FDA & Life Sciences Practice Group. State Marketing Laws Impacting Medical Device Manufacturers. January 11, 2010

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1 State Marketing Laws Impacting Medical Device Manufacturers January 11, 2010 For more information, contact: Seth Lundy (202) Nikki Reeves (202) Elizabeth T. Valentine (202) Brian A. Bohnenkamp (202) Ami P. Patel (202) King & Spalding Washington, D.C Pennsylvania Avenue, NW Washington, D.C Phone: Fax: Medical device manufacturers are increasingly targeted by state laws that have historically focused on the marketing activities of pharmaceutical companies. California, Nevada and Massachusetts, for example, have implemented laws that require device manufacturers to develop comprehensive healthcare compliance programs in accordance with specific state requirements. In 2009, Massachusetts and Vermont were the first states to require device manufacturers to publicly disclose payments to healthcare providers licensed to practice in those states. The first disclosure reports required of device manufacturers will be due in both states on July 1, Vermont also places restrictions on gifts and meals to Vermont-licensed health care providers. The new state laws were spurred, at least in part, by recent enforcement actions taken against medical device manufacturers by the U.S. Department of Health & Human Services Office of Inspector General (OIG) for violations of fraud and abuse laws including kickbacks to physicians in the form of all-expense-paid trips, false consulting arrangements, meals, and other gifts. The OIG recommended subjecting the financial relationships between medical device manufacturers and physicians to greater transparency. Several states considered legislation in 2009 that would have imposed disclosure or compliance program requirements on device manufacturers. Other states, such as New Jersey, are now considering provisions that would require physicians to publicly disclose their financial relationships with device manufacturers. In addition, federal legislation requiring device (and pharma) manufacturers to publicly disclose payments to healthcare providers in all fifty states is currently under consideration as part of the federal healthcare reform bill. Medical device manufacturers should pay careful attention to these new laws, which include numerous obligations. Additional enforcement actions, at both the state and federal levels are clearly on the way. Companies should not only consider what steps are necessary to ensure compliance with these state laws, but also how these new laws may impact the company s current compliance program, policies, and procedures. Page 1 of 8

2 This Client Alert provides a brief overview of current state healthcare compliance program and gift restriction and reporting laws impacting medical device companies. California Compliance Program Law (Cal. Health & Safety Code ) The California Compliance Program Law, which took effect July 1, 2005, expressly applies to pharmaceutical manufacturers. Certain terms and definitions used in the statute, however, suggest that the law may also be interpreted to extend to medical device companies. The definition of drugs in the law includes medical devices. Aside from the text of the statute, the legislative history arguably reflects the legislators intent to apply the compliance obligations only to pharmaceutical manufacturers and distributors. Because of the direct statutory construction, most device manufacturers seem to be attempting to comply with the law. The California Compliance Program Law requires companies to: Adopt a Comprehensive Compliance Program (CCP) in accordance with the HHS OIG April 2003 Guidelines; Include in the CCP policies for compliance with PhRMA s Code on Interactions with Health Care Professionals (PhRMA Code); Establish a specific annual per physician dollar limit on gifts, promotional materials, items and activities provided to healthcare professionals (HCPs) in accordance with the PhRMA Code; Provide an annual declaration of compliance with both the CCP and the California Compliance Law; and Make the CCP and the annual written declaration of compliance publicly available via the company web site and toll-free telephone number. The Compliance Program Law is self-executing, and no state agency has been assigned to enforce the law or promulgate additional guidance regarding the law. Therefore, some questions remain, particularly with respect to the application of the law to medical device manufacturers for example, must medical device manufacturers comply with the PhRMA Code, or is compliance with the AdvaMed Code sufficient? In addition, there are no separate enforcement provisions in the statute to address violations; however, state prosecutors may pursue civil enforcement action (injunctive relief, restitution, and civil penalties of $2,500 per violation) under the California Unfair Competition Law (UCL). (Cal. Bus. & Prof. Code 17200, 17203, 17204, and 17206). Private citizens may sue under the UCL only upon showing they have suffered an actual injury as a result of the alleged unlawful conduct. (Cal. Prop Nov. 2, 2004 (amending Cal. Bus. & Prof. Code 17204)). Page 2 of 8

