1. Opening the Door to Hospital Sales
Session 1:
An Insiders View of Segments,
Stakeholders and Protocols

2. Legal Limitations When Selling to Hospitals
Mark A. McAndrew
Taft Stettinius & Hollister, LLP

3. Disclaimers Opinions and statements in today’s presentation are mine.
This presentation does not constitute legal advice.
If you have any specific questions or concerns about any of the legal issues addressed today, consult with your legal counsel.

4. Agenda
Laws, Policies and Other Restrictions Impacting Vendor Relationships with Hospitals Fraud and Abuse Laws Sunshine Act Requirements Industry Guidelines Hospital Policies & Procedures

5. Overview of Key Statutes
Federal Law
Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b))
False Claims Act (18 U.S.C. § 287)
Health Care Fraud Statute (18 U.S.C. § 1347)
False Statements (42 U.S.C. § 1320a-7b(a); 18 U.S.C. § 1001)
Mail and Wire Fraud (18 U.S.C. § 1341; 18 U.S.C. § 1342)
Conspiracy (18 U.S.C. § 371)
Foreign Corrupt Practices Act (15 U.S.C. § 78dd-1, et seq.)
Physician Self-Referral Law (Stark Law) (42 U.S.C. § 1395nn)
Civil False Claims Act (31 U.S.C. § 3729)
Civil Monetary Penalties (42 U.S.C. § 1320a-7a)
Exclusion (42 U.S.C. § 1320a-7)

6. The Federal Anti-Kickback Statute
The Anti-Kickback Statute makes it illegal to offer, pay, solicit or receive anything of value in return for:
The referral of patients for items or services covered by a federal health care program such as Medicare; or
Buying, leasing, arranging or recommending any items or services reimbursable by a federal health care program.
Severe criminal and civil penalties for violations:
Fines up to $50,000
Five years in prison
Exclusion from the Medicare program
Violators subject to treble damages and exposure to additional penalties under the False Claims Act

7. Basic Elements of Kickback Violation
“Remuneration”
Anything of value, whether tangible or intangible.
Free or discounted equipment, staff services/training, low interest loans, travel expenses, CME courses, etc.
No de minimis exception.
“Inducement”
Any act that is intended to influence the reason or judgment of another in an effort to cause the referral of program-related business.
“One purpose” rule.
But “mere encouragement” to obtain, or the “hope or expectation” of obtaining business does not constitute an inducement.

8. Basic Elements of Kickback Violation
“Intent”
Requires proof of a “knowing and willful” intent to induce referrals.
A person need not have actual knowledge of this section or specific intent to commit a violation of the Anti-Kickback Statute.
“Covered Item or Service”
Any item or service that is paid for, in whole or in part, by any “federal health care program.”
Medicare
Medicaid
TriCare

9. Specific Industry Relationships Of Concern
Gifts and entertainment Samples, discounts, rebates and coupons Travel Physician Advisory/Consulting Arrangements CME Speakers Bureaus Preceptor or “shadowing” services Product development agreements Royalty arrangements

10. Recent Enforcement Actions
ELA Medical ($9 million)
Allegedly paid kickbacks through a distributor to doctors to induce them to use the company’s products (pacemakers, defibrillators, CV monitoring equipment)
Alleged kickbacks included (i) gifts; (ii) meals and entertainment; (iii) tickets to sporting events; (iv) travel to medical conferences; (v) cash payments to foundation owned by a physician
Medtronic Sofamor Danek ($40 million)
Allegedly paid kickbacks to induce doctors to use MSD’s spine products
Kickbacks included (i) sham consulting arrangements; (ii) sham royalty arrangements; (iii) lavish trips

11. Recent Enforcement Actions
Boston Scientific/Guidant ($30 million)
Allegations that Guidant knew of defects in implantable cardiac devices, but failed to disclose the issues to physicians, patients, or the FDA.
Guidant’s failure to disclose accurate safety or risk information about the device rendered claims submitted by hospitals for reimbursement false.
C.R. Bard ($48 million)
Kickbacks to physicians in the form or grants, guaranteed minimum rebates, conference fees, marketing assistance and free medical equipment.
Bard was alleged to have caused the submission of false claims by hospitals billing for Bard product.

12. Recent Enforcement Actions
Bausch & Lomb/ ISTA ($34 million)
Provision of free products to doctors to induce referrals for other drugs
Payments to sponsor a non-profit group associated with a particular physician
Golf outings and wine tastings
Paid consulting and speaker arrangements
Honoraria for participation in advisory meetings which were really just marketing opportunities
Pfizer ($430 million)
Allegations included off-label marketing and kickbacks to physicians relating to Neurontin

13. Key Takeaways
The principal concern for regulators like OIG and DOJ is whether industry is using “sham” arrangements to purchase loyalty
OK to compensate for time and effort, but concerns arise if payments are for “loyalty” to encourage/induce use of drugs/devices
Focus on FMV
FDA and OIG are extremely concerned about off-label use
Industry can support CME, but not influence content
Need to distinguish between CME and other activities that are educational in nature vs. those that are marketing in nature

14. Key Takeaways Structuring relationships with potential advisors
Physician/industry collaboration can produce important medical advances
Important considerations:
Ensure compensation for any arrangement (cash, equity, etc.) is fair, appropriate, and commercially reasonable
Avoid any appearance that payments are to curry favor so that doc will prescribe drugs or use devices
Appropriate arrangements should be documented and describe all services to be performed, define particular qualifications/expertise, ensure compensation is FMV and not tied to volume/value of possible referrals

15. Foreign Corrupt Practices Act (FCPA)
Applies to companies that file reports with the SEC (i.e., publicly traded companies) and prohibits them from bribing officials in other countries in order to obtain, retain or direct business.
Drug and medical device companies are increasingly being targeted.

