In a recent client alert from the law firm Debevoise & Plimptom, LLP, several attorneys discussed the potential international implications that can affect physicians and manufacturers in light of the finalized Physician Payment Sunshine Act regulations. The authors noted that the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) “have aggressively investigated and prosecuted life sciences companies under the FCPA for alleged misconduct and improprieties involving members of the medical profession.”
We previously noted FCPA cases involving Johnson & Johnson, Pfizer, and Eli Lilly. Consequently, such companies “increasingly have begun monitoring relationships with physicians and medical practitioners overseas, who often qualify as ‘foreign officials’ under the FCPA.” While the Sunshine Act is applicable only in the U.S., the regulations raise “questions as to whether and to what extent companies subject to U.S. regulations may opt to globalize their domestic transparency systems, whether in response to similar current or anticipated demands imposed by non-U.S. regulators or otherwise.”
The authors noted that the “Sunshine Act also has implications for multi-national organizations’ ex-U.S. operations” and “covered companies may want to consider implementing flexible transparency and spend-tracking systems on a global scale that simultaneously ensure compliance with U.S. law while taking into account similar policies and legislation in other countries.” However, they recognize that choosing a single global system is not easy.
After giving a brief overview of the final regulations, the alert notes that while companies “finalize their data collection systems and make determinations about applicable policies and procedures to ensure compliance …. careful consideration should be given to recent FCPA investigations and the growing trend in transparency legislation worldwide.” They note that “For some companies, it may be wise to implement some form of spendtracking and data collection systems globally, although adopting a single global practice will be challenging.” Accordingly, the authors debate the benefits and risks of using a global transparency system.
Arguments in Support of Global Implementation
Given the increased FCPA scrutiny life science companies face, particularly for payments, gifts and other transfers of value to state-employed health care providers in foreign countries, the authors note that the Sunshine Act may actually “provide an opportunity to improve companies’ FCPA compliance.” Specifically, implementing Sunshine Act compliant tracking procedures on a global scale may assist companies in monitoring their relationships with foreign medical professionals. “Essentially functioning as an early warning system, a global spend-tracking system theoretically could help curtail, if not avoid, time-consuming investigations and expensive settlements that have become commonplace.” For example, the alert notes
- In April 2011, J&J agreed to pay $70 million to the DOJ and SEC for alleged FCPA violations, including allegations that J&J subsidiaries “paid bribes to public doctors in Greece who selected J&J surgical implants, public doctors and hospital administrators in Poland who awarded contracts to J&J, and public doctors in Romania to prescribe J&J pharmaceutical products.”
- In December 2012, Eli Lilly & Co. agreed to pay $29 million in connection with allegations that its subsidiaries made improper payments “to foreign government officials to win millions of dollars of business in Russia, Brazil, China, and Poland.” In particular, the SEC alleged that “[e]mployees at Lilly’s subsidiary in China falsified expense reports in order to provide spa treatments, jewelry, and other improper gifts and cash payments to governmentemployed physicians.”
- A number of other life sciences companies are the subject of pending FCPA investigations.
“Worldwide spend-tracking and data collection systems could prove useful in monitoring relationships with state-employed health care practitioners, uncovering improper spending activities, and training personnel on how to remain within the limits of U.S. law,” the alert maintains. Accordingly, “the global implementation of transparency systems would help to ensure compliance with the Sunshine Act while serving as a proactive tool for monitoring FCPA compliance.”
“Companies may also want to consider implementing spend-tracking systems on a worldwide scale given the growing trend in global transparency, as evidenced by recently adopted legislation and professional guidelines” and “some companies are already doing so.” For example, France passed its own Sunshine Act in 2011 (inspired by the U.S. the authors write), which requires companies to develop transparency and disclosure protocols. The law establishes two types of reporting rules:
(1) public declarations of interest by experts regarding any connection they may have with covered companies, and
(2) the disclosure of agreements between covered companies and recipients. With regard to the latter, information to be disclosed includes research and development contracts, grants, speaking arrangements, consulting contracts, grants, gifts, payments, and any other benefits.
Although the law’s implementing decree was expected in January 2013, it has not been published and thus the law is not yet enforceable.
In addition, Slovakia passed several amendments in 2011 that subject health care companies to certain restrictions and requirements regarding their relationships with medical practitioners. “Specifically, pharmaceutical companies are prohibited from financing, sponsoring, or supporting events geared toward health care professionals unless the purpose is solely educational or scientific. In addition, companies must report all advertising and marketing expenses, as well as any direct or indirect non-monetary benefits provided to health care professionals. Lastly, health care professionals who are authorized to prescribe or dispense drugs are forbidden from accepting payments, gifts, or nonmonetary benefits from covered companies.”
