Life Science Compliance Update

November 20, 2015

Drug Pricing Forums and Congressional Actions


As our readers know, from both their own experience and the articles written on our website, drug pricing is a hot issue right now. Given that we are also in the run up to an election year, it is a hot issue that is likely to stick around for quite some time. Politicians of all stripes and branches and levels of government are getting involved, with several Congressional committees conducting investigations and holding hearings, and the Department of Health and Human Services (HHS) holding their own forum on the topic. Below is an outline of forums and hearings on drug pricing that we are aware of to date. We will aim to update the website with any new drug pricing information that comes through any of these hearings and forums.

HHS Pharmaceutical Forum – November 20, 2015

The Department of Health and Human Services is hosting a Pharmaceutical Forum on Friday, November 20, that promises to focus on "innovation, access, affordability, and better health." HHS Secretary Sylvia M. Burwell is asking a variety of stakeholders to share information and their opinion as to how to address the complex problem of rising drug costs. This forum will bring together consumers, providers, employers, manufacturers, health insurance issuers, representatives from state and local governments, and other stakeholders to discuss how to promote competition and drive innovation, among other things.

The forum includes topics such as: "The Balance between Innovation & Smarter Spending," "Addressing Patient Access & the Affordability of Prescription Drugs," and "Value-Based & Outcomes-Based Pharmaceutical Purchasing Programs." Invited speakers include CEOs of Merck & Co. and Kaiser Permanente, high-level federal employees from HHS and Office of Personnel Management (OPM), and representatives of other miscellaneous organizations like the Brookings Institution and AARP.

House of Representatives, Oversight Committee – TBA

The House Oversight Committee announced that it would hold a hearing on drug pricing practices "early next year," according to Chairman Jason Chaffetz. The Committee is currently conducting an investigation and has reached out to a number of drug companies, including the prominent Valeant and Turing Pharmaceuticals, to gather information to continue their current actions of "actively reviewing drug pricing."

As we have previously written, Elijah Cummings, the ranking member of this committee, has also formed a task force – the Affordable Drug Pricing Task Force – to engage in "meaningful action to combat the skyrocketing costs of pharmaceuticals."

Senate Special Committee on Aging – December 9, 2015

The Senate Special Committee on Aging has tentatively set an initial hearing on their ongoing investigation into pharmaceutical drug pricing for December 9, 2015. Per Senators Susan Collins and Claire McCaskill, this hearing is the first of multiple.

Senate Committee on Health, Education, Labor & Pensions

While no hearing is currently set on drug pricing in this committee, during Dr. Robert Califf's nomination hearing to head the Food and Drug Administration (FDA) on November 17, 2015, Sen. Lamar Alexander focused questions on how he would help to "ensure that affordable drugs are available to American patients." Sen. Alexander recognized that while it is not the job of the FDA to set drug prices, he would hope that the FDA can help the market "lower drug prices by approving generic drugs and other products as quickly as it possibly can, so there is more choice and competition in the market."

Senate Finance Committee Hearing on Physician Owned Distributorships (PODs) Highlights the Complexity of the Issue

The Senate Finance Committee has been conducting an investigation into Physician Owned Distributorships (PODs), leading to at least one referral to the Health and Human Services Office of Inspector General for potential action, the case of a device manufacturer who offered to make payments to doctors through a third party to avoid disclosure.


The Affordable Care Act's Open Payments Program made it a requirement for PODs to disclose their ownership interests. POD critics, including some politicians, say such required disclosure has not been happening the way it should be. On November 17, 2015, the Senate Finance Committee held a hearing on PODs, entities in which physicians are both an investor and a distributor of the product or device. Senate Finance Committee Chairman Orrin Hatch and Ranking Member Ron Wyden called the hearing and issued the following joint statement:

While the vast majority of doctors operate with the highest ethical standards, those with a vested stake in medical device distributorships raise a number of concerning questions about the physician's motivation in prescribing a procedure, as well as the overall cost to the health care system. When physicians have a financial incentive to recommend and perform a surgery, a potential conflict of interest can occur and jeopardize the health of patients.  With this hearing, the Committee will have the opportunity to hear views on all sides of the debate, and we look forward to a constructive conversation on how to ensure major health decisions are made in the best interest of the patient and not the physician's pocketbook.