3 Nevada Marketing Code of Conduct Law (Nev. Rev. Stat ) Nevada s Marketing Code of Conduct Law requires manufacturers and wholesalers who employ a person to sell or market a drug, medicine, chemical, device or appliance in Nevada to adopt a marketing code of conduct and submit required information to the Nevada Board of Pharmacy by June 1 of each year. Unlike the California Compliance Program Law, medical device manufacturers fall squarely within the scope of the Nevada law. Nevada s Marketing Code of Conduct Law permits medical device manufacturers to adopt the AdvaMed Code of Ethics on Interactions with Health Care Professionals without modification to fulfill the marketing code of conduct requirement. Otherwise, medical device manufacturers must ensure that their code of conduct addresses key topics including: Providing or sponsoring product training and education; Supporting third-party educational conferences; Sales and promotional meetings; Arrangements with consultants; Gifts; Providing reimbursement and other economic information; and Grants and other charitable donations. By June 1 of each year, each medical device company must provide to the Board a copy of its marketing code of conduct, unless the company uses, without modification, the AdvaMed Code of Ethics on Interactions with Health Care Professionals or the PhRMA Code on Interactions with Healthcare Professionals. In addition, medical device companies must provide a description of the training program by which the company will provide regular training to appropriate employees (including all sales and marketing staff) regarding the marketing code of conduct and a description of the investigation policies for investigating instances of noncompliance with the marketing code of conduct. Companies also must provide contact information for the compliance officer responsible for developing, operating, and monitoring the marketing code of conduct. Moreover, each medical device company must certify that it has conducted an annual audit to monitor compliance with the marketing code of conduct and is in compliance with the marketing code of conduct. The Board posts a list annually on its website of those companies that have furnished the requested information. There are no separate enforcement provisions in the statute or proposed regulations. The Board of Pharmacy may bring an action to enjoin violations of Chapter 639 in district court. The Board will not be required to allege facts necessary to show or tending to show lack of adequate remedy at law or irreparable damage or loss. (Nev. Rev. Stat ). Page 3 of 8

4 Nevada also has an Unfair Competition Law (UCL) (Nev. Rev. Stat. 598A.210). The UCL is not referenced in the legislative history, statute or proposed regulations and it is unclear whether, as in California, the UCL may be used to enforce the requirements set forth in Nev. Rev. Stat The Nevada UCL provides a private right of action to: (1) any person threatened with injury or damage to his or her business or property by reason of a violation of any provision of the UCL. Under these circumstances, an individual may institute a civil action or proceeding for injunctive relief and potentially recover reasonable attorneys fees and other costs, as determined by the court; or (2) any person actually injured or damaged directly or indirectly in his or her business or property by reason of a violation of the provisions of the UCL. Under these circumstances, an individual may institute a civil action and recover treble damages, reasonable attorneys fees, and costs. (Nev. Rev. Stat. 598A.210.) Massachusetts Marketing Code of Conduct and Practitioner Payment Reporting Law (105 Mass. Code Regs ) The Massachusetts Marketing Code of Conduct Law and Practitioner Payment Reporting Law was signed into law on August 10, 2008, and the Massachusetts Department of Public Health (Department) adopted final regulations on March 11, The Massachusetts law is an appropriate transition between our description of the compliance program laws and the Vermont gift reporting law because it includes requirements from both types of laws. The Massachusetts Code of Conduct Law requires pharmaceutical and medical device companies to: (1) Adopt a marketing code of conduct in compliance with the Massachusetts regulations, including provisions addressing, among other things, the use of non-patient identified prescriber data; provision of meals; support for CME and other educational and professional conferences or meetings; and the provision of other gifts and payments; (2) Annually report certain information with respect to compliance with the regulations and the marketing code of conduct, including the following: Certify that it has a marketing code of conduct in compliance with the regulations; Certify that it has adopted a program to routinely train all appropriate employees, including all sales and marketing staff, regarding the marketing code of conduct; Certify that it has policies and procedures for investigating, correcting, and reporting instances of non-compliance with the regulations; Certify that the company is in compliance with the Department s marketing code; Provide contact information for the compliance officer; Submit an annual fee of $2,000 with the form. Page 4 of 8

5 (3) Annually report the value, nature, purpose, and particular recipient of any fee, payment, subsidy, or other economic benefit with a value of at least $50 provided by the company or its agents to any physician, hospital, nursing home, pharmacist, health benefit plan administrator, health care practitioner or other person authorized to prescribe, dispense, or purchase prescription drugs or medical devices. The regulations expressly prohibit the provision of certain items to HCPs, including: (1) Entertainment and recreational items; (2) Payments of any kind, including cash or cash equivalents, equity, or tangible items including complimentary items (pens, coffee mugs, or gift certificates) given to HCPs directly or indirectly, except as compensation for bona fide services; (3) Any grants, scholarships, subsidies, supports, consulting contracts, or educational or practice related items in exchange for prescribing or using prescription drugs, biologics, or medical devices; (4) Any other direct or indirect payment or remuneration, in cash or in kind, including any rebate or kickback that is prohibited under federal or state Anti-Kickback Statutes. In addition, the regulations specifically allow for the provision of the certain items, including, among others, the following (provided certain requirements are met): compensation for bona fide services or reimbursement of reasonable costs when the compensation and reimbursement is specified in a written agreement; payment of reasonable expenses, including travel and lodging, necessary for technical training of HCPs on medical devices, if described in a written agreement for purchase of the device; distribution of peer-reviewed academic, scientific, or clinical journals; reasonable quantities of medical device demonstration and evaluation units to assess the appropriate use and to determine whether to use the product; and reimbursement information regarding products, including coverage, coding, and billing information; charitable donations. Companies that fail to adhere to the Massachusetts Marketing Code of Conduct law are subject to a fine of not more than $5,000 for each transaction, occurrence, or event that violates the law. Page 5 of 8

