On May 5, 2003, the OIG issued its final Compliance Program Guidance for Pharmaceutical Manufacturers. 68 Fed. Reg. 23,731 (May 5, 2003). The program guidance focuses specifically on pharmaceutical manufacturers (i.e., companies that develop, manufacture, market, and sell pharmaceutical drugs or biological products) and not other segments of the industry (i.e., retail pharmacy chains, etc.); however, the OIG anticipates that the guidance will also be useful to hospitals, physicians, and other providers who interact with manufactures or engage in similar financial arrangements. The final guidance is more expansive and detailed than the draft compliance guidance issued last fall. 67 Fed. Reg. 62,057 (Oct. 3, 2002). The guidance sets forth the OIG's general views on the value of compliance programs for pharmaceutical manufacturers as a mechanism to assist and promote adherence to applicable statutes, regulations, and requirements of the federal health care programs. In recognition of the complexity of the pharmaceutical industry and the diversity among its members, the OIG stresses that the guide is not a compliance program. Rather, it is a set of guidelines to be considered by manufacturers when developing, implementing, or assessing a compliance program.

The OIG repeats the principle, as stated in previously issued compliance program guidance, that an effective compliance program is built on seven core elements: (1) implementing written policies and procedures; (2) designating a compliance officer and compliance committee; (3) conducting effective training and education; (4) developing effective lines of communication; (5) conducting internal monitoring and auditing (6) enforcing standards through well-publicized disciplinary guidelines; and (7) promptly responding to detected problems and undertaking corrective action.

The most significant portion of the guidance focuses on written policies and procedures. Here, the OIG identifies three potential risk areas: (1) the integrity of manufacturer-supplied data used by state and federal governments to establish payments under federal health care programs; (2) kickbacks and other illegal remuneration; and (3) compliance with laws regulating drug samples. The OIG cautions, however, that this is not an exhaustive list of all potential areas of risk for pharmaceutical manufacturers.

Integrity of Data
Many federal and state health care programs rely on price and sales data directly or indirectly supplied by pharmaceutical manufacturers in establishing reimbursement rates for pharmaceuticals. The OIG guidance focuses on manufacturers' responsibility to ensure the integrity of that information. Specifically, the OIG states its position that a manufacturer could be held liable under the FCA for the knowing submission of false, fraudulent, or misleading information, such as "inflated" Average Wholesale Price (AWP), if government reimbursement for the manufacturer's product is based in whole or in part on information generated by the manufacturer.

Having said this, the OIG provides little meaningful substantive guidance on how this reporting should be accomplished. The OIG simply advises that "where appropriate," manufacturers' reported prices should reflect price reductions, rebates, up-front payments, coupons, goods in kind, free or reduced-price services, grants, and other concessions or benefits offered, and that discounts, price concessions, or similar benefits offered on multiple products should be "fairly" apportioned among the products. With respect to the Medicaid Drug Rebate program, 42 U.S.C. § 1396r-8, manufacturers are directed to the guidance available on CMS's website (http://cms.hhs.gov/ medicaid/drugs/default.asp). Manufacturers are left to wonder what the OIG deems "appropriate" and "fair" with respect to the reporting of AWP, which remains undefined.

The OIG further recommends that manufacturers appropriately document and maintain all records reflecting reported prices and efforts undertaken to comply with federal health care program requirements.

Kickbacks and Other Illegal Remuneration
The OIG cautions pharmaceutical manufacturers to be cognizant of the federal antikickback statute and the limitations it places on the promotion and marketing of products reimbursed by federal health care programs. The final guidance includes a two-part test for identifying arrangements or practices at risk. First, a manufacturer is instructed to identify any "remunerative relationship" between the manufacturer or its representatives and individuals or entities in a position to directly or indirectly generate federal health care business for the manufacturer. Next, the manufacturer is instructed to analyze whether one purpose of the remuneration may be unlawful. The OIG notes, "[A] lawful purpose will not legitimize a payment that also has an unlawful purpose." 68 Fed. Reg. at 23,731. The OIG continues by setting forth questions a manufacturer should ask about problematic arrangements or practices identified that focus on the potential of the practice or arrangement to impact on clinical judgment; costs to the federal health care programs, beneficiaries, and enrollees; overutilization; and patient safety or quality of care.

The guidance recommends that manufacturers structure their relationships to fit within a regulatory safe harbor. The OIG identifies six potentially relevant safe harbors: personal services and management contracts; warranties; discounts; employment; group purchasing organization arrangements; and managed care and shared-risk arrangements. See 42 CFR § 1001.952. The OIG notes that even when an arrangement cannot be structured to fit within a safe harbor, the safe harbor provides a mechanism by which to evaluate the risk associated with the arrangement. Manufacturers also can obtain guidance on their specific arrangements through the OIG's advisory opinion process.