The alert also points out foreign trade associations that have embraced the concept of self-regulation with respect to relationships between life sciences companies and medical practitioners. “The European Federation of Pharmaceutical Industries and Associations (“EFPIA”) represents European national pharmaceutical industry associations. The EFPIA Code of Practice on Relationships Between the Pharmaceutical Industry and Patient Organizations requires members to publish reports detailing any financial support (direct or indirect) provided to patient organizations, as well as any agreements existing between the parties.”
“The Association of the British Pharmaceutical Industry (“ABPI”) is a health care trade association with more than 180 members in the United Kingdom. The group’s code of practice already requires members to disclose a wide variety of information regarding relationships with medical practitioners, including donations, gifts, grants, payments, sponsorships, and consultancy agreements. Industry organizations in Australia and the Netherlands have adopted similar measures requiring health care companies to publicly disclose financial relationships with medical professionals, while a professional association in Japan also requires that members implement specific transparency policies.”
“Although Sunshine Act-compliant record-keeping may not entirely satisfy transparency legislation or professional guidelines in other countries, global implementation could provide companies with a sound framework that could be tailored to meet the requirements of a particular regulatory system,” the alert acknowledges. “Adopting a global spend-tracking system also would avoid the need to create transparency systems on a piecemeal basis as new laws and regulations are passed.”
Arguments Against Global Implementation
Given the uncertainty in the amount of costs associated with U.S. compliance with the Sunshine Act, the alert notes that “health care companies might be disinclined to expand Sunshine Act compliant reporting systems on a global scale.” The authors recognize that companies must take a number of steps to comply with the Sunshine Act, including:
- Identifying products and devices that are covered by the statute,
- Defining payments and transfers of value subject to reporting,
- Assessing current relationships with health care professionals and teaching hospitals to determine which parties qualify as covered recipients.
- Developing and reexamining policies relating to transparency protocols and record retention.
- Designing and developing adequate data collection systems and train relevant personnel (e.g., employees, third party contractors, and covered recipients).
While some companies have had a head start given provisions in their Corporate Integrity Agreements, “even those companies’ systems must be adjusted to conform with CMS’s recently issued rule.”
The authors recognize that “it is inevitable that complications will arise based on the sheer volume of information that must be compiled, processed, and submitted to CMS.” Companies undoubtedly will encounter
- discrepancies among data sources that must be reconciled,
- complexities in determining how spend data should be identified and categorized, and
- challenges in deciding how to properly interpret the Sunshine Act’s reporting exceptions
“Companies also will have to ensure that they are adequately adhering to their reporting policies, a process that likely will require additional internal auditing and quality control mechanisms. In addition, the data must be validated and certified prior to submission, a process that likely will necessitate dedication of additional human and technological resources.”
“Nor will the extensive data management efforts cease once the information has been reported. Companies must maintain all books, contracts, records, documents, and other evidence regarding payments, transfers of value, and ownership and investment interests for five years from the date that the information is published on CMS’s website. CMS has acknowledged that some records will likely need to be retained for a longer period. Companies also will be subject to periodic government audits, evaluations, and inspections.”
As a result, the authors maintain that implementing a global Sunshine Act-compliant data collection systems is “unlikely” to “simplify any of these issues, especially given differences between U.S. law and foreign legislation and standards”; with global requirements relating to spend tracking and data collection being “far from uniform.”
“Although a handful of countries have enacted transparency laws, some are merely at the early stages of drafting legislation, others rely on self-regulation by professional associations, and many have yet to address the issue at all. As a result, developing even the most basic global data collection system will involve some educated guesswork. Implementing policies on a global scale would thus increase the already uncertain costs of compliance, which could grow exponentially,” the authors write.
“Given the global trend toward transparency regulation, companies should at least consider whether expanding data collection and spend-tracking systems to their ex-U.S. operations would be a viable and beneficial option. Adopting a thoughtful, holistic approach to the worldwide implementation of Sunshine Act-compliant systems could streamline the transparency process and assist companies in more easily satisfying emerging legislation and regulations, as well as facilitate companies’ efforts to monitor FCPA compliance. It may be prudent, however, to first assess the full impact and cost of complying with the U.S. reporting requirements.”