Life Science Compliance Update

135 posts categorized "Medical Legal"

April 16, 2015

Health Diagnostics Lab Settles With DOJ; Enters Corporate Integrity Agreement With New Provisions Aimed At Referral Transparency

Referrals

The Department of Justice has announced the official settlement with Health Diagnostics Laboratory Inc. (HDL), of Richmond, Virginia, as well as with Singulex Inc., of Alameda, California. The companies will pay a total of $48.5 million to resolve kickback related allegations related to lab referrals. 

We have been writing about the ongoing scrutiny into HDL, and the government's broad interest in laboratory-physician referral arrangements for a number of months now. The DOJ announced last week that the two labs have agreed to resolve allegations that they violated the False Claims Act by paying physicians in exchange for patient referrals and then billing federal health care programs for medically unnecessary testing. Under the settlements, which stem from three related whistleblower actions filed under the federal False Claims Act, HDL will pay $47 million and Singulex will pay $1.5 million.  

View the DOJ announcement here.

The government also intervened in the lawsuits as to similar allegations against another lab, Berkeley HeartLab Inc.; a marketing company, BlueWave Healthcare Consultants Inc., and its owners, Floyd Calhoun Dent and J. Bradley Johnson; and former HDL CEO, Latonya Mallory. As alleged in the lawsuits, HDL, Singulex, and Berkeley induced physicians to refer patients to them for blood tests by paying them processing and handling fees of between $10 and $17 per referral and by routinely waiving patient co-pays and deductibles.  In addition, HDL and Singulex allegedly conspired with BlueWave to offer these inducements.  As a result, physicians allegedly referred patients to HDL, Singulex and Berkeley for medically unnecessary tests, which were then billed to federal health care programs, including Medicare.

Corporate Integrity Agreements and "Focus Arrangement Procedures"

As part of the settlements, HDL and Singulex agreed to enter into separate corporate integrity agreements (CIA) with the Department of Health and Human Services’ Office of Inspector General (HHS-OIG).  "Those agreements provide for procedures and reviews to be put in place to avoid and promptly detect conduct similar to that which gave rise to these settlements," states DOJ.

The CIAs are two of only a small handful between the HHS-OIG and laboratories. Thus, they provide an interesting look into how the government will negotiate with labs going forward. While many aspects of the agreements are similar to pharmaceutical and device CIAs--including management certifications, mandatory compliance training, and independent review organization oversight--the agreements include a new provision which scrutinizes all payments between the labs and physicians. This provision is entitled Focus Arrangement Procedures (p. 11, Section (D) of HDL's agreement

Using HDL's CIA as an example, OIG defines "focus arrangements" as every arrangement (1) between HDL and any actual source of health care business or referrals to HDL and involves, directly or indirectly, the offer, payment, or provision of anything of value; or (2) between HDL and any physician (or a physician's immediate family member) who makes a referral to HDL for designated health services.

"Within 120 days after the Effective Date, HDL shall create procedures reasonably designed to ensure that each existing and new or renewed Focus Arrangement does not violate the Anti-Kickback Statute and/or the Stark Law or the regulations, directives, and guidance related to these statutes," writes OIG. 

The "Focus Arrangements Procedures" must include:

  • Creating and maintaining a "centralized tracking system" for all existing and new or renewed Focus Arrangements 
  • Tracking remuneration to and from all parties to Focus Arrangements
  • Tracking service and activity logs to ensure that parties to the Focus Arrangement are performing the services required under the applicable Focus Arrangement
  • Monitoring the use of leased space, medical supplies, medical devices, equipment, or other patient care items to ensure that such use is consistent with the terms of the applicable Focus Arrangement
  • Establishing and implementing a written review and approval process for all Focus Arrangements, the purpose of which is to ensure that all new and existing or renewed Focus Arrangements do not violate the Anti-Kickback Statute and Stark Law, and that includes at least: (i) a legal review of all Focus Arrangements by counsel with expertise in the Anti-Kickback Statute and Stark Law, (ii) a process for specifying the business need/rationale for all Focus Arrangements, and (iii) a process for determining and documenting the fair market value of the remuneration specified in the Focus Arrangement
  • Requiring the Compliance Officer to review the Focus Arrangements Tracking System, internal review and approval process, and other Focus Arrangements Procedures on at least an annual basis and to provide a report on the results of such review to the Executive Compliance Committee
  • Implementing effective responses when suspected violations of the Anti-Kickback Statute and Stark Law are discovered

The CIA also requires that HDL "ensure that each Focus Arrangement is set forth in writing and signed by HDL and the other parties to the Focus Arrangement." Furthermore, the agreement requires compliance training for "each party to a Focus Arrangement," and mandates that the agreement includes "a certification by the parties to the Focus Arrangement that the parties shall not violate the Anti-Kickback Statute and the Stark Law with respect to the performance of the Arrangement."