The OIG sets forth three risks areas under the antikickback statute relating to pharmaceutical manufacturers' relationships with purchasers; physicians and other health care professionals; and sales agents. Again, the OIG cautions that the guidance is illustrative, not an exhaustive discussion of all potential risk areas.

Relationships with Purchasers
Discounts and other remuneration: The OIG states that price concessions and other remuneration offered by manufacturers to purchasers as an inducement to purchase products may implicate the antikickback statute if the products are reimbursable in whole or in part, directly or indirectly, by a federal health care program. The OIG further notes that the same holds true for direct purchasers (e.g., hospitals, nursing homes, pharmacies, and some physicians) as well as indirect purchasers or non-purchasers (e.g., group purchasing organizations or pharmacy benefit managers), emphasizing that any remuneration a manufacturer provides to a purchaser, if it is expressly or impliedly related to a sale, potentially implicates the antikickback statute. Manufacturers are urged to carefully review any such remuneration.

The final guidance adds a discussion, not included in the draft guidance, of discounting arrangements and their potential impact on the Best Price requirements of the Medicaid Drug Rebate Program. The OIG states that manufacturers have a strong financial incentive to hide de facto pricing concessions to purchasers in order to avoid the requirement under the Medicaid Drug Rebate Program that those same discounts be passed on to the states. Based upon the potential and significant impact of such practices on the federal health care programs, the OIG draws the broad conclusion that "any remuneration from a manufacturer to a purchaser, however characterized, should be carefully scrutinized." 68 Fed. Reg. at 23,735.

The OIG includes separate, detailed discussions of specific risk areas associated with discounts and other types of remuneration. The discussion of remuneration provided as part of a sale other than price reductions is broken out into sections specific to product support services, educational grants, research funding, and formulary activities - a significant expansion and restructuring of that in the draft guidance.

Discounts: The OIG discusses the discount safe harbor that permits the provision of discounts that are properly disclosed, accurately reported, and in the form of a reduction in the price of the good or service in an arms-length transaction at the time of sale or in certain instances set at the time of sale but determined later (e.g., rebates). The OIG included in the draft guidance cautionary statements concerning the failure of price concessions, such as discounts on other products, other free or reduced-price goods or services, education or other grants, conversion payments, signing bonuses, or up-front rebates, to qualify for protection under the discount safe harbor. Appropriately, those statements were not incorporated into the final guidance.
The guidance also advises pharmaceutical manufacturers to pay particular attention to the obligations of sellers and offerors of discounts to inform a customer of any discount and of the customer's obligation to report the discount and to refrain from impeding a customer's ability to comply with the requirements of the safe harbor. The OIG points out that manufacturers will need knowledge of how their customers submit claims to federal health programs (e.g., whether the customer is a managed care, cost-report, or charge-based supplier) in order to satisfy the safe harbor requirements.
Product support services: The OIG cautions that product support services such as reimbursement consultation, product-related billing assistance, and other products specifically tied to the purchase of a product raise kickback concerns when a product or service of no independent value is provided in tandem with another product or service that confers a benefit on a referral source.
Educational grants: The guidance cautions that grant funding for educational purposes, when conditioned in whole or in part on the purchase of a product, implicates the antikickback statute. The OIG continues by noting that any ability of the manufacturer to influence the substance of the educational program or presenter increases the risk that the educational program is a conduit for inappropriate marketing purposes (i.e., to induce or reward product purchases). The OIG advises manufacturers to reduce this risk by separating their grant making functions from their sales and marketing functions. Manufacturers are further advised to establish objective criteria for grant funding that does not take into account the volume or value of purchases made or anticipated from the grant recipient. In addition, the funded activities must be bona fide and the manufacturer should have no control over the speaker or the content of the educational presentation.
Research funding: The OIG recognizes that manufacturers often contract with purchasers of their products to conduct research activities, and advises that, when possible, such contracts should be structured to satisfy the requirements of the personal services and management safe harbor. The OIG continues that post-marketing research activities should be carefully scrutinized to ensure there is a legitimate purpose for the activity. The OIG advises that manufacturers should develop a contracting program that separates the awarding of research contracts from marketing and notes that research contracts offered in connection with sales contracts are highly suspect.
Other remuneration: The OIG further advises manufacturers to look closely at any instances in which they provide prebates, upfront payments, or free or below-market goods or services in connection with a sale to a purchaser or person or entity in a position to make or influence referrals of federal health care business. In such situations, manufacturers are advised to examine whether the goods or services are offered in a uniform fashion to all customers or only to a select group, such as purchasers who are high-volume prescribers.