16. Foreign Corrupt Practices Act (FCPA)
Stryker ($13.2 million)
Pfizer ($60 million)
Lilly ($29 million)
Smith & Nephew ($22 million)
Johnson & Johnson ($70 million)

17. Physician Payment Sunshine Act
Section 6002 of the ACA; Effective March 31, 2013
Disclosure requirements designed to encourage greater transparency in vendor relationships
Disclosures of Payments or Other Transfers of Value to Physicians and Teaching Hospitals
Disclosures of Physicians’ Ownership Interests in Manufacturers or Group Purchasing Organizations

18. Physician Payment Sunshine Act
Applies to “Applicable Manufacturers”
An entity engaged in the production, preparation, compounding, or conversion of a covered drug, device, biological, or medical supply
Does not include distributors or wholesalers that do not hold title to any covered drug, device, biological or medical supply
What is a “covered drug, device, biological or medical supply”?
Any item for which payment is available under a federal health care program; and which either requires a prescription to be dispensed or requires premarket approval by or premarket notification to the FDA (in the case of a device)

19. Physician Payment Sunshine Act
On March 31st of each calendar year beginning 2014, each manufacturer must disclose information about any payments or other transfers of value to covered recipients for the preceding calendar year.
CMS publishes the data on Open Payments website:

20. Physician Payment Sunshine Act – Key Considerations
“Covered Recipient”
Any outside physician (i.e., not an employee of the manufacturer) and
Any teaching hospital (i.e., hospital with a residency program)

21. Physician Payment Sunshine Act – Key Considerations
“Transfer of Value”
Virtually any transfer of value or payment
Consulting fees; research funding and grants
Honoraria
Royalty payments and license fees
Gifts
Charitable contributions to charities associated with the physician or teaching hospital
Entertainment and meals
Travel or trip expenses
Compensation for speaking, CME faculty

22. Physician Payment Sunshine Act – Key Considerations
What data should be reported?
Recipient’s name and business address; if recipient is a physician, his or her NPI.
Amount and date of each payment or other transfer of value.
Description of the form of payment or other transfer of value: Cash or cash equivalent; in-kind items or services; stock, stock options, or other ownership interest, dividend, profit, or return on investment.
Description of the nature of payment or transfer of value.
If the transfer of value is related to marketing, education, or research specific to a covered drug, device, biological, or medical supply, the name of the covered drug, device, biological, or medical supply.
Any other information the HHS Secretary may require.

23. Physician Payment Sunshine Act – Key Considerations
Exceptions to reporting requirements
Transfer of value less than $10, unless the aggregate amount of such transfer exceeds $100 annually
Product samples intended for patient use
Patient educational materials that directly benefit patients
Loan of a device or service for a trial period not to exceed 90 days for purposes of evaluating the device
Items or services provided under contractual warranty, where the terms are set forth in a purchase or lease agreement
Discounts, including rebates

24. Physician Payment Sunshine Act – Key Considerations
Penalties for failure to report timely or accurately
Civil monetary penalties ranging between $1,000 to $10,000 for each incident not reported timely, accurately, or completely
The total penalty amount with respect to failure in reporting an annual submission shall not exceed $150,000
“Knowing” failure to report may be subject to civil monetary penalties ranging from $10,000 to $100,000 for each incident not properly reported but will be capped at $1,000,000

25. Physician Payment Sunshine Act – Key Considerations
Implications for “covered recipients”
Possibly relevant to potential violations of fraud and abuse laws (kickbacks, medical necessity issues)
May bear on potential non-compliance with applicable requirements governing disclosure of conflicts in clinical research
Reputational risk to providers because of appearance of impropriety or undermining of independent medical judgment

26. AdvaMed Code
AdvaMed Code of Ethics on Interactions with Health Care Professionals
Designed to facilitate voluntary ethical interactions between medtech companies and health care professionals to ensure that medical decisions are based on the best interests of the patient

27. Hospital Policies and Procedures
Hospitals and other health care providers are instituting policies and procedures designed to minimize potential conflicts of interest by controlling access to hospital facilities and personnel
Vendor credentialing/registration
Pre-scheduled appointments
Vendor training
Gift policies

28. Hospital Policies and Procedures
Vendor Visitation and Interaction Policy
No gifts, including meals
No use of facility phones, computers or other equipment for vendor business or personal use
No distribution of any brochure, advertisements, pens, cups or similar promotional or marketing materials

29. Contact Information
Mark A. McAndrew Taft Stettinius & Hollister, LLP (513)

30. Questions