6 Vermont Prescribed Products Law (Vt. Stat. Ann. tit. 18, 4631a, 4632) Vermont bill S. 48, An Act Relating to the Marketing of Prescribed Products, was signed into law by Governor Jim Douglas on June 8, The law applies to medical device, pharmaceutical and biologic manufacturers and prohibits (with certain exceptions) the provision of gifts and other items of value to health care providers, including health care professionals, hospitals, nursing homes, pharmacists, health benefit plan administrators and any other person who is authorized to dispense or purchase for distribution prescribed products in Vermont. The scope and breadth of this gift prohibition and marketing cost reporting law make it one of the most comprehensive in the country. Vermont s original marketing reporting law passed in 2001 but applied only to pharmaceutical manufacturers. The amended law expands the scope of the law to apply to medical device and biologic manufactures and (1) prohibits (with certain exceptions) the provision of gifts and other items of value to Vermont health care providers and (2) requires medical device and other manufacturers of prescribed products to annually report certain allowable gifts and expenditures given to Vermont health care providers to the Vermont Attorney General. By July 1, 2009, prescribed products manufacturers were required to comply with a gift prohibition; however, certain expenditures and gifts are expressly allowed under the Vermont law if specific conditions are met. In addition, certain of those expenditures and gifts must also be reported to the Vermont Attorney General s office. For example, there are a limited number of allowable gifts including, among others: The loan of a medical device for a short-term trial of 90 days or less to allow for evaluation by the health care provider or patient (reporting required); Medical device demonstration or evaluation units to a health care provider to assess the appropriate use and function of the product (reporting required); and The provision, distribution, dissemination, or receipt of peer-reviewed academic, scientific, or clinical articles or journals or items serving a genuine educational function (reporting required). In addition, certain limited expenditures are permitted, including, among others: Payment to the sponsor of a significant educational, medical, scientific, or policy-making conference or seminar, provided that: (1) payment is not made directly to a health care provider; (2) funding is used solely for bona fide educational purposes; and (3) all program content is objective and free from industry control (reporting also required); Payment or reimbursement of reasonable expenses (travel, lodging), necessary for technical training on the use of medical devices, as long as the commitment to provide such expenses, and the amounts and categories of expenses, are described in a written agreement between the health care provider and the medical device manufacturer (reporting also required); Page 6 of 8

7 Expenses related to genuine research projects that constitute systematic investigations, are designed to develop or contribute to general knowledge, and can be considered to be of significant interest or value to scientists or health care professionals working in the field of inquiry, including: (1) gross compensation; (2) direct salary support per health care professional; and (3) expenses paid on behalf of each health care professionals (reporting also required); and Other reasonable fees, payments, subsidies, or other economic benefits provided by the medical device manufacturer at fair market value (reporting also required). In addition, by July 1, 2010 and annually thereafter, device manufacturers and other prescribed product manufacturers must provide the Vermont Attorney General s office with (1) contact information for the individual responsible for compliance with the law, and (2) a payment of $500. Moreover, beginning October 1, 2010 and annually thereafter, device manufacturers and other prescribed products manufactures must disclose to the Vermont Attorney General s office the value, nature, purpose, and recipient information of any allowable expenditure or gift given to a health care provider, academic institution, or professional, educational, or patient organization representing or servicing health care providers or consumers. To enforce the Vermont Prescribed Products Law, the Vermont Attorney General may bring a civil suit for injunctive relief, costs, and attorneys fees for any violation of either the gift ban or the disclosure requirements. In addition, any company that fails to comply with the gift ban or fails to disclose allowable expenditures or gifts under the law may be assessed a civil penalty of not more than $10,000 per violation. Each individual prohibited gift or failure to disclose constitutes a separate violation. For more information about King & Spalding s services relating to state law compliance, please click here. * * * * * King & Spalding is an international law firm with more than 800 lawyers in Abu Dhabi, Atlanta, Austin, Charlotte, Dubai, Frankfurt, Houston, London, New York, Paris, Riyadh (affiliated office), San Francisco, Silicon Valley and Washington, D.C. The firm represents half of the Fortune 100 and, according to a Corporate Counsel survey in August 2009, ranks fifth in its total number of representations of those companies. For additional information, visit This alert provides a general summary of recent legal developments. It is not intended to be and should not be relied upon as legal advice. Page 7 of 8

8 QUICK REFERENCE GUIDE TO STATE LAWS APPLICABLE TO MEDICAL DEVICE MANUFACTURERS CA MA NV VT Federal Physician Payment Sunshine Legislation 2010 (all 50 states) HEALTHCARE COMPLIANCE PROGRAM X MARKETING CODE OF CONDUCT X X SPENDING LIMITS X GIFT AND COMPENSATION REPORTING X X X GIFT RESTRICTIONS 1 X X 1 This table does not include a summary of state ethics and lobbying laws that restrict gifts or payments to state-employed healthcare professionals. Page 8 of 8