Samantha Groden (samantha.groden@dentons.com) is a Senior Managing Associate in the San Francisco office, Jordan Jackson (jordan.jackson@dentons.com) is an Associate in the Birmingham office, and Tisha Schestopol (tisha.schestopol@dentons.com) is Counsel in the Washington, DC, office of Dentons.
Identifying, monitoring, and addressing potential risk areas is a critical component of an effective compliance program. Indeed, the Office of Inspector General (OIG) within the U.S. Department of Health & Human Services recommends that healthcare organizations participating in federal healthcare programs conduct periodic risk assessments and engage in internal review processes with the aim of identifying and prioritizing risks, developing and implementing internal auditing and monitoring work plans related to such risks, and developing and implementing corrective action plans in response to the findings, as applicable.[1]
This article is the last in a series designed to equip compliance personnel with data—derived from recent government enforcement activity—that can help them better understand the government’s current enforcement priorities and, thus, inform how they rank potential risks to their organization.
Recent corporate integrity agreements (CIAs) and integrity agreements (IAs) imposed by the OIG,[2] as well as associated settlement agreements and litigation filings, provide a wealth of information regarding the agency’s priorities, areas of focus, and compliance expectations. (IAs are similar to CIAs but typically have a shorter term and contain fewer compliance obligations.) By understanding the circumstances under which the OIG has imposed a CIA or IA, federal healthcare program participants can better understand the agency’s enforcement emphasis and identify internal practices that may require closer scrutiny.
Unfortunately, while the OIG maintains a publicly available database of its active CIAs and IAs (and associated materials),[3] the data is not organized in a way that easily allows for quantitative and qualitative analysis. Each article in this series is designed to provide targeted data analysis of recent CIA and IA enforcement activity related to a specific type of provider or supplier. This article focuses on recent CIAs involving pharmaceutical and medical device manufacturers.
Trends among CIAs imposed on pharmaceutical and medical device manufacturers
During the period from January 1, 2020, through November 15, 2021, the OIG appears to have imposed 11 CIAs on pharmaceutical and medical device manufacturers (Manufacturer CIAs). All 11 Manufacturer CIAs were imposed in connection with a settlement with the U.S. Department of Justice (DOJ) to resolve alleged violations of the federal civil False Claims Act.[4] Notably, several of these settlements also reference separate settlement agreements, which had been entered into or would be entered into with the state attorney general and/or other state authorities to settle actions brought under the state equivalent of the False Claims Act for claims submitted to the state’s Medicaid program.
A study of these Manufacturer CIAs, as well as the corresponding DOJ news releases, settlement agreements, and underlying complaints detailing the actions at issue (to the extent publicly available), reveal certain trends that may be of interest to compliance personnel. Our analysis provides insights into potential risks arising from (i) remuneration provided to referral sources, (ii) remuneration provided to patients, (iii) arrangements with other manufacturers pertaining to drug pricing and market share, and (iv) product marketing. The specific allegations underlying these Manufacturer CIAs, and the associated compliance obligations imposed through them, can be leveraged as valuable informational tools for pharmaceutical companies and medical device manufacturers when developing risk management and compliance strategies.
Alleged kickbacks to referral sources
Ten of the 11 Manufacturer CIAs arose, in whole or in part, from alleged violations of the federal healthcare program Anti-Kickback Statute. For the remaining Manufacturer CIA, at least one of the underlying relator complaints included alleged violations of the Anti-Kickback Statute, but those allegations do not appear to be covered under the DOJ settlement.[5] Five of these Manufacturer CIAs, discussed in this section, involved allegations of improper remuneration provided by the manufacturer to a referral source (i.e., physicians or other healthcare providers in a position to prescribe or order the manufacturer’s products).