Senator Hatch insisted that he understands that PODs are not always problematic, but that "more and more of these physician-salespeople using the very devices they sell in the surgeries and procedures they perform" and could be beginning to cause an ethical imbalance in the profession.

The hearing did include views on all sides of the debate, with Scott Lederhaus, M.D., President of the Association for Medical Ethics; John Steinmann, D.O., Board Advisor to the American Association of Surgical Distributors; Suzie Draper, Vice President of Business Ethics and Compliance at Intermountain Healthcare; and Kevin Reynolds, the son of a patient where the surgeon was affiliated with a POD, in attendance.

Due to their involvement in the field and presumed understanding of the topic, Dr. Lederhaus and Dr. Steinmann offered the majority of the testimony, each on an opposing side of the issue.

Scott Lederhaus, M.D. – Association for Medical Ethics

Dr. Lederhaus has spent the last several years speaking out against PODs of implantable medical devices. The organization Dr. Lederhaus is president of, the Association for Medical Ethics, was formed in 2005 because of concerns about excessive and unnecessary spinal surgeries being performed. The members of that group "believe there is a need to address the rampant physician financial conflicts of interest contributing to the overuse and misuse of spine surgery in America."

According to Dr. Lederhaus, spinal fusion surgery is one of the most common surgical procedures done in the United States with roughly a half a million operations per year. He states, "extensive spinal fusion surgery in the United States has exploded over the last decade often without indication and for no reason other than to enhance the income of some greedy and misguided spine surgeons."

Dr. Lederhaus believes that PODs have a tendency to find their way around the legal requirements, stating that even when doctors do disclose their POD ownership to patients, patients do not understand what it means, or what it entails. "Patients are blindly willing to accept whatever implant the surgeon would decide to use regardless of the quality of those implants or where they are made. A patient has no idea what a POD is or how a POD might affect their treatment or outcome."

Senator Hatch asked Dr. Lederhaus if he though changes to the Sunshine Act would eliminate any conflicts of interest and be "enough to protect patients from physicians with financial interests" in PODs. Dr. Lederhaus does not think changes to the Sunshine Act would be enough and that it would be difficult to control and keep track of dishonest people who went out of their way to hide their involvement. Dr. Lederhaus feels as though it is a conflict of interest for a physician to have ownership interest in a POD and receive revenues from procedures that they perform on their patients.

John Steinmann, D.O. – American Association of Surgeon Distributors

Dr. Steinmann was the only witness present at the hearing who supported PODs. As board advisor for the American Association of Surgeon Distributors (AASD), he focused on the compliance that the AASD requires of PODs with respect to both the self-referral and anti-kickback statutes. AASD also encourages transparency with patients and utilization reports to ensure doctors who join a POD do not suddenly start performing more surgeries as a result.

Dr. Steinmann also defended PODs, saying they actually help to lower the cost of treatment by reducing the price of devices they sell. He stated that since PODs do not have the sales force and overhead that traditional device manufacturers have, they can sell their devices at a lower cost, thereby lowering the cost of healthcare.

He recognized that there are, as always, some bad apples who take advantage, and insisted that the lack of "clear, affirmative program guidance from the government has kept many honorable surgeons and their hospitals from sitting down to implement this very sensible model." Steinmann continued to defend the ethical physicians who participate in PODs, saying, "I don't believe it's [the potential for physicians to earn extra money from PODs] powerful enough to change a person's ethics."


Proponents of PODs argue that some of the hardline statements coming from the HHS OIG and Congress go too far and claim that implementing a sweeping prohibition on physician ownership in medical technology companies might have an unintended "chilling effect" on legitimate business practices as well as medical breakthroughs and research.

Senator Hatch was the only senator to ask questions of the witnesses. While it seems as though Senators Hatch and Wyden are eager to engage in discussion of what should be done to "promote patient safety and transparency" in PODs, they haven't given us an exact "tell" of how they plan to move forward. Senator Hatch seemed particularly interested in existing laws and whether the federal government currently offers enough guidance to provide clarity for hospitals to design POD policies that comply with the law and how to deal with the confusing web of entities that may be involved in paying physician POD investors.

Senator Hatch also expressed an interest in finding a balance between physician entrepreneurship and safeguards to protecting patients from unnecessary harm. He asked that members of the Senate Finance Committee submit their written questions to him by Tuesday, December 1, signaling that he himself is not entirely sure what to think.

