Life Science Compliance Update

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October 16, 2013

Vermont Fines 25 Manufacturers for Violations of the Vermont Prescribed Product Gift Ban and Disclosure Law

In late September of this year, the Vermont Attorney General issued a press release announcing that twenty-five (25) manufacturers had settled alleged violations of Vermont's Prescribed Product Gift Ban and Disclosure Law. It appears that these 25 settlements are the first of their kind since 2010.

Vermont has one of the oldest transparency laws in the country and we have covered issues surrounding this law and reports from the Attorney General's office over the last few years. The law (18 V.S.A. § 4632) requires prescribed product manufacturers to file periodic reports with the Attorney General's Office detailing certain information about the allowable expenditures and permitted gifts the manufacturer gives to Vermont health care providers and other recipients covered under the law—similar to the Physician Payment Sunshine Act.

In addition, 18 V.S.A. § 4361a prohibits prescribed product manufacturers from giving most payments or transfers of value to Vermont health care providers unless otherwise "allowable" under the law.

It should be noted that the federal Sunshine Act sets a floor for transparency laws. In other words, States can require additional obligations that are not contained in the Sunshine Act. Thus, applicable manufacturers must still follow additional or different regulations promulgated by states unless otherwise preempted.

Of the 25 manufacturers, it appears that most are smaller companies, with Novartis and McKesson being the largest manufacturers we recognize.

According to the press release, the Vermont Attorney General's Office filed Assurances of Discontinuance executed by twenty-five manufacturers settling violations of Vermont's Prescribed Product Gift Ban and Disclosure Law.

Each manufacturer agreed to prospective compliance with the law, which bans most gifts to Vermont health care providers and requires manufacturers of prescribed products—including pharmaceuticals, biologics and medical devices—to disclose expenditures deemed appropriate by the legislature. All violations were self-reported.

Twenty-four manufacturers, having failed to file disclosures entirely, paid a total of $25,250.00 to the State in fees.

In addition, Novartis paid $36,000.00 in civil penalties to settle a total of six gift-ban violations; each violation consisted of providing a meal to a health care provider.

"My Office appreciates that these companies were forthcoming about their activities and cooperative in resolving these violations," said Attorney General Sorrell. "Similarly situated manufacturers that are less forthright and cooperative will not receive such favorable treatment."

Manufacturers that violate the Assurance of Discontinuance may be assessed a penalty of $10,000 for "each" violation of the Gift Ban and Disclosure Law.


After looking at several of the Assurance of Discontinuance letters, we noticed several common threads. First, as noted above, each of the companies (other than Novartis) failed to disclose certain payments. It is noted in each of the Assurance letters that the Vermont AG does not "release any claims arising under" the gift ban provision of the law. However, it is unclear from the Assurances whether the AG would pursue gift ban claims or whether such allegations are present.

Nevertheless, these failures in disclosure underscore the type of scrutiny that CMS and OIG will be applying as they investigate Sunshine Act reporting obligations. Here, it appears that Vermont took 2-3 years to resolve these allegations for small or medium-sized companies. Thus, it could take even longer to resolve such discrepancies or failures under the Sunshine Act given its wider application and more complex reporting requirements. We are also likely to see larger disclosure mistakes or omissions under the Sunshine Act because there continues to be significant confusion around reporting obligations and CMS continues to provide "guidance" through its FAQs.

Second, Novartis was cited for violating the gift ban because it provided meals to several Vermont healthcare providers between 2010 and 2011. Attached to Novartis' agreement is the self-disclosure the company made to the Vermont AG's office. The letter, written by a Novartis Manager of Regulatory Compliance, explained that the company "inadvertently provided meals outside of Vermont to two Vermont health care professionals.

Novartis explained that for each meal provided to a Vermont physician, the company attempted to recoup repayment for the meal but was unsuccessful. The meals took place outside of Vermont (Massachusetts, New York, and Hawaii), which underscore the scrutiny and detail compliance and aggregate spend departments will need to practice moving forward with the Sunshine Act. This is particularly true as Novartis notes that its employees responsible for paying for the meals were "unaware" that the health care practitioners also practiced in Vermont or were licensed in Vermont.

Accordingly, it will be crucial that compliance departments and transparency officials ensure that all applicable licenses of physicians are acquired for Sunshine Act reporting to avoid any violations of Vermont's gift ban law.

Moreover, it is important for all applicable manufacturers to keep a clear list of any payments or transactions involving Vermont healthcare providers covered under the Gift Ban law because CMS, OIG, or the Vermont Attorney General's Office will likely be able to use Open Payments public database to identify discrepancies or omissions, which could result in State penalties by Vermont.

This obligation will likely also fall on third party vendors as well. As a result, third party vendors will need to play close attention to registration and attendance lists for conferences, educational or promotional events or other interactions where payments or transfers of value may be made. Such entities will need to ensure that healthcare provider registration or sign in forms include a section for providers to include their state of practice and licensure.

It may also be prudent of such providers to include reminders before, during or after conferences. For example, if a Vermont physician partakes in a meal, the physician may be able to reimburse the company or third-party vendor so that the manufacturer can avoid violating the law, as Novartis attempted unsuccessfully.

Ultimately, these Assurance letters are a glimpse of what applicable manufacturers can expect to experience in the coming years now that Sunshine Act reporting has begun. Given that several other states (e.g., MA, MN, WV, DC) have similar reporting requirements, these cases underscore the importance of having sound transparency operations and procedures in place to avoid federal and state penalties.

Thanks to Polaris Management Partners for bringing this story to our attention.

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