Intellectual property
For two Manufacturer CIAs, the remuneration at issue included royalties and other intellectual property (IP) payments made by the manufacturer to referral sources.[6] In one instance, a manufacturer of spinal implants, devices, and equipment entered into the following types of agreements with surgeons (i.e., users of the manufacturer’s products): (i) product development agreements, pursuant to which the surgeons would advise on the manufacturer’s products in the development stage, and (ii) IP purchase agreements, pursuant to which the manufacturer would purchase or license surgeons’ patents or patent applications. The manufacturer also entered into consulting arrangements with surgeons.[7]
The government found the following aspects of these arrangements to be problematic:[8]
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For the product development agreements, the surgeons typically were paid not only $500 per hour for time spent advising on the manufacturer’s products, but also royalties on future sales of the products once they went to market in exchange for any IP rights of the developing surgeon in the product (excluding any sales attributable to the surgeon’s own usage of the products or the usage of other physicians in the surgeon’s practice). The manufacturer retained up to eight surgeons per new product development project and frequently retained the same surgeon to consult on several different projects at the same time.
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For the IP purchase agreements, the manufacturer frequently paid up-front acquisition fees, some of which were hundreds of thousands of dollars. The manufacturer also provided surgeons with royalties on sales of any products developed based on the patents, some of which were 5%–7% of net sales (excluding any sales attributable to the surgeon’s own usage of the products or the usage of other physicians in the surgeon’s practice).
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Many of the surgeons who received the royalties and IP acquisition payments described earlier (as well as consulting fees) were “high-volume users” of the manufacturer’s products.
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The manufacturer “closely tracked” the usage of its products by surgeons who received the payments. For example, the manufacturer generated reports for management that reflected both the payments made to surgeons and the surgeons’ usage of the manufacturer’s products. In one instance, the report included a “ROI” column that calculated the manufacturer’s return on investment by dividing the sales revenue associated with each surgeon’s usage of the manufacturer’s products by the total amount paid to the surgeon in consulting fees and royalties during the same period.
A second Manufacturer CIA arose from allegedly improper royalty payments made by a medical device manufacturer specializing in orthopedic products to an orthopedic surgeon. The government claimed that these royalty payments were kickbacks because, allegedly, the manufacturer had previously denied the surgeon’s request for royalties for the two product lines at issue, but when the surgeon threatened to switch to a competitor’s products several years later, the manufacturer not only agreed to the surgeon’s royalty request but also (i) agreed to pay royalties retroactively and, (ii) for future sales, agreed to pay royalties at double the rate that it typically used in its royalty arrangements (specifically, 4% of revenue, instead of its standard 2%).[9]
Consulting arrangements
For two of the Manufacturer CIAs (including one discussed in the prior section), the remuneration at issue included payments for consulting services that the government considered to be sham arrangements.[10]
In addition to providing remuneration to surgeons in the form of royalties and other IP payments, the spinal implant manufacturer discussed earlier also entered into consulting arrangements with surgeons, pursuant to which the surgeons were paid $500 per hour to provide training and education services. The scope of these services was “fairly broad” and could include, among other things, speaking about the manufacturer’s products, demonstrating procedures at cadaver labs, preparing research papers related to the manufacturer’s products, presenting at trade shows or conferences, participating in clinical studies of the manufacturer’s products, and training the manufacturer’s staff. As previously noted, many of the surgeons who received consulting fees (in addition to the royalties and IP acquisition payments described earlier) were “high-volume users” of the manufacturer’s products, and the manufacturer “closely tracked” the usage of its products by surgeons who received these payments.[11]
Another Manufacturer CIA arose from allegations that a manufacturer of an endovascular laser system paid kickbacks to physicians disguised as payments for training events and consulting services. The government contended that the manufacturer maintained an internal document tracking the product use of high-volume physician customers, which allegedly was used to identify physicians that the manufacturer would target with offers of improper remuneration.[12]
Speaker programs
Another Manufacturer CIA involved purportedly improper remuneration pertaining to a pharmaceutical manufacturer’s speaker events, roundtables, speaker training meetings, and lunch-and-learns.[13] The government found the following aspects of these speaker programs to be problematic:[14]
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The manufacturer’s sales representatives were provided with budgets specifically for promotional programs, including speaker programs and roundtables. Many of these sales representatives were directed by their sales managers to spend all of their budgets on promotional programs. Moreover, many sales representatives were specifically evaluated in their annual reviews as to how much of their budget for promotional programs they had used; a sales representative’s failure to use their entire budget could be treated as a negative factor in their review.
