investigated and resolved a number of fraud cases involving allegations that remuneration violated the Anti-Kickback Statute.[3] As a result, the government has pursued civil and criminal cases against individuals and companies involved in speaker programs.
Among the cases, the OIG found that drug and device companies:
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Selected high-prescribing healthcare providers to be speakers and paid them well, with some receiving hundreds of thousands of dollars.
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Required speakers to write a minimum number of prescriptions in order to be paid the speaking fee.
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Held programs at entertainment venues (e.g., wineries, adult entertainment facilities, sports stadiums) or during recreational events, such as fishing trips and golf outings, that were not conducive to education.
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Held programs at high-end restaurants that included expensive meals and alcohol. The OIG noted that in one case, the average food and alcohol cost was more than $500 per attendee.
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Invited an audience of healthcare providers who previously had attended the same program or invited the providers’ friends, family members, or significant others who did not have a legitimate business reason to participate in the program.
For years, story after story has circulated in the news about inappropriate financial relationships between healthcare providers and industry that led to negative consequences or even patient death. One such example was the story of Jesse Gelsinger, an 18-year-old who had a rare metabolic disorder that caused a high level of ammonia in his blood.[4] His condition was not life-threatening, but he opted to participate in a gene therapy clinical trial at the University of Pennsylvania in 1999. In the study, an adenovirus was injected into Jesse’s bloodstream, he developed a severe immune reaction to it, and he died four days later. An investigation revealed ethical, technical, and regulatory issues with the clinical trial and that the principal investigator—who also was the head of the institute where the procedure was performed—had a substantial financial stake in the company providing funds to finance the research—a potential conflict of interest.
Despite industry guidance that emerged in the early 2000s and the passage of Internal Revenue Service (IRS) laws and the Sarbanes-Oxley Act of 2002, which focused on inappropriate financial relationships and conflicts of interest among nonprofits and for-profits, years of allegations of improper relationships between healthcare providers and device and pharmaceutical manufacturers led to a series of probes into conflicts of interest by Senator Chuck Grassley.[5][6] Grassley compared documentation from manufacturers with data from universities and identified several cases where individuals substantially understated money they had received from pharmaceutical companies, for example. Among the findings:
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An Emory University physician earned more than $2.8 million from drugmakers between 2000 and 2007, yet failed to report more than $1.2 million to the university and violated federal research rules. [7] The physician signed a letter promising Emory University that he would earn less than $10,000 a year from the pharmaceutical company to comply with federal rules, but on the same day, he was found at the Four Seasons Resort in Jackson Hole, Wyoming, earning $3,000 of what would become $170,000 in income from the company.
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A University of Cincinnati physician disclosed to the university that she made $100,000 from eight drug companies, when she was really paid $238,000 from just one company for the defined period.[8]
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Two Harvard University physicians who practiced at Massachusetts General Hospital reported making several hundred thousand dollars each from drugmakers from 2000 to 2007, when each actually made more than $1.6 million.[9]
Risk Area Governance
One of the reasons why the Anti-Kickback Statute was enacted was to protect patients from prescriptions, referrals, or recommendations from healthcare providers who may have been influenced in their decision-making by inappropriate financial incentives. It is a crime under the Anti-Kickback Statute to knowingly and willfully solicit, receive, offer, or pay any remuneration to induce or reward, among other things, referrals for, or orders of, items or services reimbursable by a federal health care program.[10] Remuneration includes anything of value, directly or indirectly, overtly or covertly, in cash or in kind. Violation of the statute can lead to criminal liability to all parties involved. A violation can result in a felony that is punishable by imprisonment for up to ten years or a maximum fine of $100,000 or both. Conviction can also result in exclusion from participation in federal healthcare programs such as Medicare, Medicaid, and TRICARE.[11] The OIG also may impose civil monetary penalties for violations.[12]
The 2020 OIG special fraud alert on speaker programs was not the first time the government had warned providers that financial relationships with drug and device manufacturers could result in criminal, civil, or administrative penalties. As early as 2003, OIG shared its concerns about such financial relationships—and the possibility they could trigger the Anti-Kickback Statute—in its Compliance Program Guidance for Pharmaceutical Manufacturers.[13] And in 2010, OIG again warned providers that such arrangements with drug or device companies could be an improper inducement to prescribe or use the company’s products to be rewarded financially, rather than providing the best treatment for patients.[14]
To help ensure ethical relationships between providers and manufacturers, the Pharmaceutical Research and Manufacturers of America (PhRMA) and the Advanced Medical Technology Association (AdvaMed) both developed voluntary codes of ethics designed to address appropriate relationships between healthcare providers and medical device and pharmaceutical manufacturers.