Formularies and support activities: The final guidance contains a discussion specific to formularies and formulary activities that was not contained in the draft guidance. The OIG begins by discussing the many benefits attributable to formularies and formulary activities and notes that, to date, Medicare and Medicaid involvement in drug formularies has been limited to the managed care context. The OIG continues that given the safe harbor protection available to managed care arrangements, the relationships between health care plans, pharmaceutical manufacturers, and pharmacy benefit managers (PBMs) have received little attention. The OIG warns, however, that as the coverage of and expenditures for outpatient pharmaceuticals has increased so too has the scrutiny of these relationships under the antikickback statute. The OIG notes the potential for abuse in relationships with formulary committee members, payments to PBMs, and formulary placement payments.

The OIG expresses its concern with manufacturers attempting to influence formulary committee deliberations, given the significance of formulary placement to manufacturers. The OIG advises that any remuneration paid by a manufacturer to any individual in a position to influence the formulary is suspect. Manufacturers are further advised to ensure that price negotiations do not impact clinical safety and efficacy decisions. With regard to payments to PBMs, the OIG notes that manufacturers may structure these relationships to fit within the group purchasing organization (GPO) safe harbor. This remark is interesting since, for the first time, the OIG indicates that a PBM can fit within the safe harbor. Finally, with respect to formulary placement payments, the OIG warns that lump-sum payments for inclusion on the formulary or for exclusive status are problematic.

Average Wholesale Price: The guidance also speaks to the issue of AWP "manipulation" as violative of the antikickback statute, a concept at the center of ongoing government investigations. Again, the guidance does not define AWP. It does define "spread" as "the difference between the amount a customer pays for a product and the amount the customer receives upon resale of the product to the patient or other payer." 68 Fed. Reg. 23,736. The guidance sets forth the OIG's belief that manufacturers control not only the price at which they sell their products, but also the amount their customers are reimbursed for those products under the federal health care programs. The OIG warns that a manufacturer who "establishes or inappropriately maintains" an AWP to increase customer profit, coupled with active marketing of the spread, implicates the antikickback statute. The OIG suggests that manufacturers review their AWP reporting practices and methodologies to ensure that the process is not tainted by marketing considerations.

The OIG's AWP kickback theory is a creative one that has not been tested in court. Since AWP remains undefined and there is no guidance as to how it should be calculated, it is unclear how the OIG would establish that an AWP is not appropriate or has been manipulated or inappropriately maintained. Until this issue is resolved, through either legislation or litigation, manufacturers are well-advised to avoid taking any steps that might have the effect of raising AWP for products whose actual sale price is constant or falling.

Relationships with Physicians and Other Health Care Professionals
The final guidance contains an expanded discussion on the interplay and potential risk stemming from remunerative relationships between manufacturers and physicians and other health care professionals. Manufacturers are advised to structure these relationships to fit within the personal services and management contracts or employment safe harbors. The guidance borrows from the Pharmaceutical Research and Manufacturers of America (PhRMA) Code on Interactions with Health Care Professionals additional factors that should be considered when reviewing arrangements that don't fit squarely within the safe harbors: the nature of the relationship between the parties; the manner in which remuneration is calculated; the value of the remuneration; potential impact of the remuneration on the federal health care programs; and potential conflicts of interest associated with acceptance of the remuneration.

The guidance identifies and discusses in detail several specific risk areas arising from relationships between manufacturers and physicians and other health care professionals who order or prescribe the manufacturers' products: (1) switching arrangements; (2) consulting and advisory payments; (3) payments for detailing; (4) business courtesies and other gratuities; and (5) educational and research funding.

Switching Arrangements: Consistent with past compliance program guidance, the OIG discusses switching arrangements or product-conversion arrangements, which it views as suspect under the antikickback statute. Switching arrangements involve cash payments or other benefits offered by manufacturers to physicians, PBMs, pharmacies, or other prescribers for each instance in which a patient's prescription is changed from a competing product to the manufacturer's product. The guidance recognizes that these types of arrangements may be permissible in the managed care environment, but strongly urges manufacturers to review carefully any switching arrangements involving products reimbursable under federal health care programs.

Consulting and Advisory Payments: The guidance recognizes the legitimate purposes behind manufacturers engaging physicians and other health care professionals to act as consultants, advisors, or researchers in connection with marketing and research activities. The OIG instructs manufacturers to ensure that payments for these services are fair market value for actual, reasonable, and necessary services and not improper token payments. The OIG warns that compensating physicians for attending meetings or conferences in a passive capacity is suspect. The OIG suggests that these arrangements be structured to fit within the personal services safe harbor.