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The manufacturer’s sales representatives and their managers had “broad discretion” to decide which local physician to nominate to become company-approved speakers. Some sales representatives selected physicians with high prescribing volumes to become speakers, and these high-prescribing physicians were paid tens of thousands or hundreds of thousands of dollars in honoraria over a nearly 10-year period.
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Some of the manufacturer’s sales representatives hosted speaker programs or roundtables at “some of the most expensive restaurants in the United States” or “at venues where the focus was on entertainment.” The amount spent on meals was significantly in excess of the $125 per person limit set by the manufacturer’s compliance policies, and typically the manufacturer also paid for alcohol. Moreover, guests who were not healthcare professionals were often invited or allowed to attend such events in contravention of the manufacturer’s policy.
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At many speaker events and roundtables, there was “little to no medical discussion.” Often, the speaker (who was being paid an honorarium) was not required to deliver a presentation or was allowed to complete the presentation in only a few minutes by clicking through the presentation slides.
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In several instances, doctors were paid honoraria for purportedly speaking at events that never took place.
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Many sales representatives would repeatedly invite the same doctors to attend promotional programs for the same drugs and presentations with the same title. In thousands of instances, the manufacturer paid for the same group of doctors, often colleagues or friends, to have dinners together repeatedly. Doctors in these groups would sometimes rotate being the speaker and receiving the honorarium payment.
A few months after the OIG imposed this Manufacturer CIA, the OIG issued a special fraud alert on speaker programs sponsored by pharmaceutical and medical device companies. In the alert, many of the practices described in this section were listed as “suspect characteristics” that, “taken separately or together,” could potentially indicate a speaker program arrangement that could violate the Anti-Kickback Statute.[15]
Subsidized advertising
A fifth Manufacturer CIA involved payments for advertising.[16] The government contended that a manufacturer of embolotherapeutic devices paid kickbacks to various healthcare providers in the form of “free advertising assistance, practice development, practice support, and purported unrestricted ‘educational’ grants.”[17] As alleged by the government, the advertising sponsored by the manufacturer typically promoted the healthcare providers by name, provided contact information for those healthcare providers, and did not mention the manufacturer or its products. Before selecting healthcare providers to receive advertising support, the manufacturer allegedly often estimated the “projected revenue” that it expected to receive from the healthcare provider’s product purchases. The manufacturer also purportedly measured its “return on investment” by tracking the healthcare provider’s product purchases after the advertising payments were made.[18]
Alleged kickbacks to patients
As previously noted, 10 of the 11 Manufacturer CIAs arose, in whole or in part, from alleged violations of the Anti-Kickback Statute. Two of them involved allegations of improper remuneration provided by the manufacturer to patients, both pertaining to co-pay assistance programs.[19] These two Manufacturer CIAs are representative of a larger government investigation into the relationship between pharmaceutical manufacturers and independent charitable foundations operating patient assistance programs (Independent Charity PAPs).[20]
Patient assistance programs—in which patients of limited financial means are provided with cash subsidies for drug costs, free or reduced-price drugs, or both—have been the subject of longstanding scrutiny by the OIG.[21] The two Manufacturer CIAs discussed in this section illustrate types of manufacturer involvement in patient assistance programs that the government views as posing a heightened fraud and abuse risk. Specifically, both Manufacturer CIAs involve allegations that a pharmaceutical manufacturer structured its financial contributions to Independent Charity PAPs such that the Independent Charity PAPs served as “conduits” to pay kickbacks to Medicare patients taking certain of the manufacturer’s drugs.[22]
Both Manufacturer CIAs arose, in whole or in part, from an alleged scheme involving a pharmaceutical manufacturer and an Independent Charity PAP that ostensibly operated a fund that made co-pay assistance grants to any patient with multiple sclerosis (MS) that met the foundation’s financial eligibility criteria, regardless of the drug the patient was taking for that condition. In both instances, the pharmaceutical manufacturer allegedly timed its donations to the MS co-pay assistance fund so that the fund would be open (on a first-come, first-serve basis) at a time when the manufacturer had numerous applications ready to be submitted for MS patients using the manufacturer’s drugs. According to the government, the manufacturer knew this would result in a disproportionate share of the co-pay assistance grants from the fund going to MS patients using the manufacturer’s drug, as opposed to others.