Senator Hatch has previously represented physicians and hospitals so he comes from a position of understanding. He also stated that many great ideas that have improved the profession, solved problems and advances have come from good physicians and managers who care about patient health and want to make sure everything is ethical and appropriate.

For the time being, the committee has decided to submit additional information to both the OIG and to the Centers for Medicare & Medicaid Services (CMS) about the rate at which PODs report their ownership interests.

Given the intense focus the Senate Finance Committee seems to have on the issue of PODs, we anticipate some further action to be taken on this issue. Any further action has the potential to implicate the Sunshine Act and possibly make further, more burdensome, changes to the already-onerous reporting laws.

November 19, 2015

American Medical Association House of Delegates Joins Prescription Drug Price Debate Calling for Price Control Measures on Pharmaceutical Products and Banning DTC

At this week's American Medical Association (AMA) House of Delegates meeting in Atlanta the AMA adopted recommendations that put them in direct odds with the life science industry. Including recommendations to endorse a ban on direct-to-consumer advertising, pharmaceutical price transparency, direct negotiation of drug prices by CMS and cutting the exclusivity period of biologic drugs.

Drug Pricing

On Tuesday November 17th, The AMA House of Delegates voted to adopt several recommendations in support of regulating drug pricing, including a recommendation that the AMA encourage the Federal Trade Commission to limit anticompetitive behavior by pharmaceutical companies attempting to reduce competition from generic manufacturers through manipulation of patent protections and abuse of regulatory exclusivity incentives.

The AMA had previously agreed to encourage cost transparency, but this session, the House of Delegates agreed to refine that further, stating cost transparency would be encouraged between pharmaceutical companies, pharmacy benefit managers and health insurance companies.

The AMA has also agreed to support several different legislative proposals. One, if legislation comes up to shorten the patent exclusivity period for biologics, the AMA would throw their support behind that. The AMA would also support legislation that gives the Secretary of the Department of Health and Human Services authority to directly negotiate contracts with manufacturers of covered Part D drugs, and work toward eliminating Medicare prohibition on drug price negotiation.

A speaker from PhRMA present at the AMA meeting raised concerns about these changes, highlighting a difference in statutory interpretation of the Affordable Care Act pertaining to market versus data exclusivity of biologics. The AMA House of Delegates talked their way around that difference and stated that they intend to reduce the market exclusivity that an innovator biological has relative to a follow-on biosimilar, not as PhRMA suggested, relative to a competing innovator biological.

The AMA has launched a Directive to Take Action to convene a task force of AMA Councils, state medical societies and national medical specialty societies to develop principles to guide advocacy and grassroots efforts aimed at addressing pharmaceutical costs and improving patient access and adherence to medically necessary prescription drug regimens.

Lastly, relating to drug pricing, the AMA will launch an advocacy campaign in an attempt to engage physicians and patients in local and national advocacy initiatives to bring attention to the rising price of prescription drugs and put forward solutions. The AMA is hoping to have a report for the 2016 Interim Meeting on the progress of this campaign.

Direct to Consumer Advertising

On Monday, November 16, the AMA House of Delegates passed a measure showing AMA support for a ban on direct-to-consumer (DTC) advertising for prescription drugs and implantable medical devices. The AMA states that this measure was adopted in an attempt to make prescription drugs more affordable and address member concerns about "the negative impact of commercially-driven promotions and the role that marketing costs play in fueling escalating drug prices."

The AMA released a press release stating that this new policy "recognizes that the promotion of transparency in prescription drug pricing and costs will help patients, physicians and other stakeholders understand how drug manufacturers set prices. If there is greater understanding of the factors that contribute to prescription drug pricing, including the research, development, manufacturing, marketing and advertising costs borne by pharmaceutical companies, then the marketplace can react appropriately."

The AMA wishes to support a ban on DTC advertising because, according to Reference Committee K, the United States is only one of two countries in the world that allows DTC advertising and they believe that ultimate goal of advertising is to drive choice and demand for product, not to educate potential patients and their caregivers. Some physicians at the meeting opined that the "proliferation of ads is driving demand for expensive treatments when cheaper alternatives exist." The AMA Reference Committee K does understand, however, that some patients may be prompted to visit a physician based on their increased awareness of a specific drug mentioned in DTC advertising.