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The settlements with HDL and Singulex illustrate the government's continued scrutiny into laboratory referral arrangements with physicians. The Corporate Integrity Agreements that the labs entered into are aimed at eliminating under-the-table physician payments for lab referrals, by requiring a written agreement that includes certifications of Anti-Kickback and Stark compliance, as well as mandating a comprehensive tracking system for these payments. 

OIG often indicates its industry-wide expectations in its CIAs, and perhaps these settlements indicate the new normal for laboratories. In August last year, OIG released a special fraud alert which offered very specific requirements for lab arrangements with physicians, and on April 2, announced two enforcement actions against doctors for their relationship with a New Jersey-based lab.

View our previous article on lab referral arrangements here

April 14, 2015

GlaxoSmithKline Plans Adjustments To Its Sales Incentive Program

Sales incentives

GlaxoSmithKline’s 2012 Corporate Integrity Agreement made mandatory the company’s “Patient First” program (or a “substantially equivalent” program), under which GSK agreed not to provide incentive compensation or discipline to its sales reps based upon the volume of sales of GSK products. This past week, Bloomberg reports that GSK “is considering changes to its compensation model for sales staff.” The company is "looking into 'more comprehensive options to simplify the Patient First program' and will provide a report within a month,” states Bloomberg.

Patient First Program

In 2011, GSK became "the first pharmaceutical company to cut the tie linking the pay of our prescriber customer facing sales representatives in the US to the number of prescriptions issued," notes their Patient First website. The company explains:

Under our new approach, we reward these sales representatives primarily based on three factors: selling competency, customer evaluations, and the overall operating profit of our North America Pharmaceuticals business. We now require that our sales representatives not only pass competency tests on the medicines and disease states they cover, but we also require that they demonstrate a deeper understanding for the business model of their customers so they can better anticipate and address their needs.

GSK rolled out the Patient First program in 150 countries earlier this year. 

Changes to Compensation Model

The consequences of GSK's sales model seem to be more of a cautionary tale to other companies than anything else. 

In late 2014, GSK announced that they were cutting 900 R&D jobs in the Research Triangle Park site in North Carolina as part of a consolidation effort by the company. GSK’s Advair asthma medication is facing increased competition, and the company is trying to establish new respiratory drugs in the U.S. to help replace the lost sales of Advair, according to the Bloomberg article. Furthermore, in February, GSK replaced its head of U.S. pharmaceutical operations, Dierdre Connelly, who worked for six years as president for North America, with Jack Bailey. Bailey most recently served as senior vice president for policy, payers, and vaccines at GSK.

Having just served one month at the top, Bailey is looking to change the sales rep compensation program. The company is taking a hiatus from its sales call "simulation" based bonuses, and will be working to streamline its Patient First program. Wall Street Journal obtained a copy of GSK's memo to its sales reps, available here, though the memo is rather short on details, especially company plans going forward.

"The changes underscore the pressure on Chief Executive Officer Andrew Witty to turn around the U.S. business, which accounts for almost a third of Glaxo’s sales," Bloomberg writes. "Shares of the company have slumped about 8 percent in the past year, and fourth-quarter earnings declined from a year earlier."

It will be interesting to follow GSK's adjustments to their compensation model, for a couple of reasons. 

First, the company is legally bound to their Patient First program, eliminating incentive payments tied to the volume of sales in a sale's rep's region. In June of 2014, GSK settled claims under state consumer protection, and agreed to promotional restrictions above and beyond their initial CIA, including the obligation to continue its Patient First Program at least through March 2019.  

Second, while the company has some leeway in finding an incentive program not based on sales, GSK is exploring uncharted territory here. No other company has agreed to sever sales rep bonuses from their sales volume. This is part of any sales-based industry, and makes sense from the sales representative's perspective--where rejection from doctors is almost part of the job description and incentive pay keeps the workers in the field motivated. GSK will be forced to create a very innovative compensation program to counter such an established model. 

 

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