One of the Manufacturer CIAs also involved the following additional allegations:[23]
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The pharmaceutical manufacturer purportedly produced a drug that was approved as a second-line treatment only for renal cell carcinoma (RCC). The manufacturer allegedly learned that an Independent Charity PAP that operated a co-pay assistance fund for RCC patients had not received any donations from manufacturers of RCC treatments in a particular year, and offered to donate to the foundation’s RCC co-pay assistance fund, provided that the Independent Charity PAP narrowed the fund’s eligibility definition so as not to cover first-line RCC treatments. The government contended that the manufacturer made this offer, which the Independent Charity PAP accepted, to ensure that a greater amount of its donations would subsidize its drug, as opposed to others.
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The same drug noted earlier also was approved by the U.S. Food and Drug Administration (FDA) to treat a specific type of tumor. The manufacturer allegedly asked an Independent Charity PAP to open a co-pay assistance fund for patients with the condition using the manufacturer’s drug, even though the manufacturer purportedly knew that the FDA had approved a competing drug to treat the same condition. The Independent Charity PAP allegedly launched a co-pay assistance fund, to which the manufacturer donated, that paid the co-pays of patients using the manufacturer’s drug only, and not patients using the competitor drug.
Alleged anticompetitive activities
As noted, 10 of the 11 Manufacturer CIAs arose, in whole or in part, from alleged violations of the Anti-Kickback Statute. Three of them involved alleged anticompetitive activities among manufacturers of generic drugs.[24] Specifically, the government alleged that the manufacturers paid and received remuneration in violation of the Anti-Kickback Statute through alleged arrangements “on price, supply, and allocation of customers” with other pharmaceutical manufacturers.[25]
These Manufacturer CIAs are representative of a larger government investigation into alleged anticompetitive activities involving generic pharmaceutical manufacturers.[26] Each of the three companies subject to the Manufacturer CIAs and associated civil settlements previously entered into a deferred prosecution agreement with DOJ’s Antitrust Division to resolve criminal charges under the Sherman Antitrust Act.[27]
As reflected in those deferred prosecution agreements, the three generic pharmaceutical manufacturers at issue admitted to conspiring with other individuals and entities engaged in the manufacture and sale of generic drugs “to suppress and eliminate competition” by (i) “agreeing to allocate customers and rig bids for, and/or stabilize, maintain, and fix prices” of certain generic drugs[28] or (ii) agreeing to “increase and maintain prices” of a particular generic drug.[29]
Alleged violations of FDA promotional requirements
Three of the 11 Manufacturer CIAs at issue arose, in whole or in part, due to alleged violations of FDA promotional requirements.
Off-label marketing
Two of the Manufacturer CIAs involved allegations of off-label marketing, albeit not in its traditional form.[30] In the wake of evolving First Amendment jurisprudence,[31] the government’s approach to enforcement related to manufacturer off-label promotion has changed. While the government continues to pursue manufacturer promotion that is inconsistent with the FDA-approved label, the government’s focus appears to have shifted, centering on false or misleading promotion leading to the submission of claims for uses that are unsupported by sufficient clinical evidence or are medically unnecessary (and hence do not meet federal healthcare program coverage criteria), as illustrated by the two Manufacturer CIAs discussed in this section.
