Medical Device Daily Washington Editor

WASHINGTON – The second day of this year's annual meeting of the Medical Device Manufacturers Association (MDMA; Washington) covered a couple of hot-button topics, and a session that got the audience's rapt attention was one that dealt with compliance issues in an era of increasing governmental scrutiny.

Eve Brunts, a partner with Ropes & Gray (Boston), said recent developments hinge on two key principals, potential conflicts of interest and a perceived need for transparency, an issue dealt with by FDA with the formation of a transparency task force (Medical Device Daily, June 3, 2009). While in the past the focus in these two areas was largely on the pharmaceutical industry, there is "increased legislative activity focused not just on pharma, but also on the device industry," Brunts observed.

Brunts noted that the Massachusetts law that deals interactions between device makers and physicians goes into effect July 1 and affects any interactions with physicians who practice in the state of Massachusetts. "If you are a company operating in California and you invite physicians to a meeting in California, if one of those physicians practices in Massachusetts you are subject to this law," she said, which pertains to other health professionals as well.

Among the provisions of the legislation is that any device maker who offers a seminar or some sort of training to healthcare providers will have to pay the state a fee of $2,000 each year. "Every year afterward, it just keeps getting better," Brunts quipped, because of an internal audit requirement that comes into play each year thereafter, not to mention the perennial $2,000 fee.

However, there are some looming implementation issues. One is that "there's no central database [of providers] to check" for whether a provider is covered by the law, Brunts said, so device makers have to get all the addresses at which a provider practices. There is also "a huge issue involved in getting systems in place" to track payments to physicians. Furthermore, the state guidance says that manufacturers are responsible for compliance by any independent contractors involved in marketing a device.

As is widely known, Massachusetts is not the only state interested in such legislation. "Other states are playing catch-up now," Brunts said, a list she said includes Vermont and Minnesota.

The proposed legislation in Vermont "applies to interactions," a term Brunts said is "broadly defined," and as is the case with the Massachusetts law, makes no distinction as to where those interactions occur. Because the pending legislation in Vermont lists no floor for the amount of payment or sponsorship, reports will have to detail down to the level of not dollar one, but "penny one, potentially," she said, noting that "at least seven other states have pending legislation."

Regarding the Physician Payment Sunshine Act of 2009, Brunts reminded attendees that "it hasn't moved since January," but also that the bill as currently written "does not pre-empt state law to the extent that state law exceeds federal requirements" (Medical Device Daily, Jan. 26, 2009).

Michael Sullivan, former U.S. attorney for the district of Massachusetts and now a partner in the Ashcroft Law Firm (Kansas City, Missouri), addressed what he said was an unspoken question in the minds of device makers: "Why healthcare and the device industry in particular?" As the famed 20th century bank robber Willie Sutton might have replied, he quipped, "That's where the money is."

Sullivan pointed out that healthcare spending in the U.S. will surpass $2 trillion this year, and while some high-end estimates of "how much money is wasted due to fraud and misuse" range to 10%, "even government agencies say that loss to fraud is somewhere between 3% and 5%. We're talking about a lot of money," he asserted.

"Most investigations have been initiated by whistleblowers," Sullivan noted, but he also remarked that "70% of employees never report internally the problems they uncover," but head straight to a governmental body, he said, adding that whistleblower suits, also known as qui tam suits, accounts for two thirds of all investigations.

As for enforcement trends, he remarked, "This is where it becomes gloomy. Criminal filings ht a record number in 2008" as did convictions and pending legal actions. There are currently "1,600 pending criminal investigations covering more than 2,500 subjects." Civil cases "were up last year over the previous two years" as well, he said.

The situation constitutes the perfect storm, Sullivan noted. "State and federal revenue is on the downturn," so "there's no question there's a motivated buyer out there on the enforcement side."

Mike Bell, president of the compliance consultancy R-Squared (Princeton, New Jersey), said he would offer some relief from the gloom and doom, but seemed to brush aside industry complaints with the observation, "at this date and time, it's almost inexcusable for some of these things to happen."

Bell said that the U.S. attorney's manual states that liability might not be appropriate for a company with a strong compliance program if an employee acts in a way that is contrary to company policy, assuming a strong compliance program and that the employee had no help from other employees. "A good compliance program ... can reduce your culpability score by three points and your liability by 15%," he said.

"The theme is 'do it right,'" Bell said, noting that the U.S. attorney's manual suggests that a crucial factor is whether a compliance program is merely "a paper program" or was designed to actually foster compliance and ward off any deviations from the program.

"From the OIG's perspective, they say a superficial program" that is not properly built and monitored "will likely be ineffective and could expose the organization to greater liability than no program at all," Bell said in reference to the Office of Inspector General at the Department of Health and Human Services. He recommended an emphasis on "systems and technology to control, monitor and audit activities," recommending that firms "focus on prevention [and] build in controls to the workflow.

"Bake it into the process, into the fabric of the organization," Bell emphasized further. On the other hand, the expense of a compliance program does not have to be just a source of cost. Compliance as a competitive edge has some meaning, Bell said, because customers will want to do business only with firms that won't get them in trouble.