Payments for Detailing: The OIG issues a strong warning to manufacturers who provide payment to physicians for activities such as listening to sales representatives market products, accessing marketing information via websites, or performing web-based research. The OIG characterizes these activities as highly susceptible to fraud and abuse and strongly discourages manufacturers from engaging in such activities.

Business Courtesies and Other Gratuities: The guidance touches on other relationships in which pharmaceutical companies engage with physicians or other individuals in a position to make or influence referrals that potentially implicate the antikickback statute. The guidance lists a number of practices that pose a "particular risk" when they involve parties in a position to prescribe, order, or influence the prescribing or ordering of manufacturer's products:

Entertainment, recreation, travel, meals, or other benefits in association with information or marketing presentations; and
Gifts, gratuities, and other business courtesies.

In the draft guidance, the OIG directed manufacturers to, at a minimum, comply with the voluntary PhRMA Code. The OIG stated in the draft guidance that relationships that fail to meet the standards in the PhRMA Code would be subject to increased scrutiny. The OIG does not adopt this extreme position in the final guidance and simply notes that compliance with the PhRMA Code should substantially reduce a manufacturer's risk.

Educational and Research Funding: The guidance recognizes that, in some instances, manufacturers engage physicians on a fee-for-service basis to provide research services. The OIG advises that these arrangements should be structured to fit within the personal services and management contracts safe harbor. The OIG warns that research contracts originating through sales and marketing functions or in relation to sales contacts are particularly suspect. The guidance sets forth the following examples of questionable research:

Research initiated or directed by marketers or sales agents;
Research that is not shared with the manufacturer's science component;
Research that is duplicative or has no purpose other than generating business; and
Post-market research used to promote a product.

With respect to continuing medical education (CME) funding by manufacturers, the OIG advises manufacturers to ensure that such funding is not used to channel improper remuneration. Manufacturers are instructed to be mindful of the relevant Food and Drug Administration rules and regulations and to consider the CME industry codes of conduct when reviewing CME arrangements.

Relationships with Sales Agents
The guidance states that any compensation arrangement, irrespective of the compensation methodology, between manufacturers and independent contractor sales agents may implicate the antikickback statute, because the sales agent is in a position to recommend or arrange for the purchase of items or services offered for sale by the manufacturer. The OIG strongly urges manufacturers to structure arrangements with non-employed sales agents to fit within the personal services safe harbor and to carefully review those relationships that fall outside of the safe harbor. Such reviews should examine the following factors:

The amount of compensation;
The identity of the sales agent engaged in the marketing or promotional activities;
The relationship of the sales agent to his or her audience;
The nature of the marketing or promotional activity;
The particular item or service being marketed; and
The composition of the target audience.

Along the same lines, the OIG also recommends that manufacturers (1) develop a regular and comprehensive training program that includes refresher and updating sessions for its sales force; (2) familiarize the sales force with the PhRMA Code standards and other relevant guidance; (3) institute corrective action and disciplinary policies for sales agents who engage in illegal activities; (4) make use of the advisory opinion process when questions arise about particular practices; and (5) develop a system for tracking and reviewing information concerning sales force activities.

Drug Samples
While recognizing the benefits of providing drug samples to patients, the OIG also expresses concern over this common industry practice. Consistent with many of the other risk areas identified in the guidance, the government has recently focused enforcement activity on the provision of drug samples to physicians who, in turn, sell the drug samples to patients or bill federal health care programs for the drugs on behalf of the patient. The guidance focuses on the Prescription Drug Marketing Act of 1987 (PDMA), which addresses the distribution of drug samples and explicitly prohibits the sale of drug samples. See 21 U.S.C. § 353(c). Manufacturers must comply with the requirements set forth in the PDMA; failure to do so could result in the imposition of PDMA sanctions.

In addition, in an effort to minimize liability, the OIG offers the following suggestions: (1) train sales force to inform sample recipients of the prohibition against selling or billing for drug samples; (2) clearly and conspicuously label the samples as not being available for sale; and (3) include on the sample's label or packaging a clear and conspicuous statement that the sample is subject to the PDMA and may not be sold.

Conclusion
The issuance of this compliance program guidance provides clear notice of the OIG's view that pharmaceutical manufacturers may not take refuge from compliance concerns based upon the fact that they do not directly submit Medicare or Medicaid claims. The OIG's compliance program guidance and the government's recent enforcement activities suggest that the pharmaceutical industry is the next deep pocket on the target list. Pharmaceutical manufacturers are well advised to review the guidance and consider its recommendations in structuring individual compliance activities.