PhRMA, which represents research-based pharmaceutical and biotechnology companies, adopted its Code on Interactions with Health Care Professionals in January 2009.[15] The code has been revised over the years, and the latest revision was released in June 2020. The association also launched the Principles on Conduct of Clinical Trials and Communication of Clinical Trial Results for clinical investigators that have relationships with pharmaceutical companies.[16]
AdvaMed is the largest global medical technology industry association, which unveiled its original code of ethics in 2003. The AdvaMed Code of Ethics on Interactions with U.S. Health Care Professionals has been revised over the years, with the last revision released in July 2020.[17] AdvaMed also has provided guidance over the years on additional topics such as physician-owned distributorships (PODs).[18] PODs are device companies and distributors that may offer equity to physicians who may be in a position to refer business to the entities. The OIG issued a special fraud alert regarding PODs March 26, 2013.[19]
Following the congressional probes, Grassley and Senator Herb Kohl took the industry guidance a step further and drafted legislation that was introduced in 2007 focusing on provider financial relationships with medical device and pharmaceutical manufacturers. The Physician Payments Sunshine Act was enacted in 2010 as part of the Patient Protection and Affordable Care Act.[20][21]
The Centers for Medicare & Medicaid Services (CMS) issued its Transparency Reports and Reporting of Physician Ownership or Investment Interests final rule on February 8, 2013.[22] Also known as the Physician Payments Sunshine Act, which required manufacturers of biologicals, devices, drugs, and medical supplies to report annually to CMS on compensation or remuneration to physicians and teaching hospitals.
A smattering of guidance, laws, and regulations from government agencies and private industry offer guardrails to protect providers with both for-profit organizations and nonprofit organizations from potential conflicts of interest. All of the guidance and laws, however, share a similar goal: that providers fulfill their duty to act in the best interest of their patients and solely on each patient’s medical needs. But there is not one governing authority, so every situation has to be evaluated based on the facts.
Common Compliance Risks
Financial relationships between providers and pharmaceutical and device manufacturers can lead to a variety of compliance risks, including, but not limited to, conflicts of interest, improper inducements, and potential violations of the Anti-Kickback Statute, as well as medically unnecessary care and false claims, all of which can lead to increased costs for the organization.
Remuneration provided by pharmaceutical and device companies to providers can cloud their judgment, leading to providers:
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Prescribing medications in exchange for payments or kickbacks,
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Marketing and prescribing medications or devices off-label,
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Misrepresenting diagnoses to justify services that are not medically necessary, and
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Ordering devices that ultimately could further line their pockets with increased compensation.
Doing so not only can trigger the Anti-Kickback Statute but also could result in care that is not medically necessary and result in violations of the False Claims Act.[23]
Five of the largest pharmaceutical companies in the world—Abbott, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, and Pfizer—for example, all have had to pay settlements totaling $1 billion or more under the False Claims Act for such violations.[24]
Addressing Compliance Risks
Compliance officers who work for healthcare organizations can proactively address compliance risks related to financial relationships between vendors and physicians who serve as medical directors, attendings, consultants, researchers, or are employed by the organization. They should address each of the items under the following categories.
Policies and Procedures
Implement policies and procedures that address financial relationships between pharmaceutical and device manufacturers and physicians.
Education
Provide education on the compliance risks and applicable laws, regulations, guidance, and special fraud alerts that address financial relationships between providers and vendors.
Contract Review
Review contracts between drug and device companies and providers to ensure they are compliant with state and federal laws and regulations as well as company policy.
Conflicts of Interest Statements
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Ensure physicians complete their conflicts of interest statement upon the commencement of their relationship with the healthcare organization and make sure some questions specifically ask about financial relationships with pharmaceutical and device manufacturers.
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Make sure conflict of interest statements are updated when there is a change in the provider’s status.
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Ensure providers update their conflicts of interest statements at least annually.
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Have a committee that includes someone from the compliance department review disclosures on conflicts of interest statements to determine whether concerns exist with relationships between providers and pharmaceutical companies and/or device manufacturers.
Corrective Action Plan
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Address any potential conflicts of interest with a corrective action plan or monitoring plan.
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Monitor the provider to ensure the plan is being followed and is effective.
Hotline Reporting
Make sure the organization’s hotline includes a reporting category to address conflicts of interest that may be reported.
Monitoring and Auditing
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Monitor payments from drug and device manufacturers to providers through the CMS Open Payments database.[25]
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Conduct data mining to monitor physician prescribing patterns and device usage and look for overutilization or changes in patterns that may be related to financial incentives received from a pharmaceutical or device manufacturing company.