In one instance, a pharmaceutical manufacturer was alleged to have promoted an administration process for its topical solution that was unsupported by sufficient clinical evidence and was inconsistent with, and known to be less effective than, the administration process included in the FDA-approved label. The government asserted the manufacturer encouraged physicians to use an administration process that was much shorter in duration than the administration process used in the clinical trials underlying the FDA approval and described in the FDA-approved label. This encouragement allegedly was provided through paid physician speaker programs, paid physician peer-to-peer discussions, promotion by the manufacturer’s sales force, and the distribution of incomplete information in response to requests related to the administration process. The manufacturer also ostensibly provided reimbursement consultation, support, advice, and sample reimbursement materials to physicians, encouraging them to use the shorter administration process. The government alleged that the manufacturer knew that the shorter administration process was less effective but did not inform physicians of this fact, and in some instances even misleadingly suggested that the shorter administration process was equally effective.[32] As discussed earlier, a Manufacturer CIA was imposed on a manufacturer of an endovascular laser system due, in part, to alleged Anti-Kickback Statute violations. The government also alleged that the manufacturer engaged in off-label marketing by marketing its laser system for use in atherectomy procedures, a use for which the laser was not approved or cleared by the FDA. In addition, the manufacturer allegedly marketed its laser system despite knowing of product performance issues causing frequent calibration and overheating problems, which posed a risk to physicians and patients and prompted a Class II recall.[33]
Marketing of opioid products
One Manufacturer CIA arose from settlements of criminal charges and civil claims against a pharmaceutical manufacturer in connection with the marketing of its opioid addiction treatment drug.[34] The drug, which came in tablet and sublingual film form, contained a combination of buprenorphine (an opioid) and naloxone (an opioid antagonist) and was approved by the FDA to suppress opioid withdrawal symptoms as part of a treatment plan that included counseling and psychosocial support. The government made the following allegations against the pharmaceutical manufacturer:[35]
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The pharmaceutical manufacturer allegedly promoted the sale and use of its opioid addiction treatment drug to physicians who were writing prescriptions that were not for a medically accepted indication. According to the government, the prescriptions “lacked a legitimate medical purpose,” were issued without any counseling or psychosocial support, were for uses that were “unsafe, ineffective, and medically unnecessary,” and were often diverted.
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The manufacturer also allegedly promoted the sale or use of the sublingual film version of its drug by making false or misleading claims that the drug was less subject to diversion and abuse than other buprenorphine products and was less susceptible to accidental pediatric exposure than the tablet version of its drug. The government contended that physicians detrimentally relied on these allegedly false and misleading claims in making prescription decisions, and that state Medicaid agencies detrimentally relied on these allegedly false and misleading claims in making formulary and prior authorization decisions.
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Finally, the manufacturer ostensibly submitted a petition to the FDA fraudulently claiming that the tablet version of its drug had been discontinued “due to safety concerns” and allegedly took other steps to fraudulently delay the entry of generic competition for its drug in order to improperly control the pricing of the drug, including pricing to federal healthcare programs.
This Manufacturer CIA, and the associated criminal and civil settlements, appears to be but one example of multiple efforts currently being undertaken by the OIG, DOJ, and other government authorities to combat the opioid public health crisis.[36]
Potential compliance activities based on Manufacturer CIAs
As illustrated by the Manufacturer CIAs discussed earlier, compliance with the Anti-Kickback Statute and FDA promotional requirements remains a top enforcement priority with respect to pharmaceutical and medical device manufacturers. More specifically, the alleged conduct underlying the Manufacturer CIAs suggest that the following areas are subject to heightened scrutiny:
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Arrangements with referral sources pertaining to intellectual property, consulting, speaker programs, and advertising;
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Manufacturer interactions with patient assistance programs run by charitable organizations;
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Pricing decisions, particularly in connection with interactions with competitors; and
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Product promotion, particularly related to off-label marketing and the marketing of opioid products.
With respect to these risk areas, the Manufacturer CIAs provide numerous examples of compliance activities that pharmaceutical and medical device manufacturers may wish to consider to mitigate their potential risk. We provide some examples in the next section.
Policy development and review
Pharmaceutical and medical device manufacturers may wish to consider developing and regularly reviewing policies and procedures that address the following topics:
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Arrangements with potential and actual referral sources (including, but not necessarily limited to, arrangements involving intellectual property, consulting, speaker programs, and advertising support): Policies could address (i) requirements for arrangements with referral sources, including required documentation and the review and approval process for such arrangements; (ii) tracking new and existing arrangements, including remuneration exchanged, with referral sources; (iii) appropriate firewalls between internal stakeholders, including prohibiting return on investment calculations related to such arrangements; and (iv) a monitoring process designed to ensure compliance with arrangement terms and policies.