The AMA, however, did not go as far as rescinding its policy on DTC advertising, Policy H-105.988. While Reference Committee K asked for the rescission of Policy H-105.988, the House of Delegates denied the request, instead referring the recommendation for a decision, meaning this rescission issue can come up again in future meetings. Policy H-105.988 was last brought up for discussion at the AMA's annual meeting in 2007, when it was reaffirmed.

Policy H-105.988 outlines eleven guidelines for product-specific DTC advertisements, including: the advertisement should be indication-specific and enhance consumer education; the advertisement should convey a clear, accurate, and responsible health education message by providing objective information about the benefits and risks of the drug or implantable medical device for a given indication; the advertisement should present information about warnings, precautions, and potential adverse reactions associated with the drug or implantable medical device product in a manner such that it will be understood by a majority of consumers; and the advertisement should be targeted to age-appropriate audiences. The policy also requires, among other things, that the FDA approve all DTC advertisements to ensure compliance with FDA regulations and consistency with FDA-approved labeling. The policy also mandates that the AMA support the concept that when companies engage in DTC, they assume an increased responsibility for the informational content and an increased duty to warn consumers.

According to John Kamp, the Executive Director of the Coalition for Healthcare Communication, DTC advertising plays an important role in the healthcare system and lays out the following points in support of DTC:

• DTC helps patients and caregivers recognize symptoms and possible solutions for health issues.  Indeed, one of the AMA dissenters to the new policy pointed out the role of early antidepressant advertising to help patients recognize their difficulty and seek medical help.

• DTC currently is the most aggressively regulated advertising available. This is clear from the careful and lengthy side effect disclosures in every broadcast ad. Eliminating these ads would keep consumers in the dark about both the benefits and side effects of medicines.

• Numerous studies have demonstrated that patients who seek out information and have robust conversations with their doctors are more likely to adhere to directions and achieve better health results.

• PhRMA and its members closely follow a DTC advertising code of self-regulation that emphasizes full and fair balanced information, as well as a delay in the commencement of consumer advertising until professionals have had an opportunity to learn about new drugs.

PhRMA spokeswoman Tina Stow also spoke out against these decisions by the AMA, stating that the goal of DTC advertising is "providing scientifically accurate information to patients so they are better informed about their healthcare and treatment options. Research shows that accurate information about disease and treatment options makes patients and doctors better partners."

This decision by the AMA is an interesting one, in that physicians have for a long time expressed dismay at patients who bring up therapeutic recommendations they see on TV. It has been suggested that the proposed ban would be considered a violation of the first amendment. Only passing reference during the physician's discussion at the House of Delegates was the acknowledgement to how DTC has helped patients identify symptoms and ultimately increased visits to physician offices.

Resolutions Adopted by the AMA House of Delegates November 2015

Support legislation that gives the Secretary of the Department of Health and Human Services authority to directly negotiate contracts with manufacturers of covered Part D drugs, and work toward eliminating

Medicare prohibition on drug price negotiation.

Support Legislation to Shorten Patent Exclusivity for Biologic Drugs

Encourage cost transparency between pharmaceutical companies, pharmacy benefit managers and health insurance companies

Encourage FTC to Limit "Anti Competitive" Behavior in the Pharmaceutical industry

Support Legislation Banning Direct to Consumer Advertising

Convene a task force of AMA Councils, state medical societies and national medical specialty societies to develop principles to guide advocacy and grassroots efforts aimed at addressing pharmaceutical costs and improving patient access and adherence to medically necessary prescription drug regimens.

AMA will monitor pharmaceutical company mergers and acquisitions, as well as the impact of such actions on drug prices


These adopted recommendations by the AMA House of Delegates represent a change in direction for the AMA which will put them at odds with the life science industry and its employees. There is a real issue with increases in generic drug prices and some prices being quite high, a dialog should be pursued, it is unclear that the path AMA is taking will in the end get them what their patients are demanding, which are better cures at a reasonable cost.

It also seems as though the AMA is planning to continue this increased scrutiny on the pharmaceutical industry by "monitor[ing] pharmaceutical company mergers and acquisitions, as well as the impact of such actions on drug prices." We will keep up with any additional changes the AMA makes with regard to the pharmaceutical industry.

Reference Documents

Reference Committee J -annotated - Pharma Pricing Section

Reference Committee K - annotated DTC Ban



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