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Conduct medical necessity audits of physician prescribing and device usage and focus on drugs or devices that the physician may have ordered where he or she also has a financial relationship with a pharmaceutical or device manufacturer.
Investigate Concerns and Take Corrective Action
Investigate when there is concern about a financial relationship between a provider and a pharmaceutical or device manufacturing company. Take appropriate corrective action if necessary and follow up to ensure the corrective action addressed the concern and is effective.
Report Findings
Share results of all compliance efforts related to financial relationships between drug and device companies with the organization’s compliance committee and the board of directors.
Possible Penalties
Improper financial relationships between pharmaceutical manufacturers and drug companies can lead to a variety of criminal, civil, and administrative penalties.
Violations that trigger the Anti-Kickback Statute can lead to criminal liability to all parties— physician and pharmaceutical or device company—involved. An Anti-Kickback Statute violation can result in a felony punishable by imprisonment for up to ten years, a maximum fine of $100,000, or both. Conviction also can result in mandatory exclusion from participation in federal healthcare programs such as Medicare, Medicaid, and TRICARE.[26] The OIG also may impose civil monetary penalties for violations under the False Claims Act if the matter results in medically unnecessary care, for example.[27]
Healthcare organizations also can impose their own penalties with providers, such as disciplinary action up to and including termination, as well as reporting providers to the state board of medical licensure. Healthcare organizations also may reevaluate their contracts with pharmaceutical and device manufacturers, and terminate the relationship because of an improper relationship.
Compliance Resources
U.S. Department of Health & Human Services, Office of Inspector General
Special Fraud Alert: Physician-Owned Entities
https://oig.hhs.gov/fraud/docs/alertsandbulletins/2013/POD_Special_Fraud_Alert.pdf
Compliance Program Guidance for Pharmaceutical Manufacturers
https://oig.hhs.gov/fraud/docs/complianceguidance/042803pharmacymfgnonfr.pdf
A Roadmap for New Physicians, Avoiding Medicare and Medicaid Fraud and Abuse
https://oig.hhs.gov/compliance/physician-education/roadmap_web_version.pdf
Compliance Program Guidance for Healthcare Providers
https://oig.hhs.gov/compliance/compliance-guidance/index.asp
Measuring Compliance Program Effectiveness: A Resource Guide
https://oig.hhs.gov/documents/toolkits/928/HCCA-OIG-Resource-Guide.pdf
Pharmaceutical Research and Manufacturers of America
Code on Interactions with Health Care Professionals (June 2020)
Principles on Conduct of Clinical Trials and Communication of Clinical Trial Results
Advanced Medical Technology Association
Code of Ethics
https://www.advamed.org/wp-content/uploads/2021/05/AdvaMed-Code-of-Ethics-2021.pdf
Risk Takeaways
Main points of interest:
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Financial relationships between physicians and pharmaceutical manufacturers and device companies are high risk and can lead to conflicts of interest, violations of the Anti-Kickback Statute, and False Claims Act violations.
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OIG has issued special fraud alerts related to financial relationships between providers and pharmaceutical and device companies on more than one occasion.
Areas to watch:
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Conflicts of interest disclosures
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CMS Open Payments database
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Provider prescribing patterns
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Provider use of medical devices
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Provider use of off-label drugs and devices
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Medical necessity of prescriptions and device orders
Laws that apply:
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Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b)
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False Claims Act, 31 U.S.C. §§ 3729–3733
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Exclusions, 42 U.S.C. § 1320a–7(a)
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IRS regulations for nonprofits, 26 U.S.C. § 501(c)(3)
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Sarbanes-Oxley Act of 2002, Pub. L. 107–204, 116 Stat. 745 (2002)
Addressing compliance risks:
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Develop and implement policies and procedures that address relationships between providers and drug and device manufacturers.
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Include conflicts of interest in the organization’s code of conduct.
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Develop and implement policies and procedures that address conflicts of interest.
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Establish a process to obtain and maintain conflicts of interest questionnaires and data.
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Develop and implement policies and procedures that address gifts.
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Educate providers on conflicts of interest and gifts policies.
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Educate providers on how the CMS Open Payments database is used to monitor financial relationships and potential conflicts of interest.
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Include conflicts of interest as a category in compliance investigations.
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Investigate allegations of conflicts of interest.
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Include monitoring of the CMS Open Payments database and other information to evaluate financial relationships between providers and manufacturers in an annual compliance monitoring plan or internal audit plan.
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Develop and implement corrective action plans (CAPs), including disciplinary action when necessary.
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Develop and implement conflict management plans when necessary and monitor compliance with the plans.