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Arrangements and interactions with Independent Charity PAPs: Policies could address (i) the criteria governing whether and under what circumstances the manufacturer will donate to an Independent Charity PAP; (ii) impermissible communications between the manufacturer’s representatives and an Independent Charity PAP; (iii) an internal review and approval process for proposed donations to, and arrangements with, Independent Charity PAPs; and (iv) appropriate firewalls between internal stakeholders, including prohibiting return on investment calculations related to such donations.
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Pricing functions: Policies could address (i) the information and factors that may be considered in connection with setting prices and establishing pricing strategies; (ii) requirements for the offering or selling of government-reimbursed products to any potential customer or current customer, including offering, bidding, negotiating, and contracting for the sale of government-reimbursed products and the manner and circumstances under which such activities occur; (iii) impermissible communications and interactions with customers and competitors; and (iv) the individuals who may be involved in such functions, including requirements for training and compensation arrangements for such individuals.
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Dissemination of materials and information relating to the uses of the manufacturer’s products: Policies could address (i) the form and content of information and materials related to the manufacturer’s products disseminated to healthcare providers, payers, and formulary decision-makers, as well as the review and approval of such information and materials; (ii) a monitoring process designed to identify situations in which off-label or other improper promotion may have occurred; (iii) a process for investigating, documenting, resolving, and taking appropriate disciplinary action for potential situations involving improper promotion; (iv) a process for the development and review of call plans; and (v) the manner in which the manufacturer handles requests for information about non-FDA approved (i.e., off-label) uses of the manufacturer’s products.
Arrangements and pricing reviews
Pharmaceutical and medical device manufacturers may wish to consider periodic reviews of a sample of their existing arrangements to ensure that such arrangements are operating in compliance with their policies and procedures, as well as applicable laws. Such reviews could specifically focus on intellectual property arrangements, consulting arrangements, speaking arrangements, advertising arrangements, arrangements with Independent Charity PAPs, or pricing arrangements with customers, among others. Manufacturers also may wish to consider periodic reviews of their pricing functions for a sample of products to ensure that pricing decisions were made and prices reported in compliance with their policies and procedures, as well as applicable laws.
Training
Pharmaceutical and medical device manufacturers may wish to consider implementing training specifically targeted at compliance with the Anti-Kickback Statute and FDA promotional requirements, including regulatory requirements and compliance safeguards implemented by the organization to better ensure compliance. Such training could include all sales personnel and any other persons who interact with referral sources, customers, and/or competitors.
Conclusion
As made clear by the Manufacturer CIAs discussed in this article, compliance with the Anti-Kickback Statute and FDA promotional requirements continues to be a government enforcement priority for pharmaceutical and medical device manufacturers. Consideration of the alleged conduct underlying Manufacturer CIAs can highlight specific areas of potential risk to manufacturers and help their compliance teams develop an effective compliance program tailored to address those risk areas.
The authors would like to thank Margo Wilkinson Smith, an associate in the Kansas City office of Dentons, for her research assistance.
Takeaways
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Corporate integrity agreements imposed on pharmaceutical and medical device manufacturers (Manufacturer CIAs) highlight government enforcement priorities, serving as a useful risk assessment and compliance planning tool.
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Recent Manufacturer CIAs reflect ongoing scrutiny of arrangements between manufacturers and referral sources, including intellectual property arrangements, consulting arrangements, speaker programs, and advertising arrangements.
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The government’s broader investigations into (i) the relationship between pharmaceutical manufacturers and independent charitable foundations operating patient assistance programs and (ii) generic pharmaceutical manufacturer price-fixing, bid-rigging, and customer allocation continue to result in settlements and Manufacturer CIAs.
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Recent Manufacturer CIAs also reflect continued concern with compliance with the Food and Drug Administration’s promotional requirements, with a focus on false or misleading promotions leading to the submission of claims for uses that are unsupported by sufficient clinical evidence or are medically unnecessary.
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To address these potential risks, pharmaceutical and medical device manufacturers may wish to consider a review of existing policies and procedures (and development of new policies and procedures when needed), periodic arrangements and pricing reviews, and targeted training programs.