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Pharma’s Regulation Shifts in the Past Decade

Posted By: Bret S. Bissey, MBA, FACHE, CHC, CMPE and Jennifer Shimek / April 17, 2015

Pharmaceutical Compliance MonitorChanges in marketing, big recoveries reshape drug industry
Regulation aims to serve as a brake to curb some of the market’s excesses, protect customers, and try to keep competition fair. In healthcare, the need for regulation has greater stakes since we are dealing with the physical well-being of patients. Given the amount of money flowing into healthcare, regulations also consider the financial well-being of patients, insurers, taxpayers and other payers.

Regulators have a big impetus to pay attention to healthcare companies versus other industries and have stepped up enforcement during the past decade to 15 years. During Fiscal Year 2013, the federal government won or negotiated over $2.6 billion in healthcare fraud judgments and settlements. That’s a small amount over overall healthcare spending, which accounts for one of every six dollars spent in the United States, or nearly 18 percent of GDP. Medicare & Medicaid combined to account for 35 percent of all U.S. healthcare expenditures and its solvency has come into question over the past several decades, creating a sense of urgency to fund it with fines, penalties and settlement proceeds from organizations perceived to have the “deepest pockets.”

Many of the biggest names in healthcare have been hit with fines or are operating under corporate integrity agreements. Some laws have been at the disposal of regulators for decades, but new interpretations have created avenues for greater enforcement in healthcare. The laws that have had the biggest impact on the pharmaceutical industry include the Foreign Corrupt Practices Act, The Open Payments Act, The False Claims Act and changes in the PhRMA Code.

Foreign Corrupt Practices Act

This law has gained greater emphasis as the drug industry has become more globalized. Supply chains, clinical trials and government relations are the potential risk areas for kickbacks, bribes and other forms of corruption. Also, many U.S. drug companies have opted to hire intermediaries to handle elements of their overseas operations, but U.S. companies are vulnerable to enforcement actions if intermediaries break the law.

If drug makers are on the hook for what their intermediaries do, how can they manage to avoid trouble outside of the assurances that their partners make? One approach is to have strong auditing rights in the agreements with their partners. The second is to apply analytic tools to find where kickbacks and illicit payments can hide by measuring what things are worth and what is actually being spent. The United States is not alone in cracking down on the notion that bribes are “a way of doing business.” International standards are starting to match U.S. anticorruption standards, making the markets fairer.

False Claims Act

The False Claims Act, which has its roots in the U.S. Civil War to crackdown on profiteering, has gained additional prominence in healthcare, given the vast outlays in fiscal 2014 Medicare ($353.7 billion) and Medicaid ($301.5 billion). The Health Insurance Portability and Accountability Act (HIPAA) created the Healthcare Fraud and Abuse Control Program that covered both public and private health plans. The biggest concerns for drug makers about the False Claims Act include off label drug use, combating kickbacks and how medications are priced – namely that Medicaid programs get the lowest prices for medications. Amounts paid to Medicare in restitution or for compensatory damages, as well as any criminal fines or civil settlements, must be deposited in Medicare Trust Funds.

Open Payments (‘Sunshine’) Act

The premise of the law is that full disclosures about financial sources – “sunshine” – prevents corruption from flourishing. The crux of the law requires healthcare providers and group purchasing organizations to disclose ownership/investment interests or the receipt of anything of value from drug makers, device makers or their intermediaries.

The Open Payments Act is aimed at curbing some of the perceived excesses in marketing where some healthcare providers were receiving gifts, speaking contracts, charitable contributions and payments under education programs to encourage doctors to prescribe products. The law serves as an opportunity to bolster conflict-of-interest policies and procedures and to educate doctors about the need for disclosures.

The catch, however, is that the level of disclosure can be burdensome. The law requires anything over $10 in value or contributions totaling $100 during the course of a year to be disclosed. For example, a pharmaceutical representative who buys a pizza for the staff at a doctor’s office may have to leave off the pepperoni or else it could become a reportable event. The level of disclosures in the Sunshine Act combined with the PhRMA code have altered the interaction between drug makers and providers and placed more emphasis on education.

PhRMA Code

PhRMA, the trade group representing drug makers, adopted the PhRMA Code, which was established in 2002 and later revised to go into effect in 2009, to establish rules about how drug makers interact with health care providers and other organizations. The initial code targeted travel, entertainment, and other pricey perks, while the revision later barred branded trinkets as gifts. The code urges drug makers and representatives to adhere to FDA rules, including those around off-label use and exaggerating the claims around the efficacy of medications.

The emphasis in interaction between drug company representatives and doctors is now on education. Drug makers can still pay physicians “reasonable” speaking fees – based on “market value” – to educate other doctors about products. The PhRMA code spells out that the physician education should be done in an environment conducive to learning, noting “resorts are not appropriate venues.”

Many of the bigger discussions with drug makers are now with organizations that design formularies, such as health plans and pharmacy benefit managers, since they control reimbursement and patient out-of-pocket costs for medications. The PhRMA code applies to those discussions as well. Drug makers are “encouraged to seek external verification periodically, meaning at least once every three years, that the company has policies and procedures in place to foster compliance with the Code,” PhRMA said.


While the PhRMA Code is not the rule of law, it does reduce the risk of fraud and shows a “good faith” effort at complying with the laws governing how prescription drugs are marketed. At the core of the regulatory changes listed above, the rules are aimed at ensuring prescription medicines are being used within their indications and that that medical decisions are not solely based on provider or drug maker profits.

Many of the rules attempt to remedy the excesses that some marketers traditionally relied upon before these rules took effect. However, some of the regulations could be better grounded in the economic reality, namely disclosing anything more than $10 in value provided to a physician’s practice. While rules covering gifts to federal employees have many conditions, they use a dollar limit of $20 per gift/$50 during the course of a year.

One of the biggest impacts of these rules and how they have been applied during the past decade is that they’ve made the role of compliance much more significant at drug and device makers, as well as healthcare providers.

Read the original article published by Pharmaceutical Compliance Monitor >

Bret S. Bissey, MBA, FACHE, CHC, CMPE

Prior to joining MediTract, Mr. Bissey was the SVP, chief ethics and compliance officer at UMDNJ, where he successfully led the compliance program to adherence with a rigorous five-year Corporate Integrity Agreement with the DHHS/OIG that occurred following a Deferred Prosecution Agreement. Prior to UMDNJ, Bissey served as the director of the Regulatory Compliance Practice at IMA Consulting, the chief compliance and privacy officer at Deborah Heart and Lung Center (operating under a CIA) and the VP of compliance at Cabot Marsh/QuadraMed. Mr. Bissey earned a Bachelor of Science in business administration and marketing from Shippensburg University of Pennsylvania and an MBA in marketing and healthcare administration from Wilkes University. Mr. Bissey is a frequent national speaker on healthcare compliance and is the author of The Compliance Officer’s Handbook. He is a Fellow of the American College of Healthcare Executives and a member of the Health Care Compliance Association (CHC), American College of Medical Practice Executives and the Healthcare Financial Management Association.

About the Author: Jennifer Shimek

Jennifer Shimek

Jennifer Shimek is a principal in the Short Hills office of KPMG’s U.S. Forensic Advisory Services practice, where she specializes in regulatory enforcement and compliance.