Biopharmaceutical and Medical Device Compliance

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Almost every aspect of the biopharmaceutical and medical device industries raises regulatory compliance concerns. Heightened scrutiny is required across product lifecycles — from clinical trials to manufacturing, pricing, formulary placement, and promotional practices. Those areas (as well as patient privacy and adverse event reporting) require close attention to and compliance with healthcare laws, regulations, and guidelines. Part 1 of this two-part article describes statutes, regulations, and guidances applicable to the biopharmaceutical and medical device industries.

Anti-Kickback and False Claim Laws

Under the US federal anti-kickback law (1), it is illegal for any individual to offer to pay to induce a person to

  • refer an individual to a person for any item or service for which payment may be made under a federal healthcare program (a health benefit program funded in whole or in part by the federal government, including Medicare, Medicaid, and the VA health network)

  • purchase or order such an item or service

  • arrange for or recommend purchasing or ordering such an item or service.

Illegal payments include — directly or indirectly — kickbacks, bribes, rebates, cash, or “in kind remuneration. A person need not have actual knowledge of the anti-kickback statute or a specific intent to violate that statute.

Violations of the anti-kickback statute are deemed “federal healthcare fraud offenses” and are punishable under the US criminal code by prison terms and fines. Civil consequences of no small magnitude also may apply. With respect to criminal exposure, a violator (corporate or individual) faces a felony conviction with imprisonment up to five years, a $25,000 fine, or both (1). Current civil penalties for violation of the federal anti-kickback law vary depending on the illegal conduct and include, for example, a penalty of up to $50,000 for each improper act and three times the amount of remuneration at issue (2, 3). The government has broad discretion to proceed civilly, criminally, or both ways.

Violation of the anti-kickback law can also result in exclusion from participation in any federal healthcare program for more than 10 years, depending on the nature of the offense and the violator’s prior compliance history (4,–6). For example, during such an exclusionary period, pharmacies and hospitals will not be reimbursed for excluded manufacturer’s products, thereby influencing that manufacturer’s bottom line.

Other federal criminal and civil laws prohibit individuals from submitting false information or claims for payment to the federal government. For example, the federal False Claims Act (FCA) (7) prohibits an offer or payment to a Medicare or Medicaid beneficiary of remuneration that an offer or knows or should know is likely to influence a beneficiary to order or receive a reimbursable item or service from a particular healthcare practitioner or supplier. Under new healthcare legislation, claims resulting from violations of the anti-kickback laws also constitute false claims subject to the FCA’s draconian liability scheme.

Those who violate the FCA are liable to a mandatory civil penalty of not less than $5,000 and not more than $10,000 per false claim (as adjusted upward by inflation) plus costs and three times the amount of the government’s damages. (The present penalty range, as adjusted for inflation, is $5,500 to $11,000.) Moreover, private citizens can use the FCA as a vehicle to bring a qui tam action — essentially, a private citizen suing in the name of the government — and personally recover a portion of the ill-gotten gains and reasonable attorneys’ fees (9). That citizen suit provision — by empowering a company’s own employees to blow the whistle on their employer and recoup large penalties — exponentially increases the likelihood that false claims will be discovered.

Because the anti-kickback law is so broadly written that it could encompass many harmless arrangements, a number of exceptions have been created to shield certain behavior from prosecution. Those include

  • properly disclosed discounts and price reductions

  • payments to bona fide employees

  • payments to group purchasing agents

  • waivers of certain Medicare deductibles by federally qualified health centers for indigent individuals

  • certain types of remuneration between Medicare or Medicaid risk contractors and entities providing services

  • cost sharing amounts to Medicare Part D beneficiaries reduced or waived in certain instances

  • remuneration to certain federally funded health centers serving a medically underserved population

  • remuneration protected by safe harbor regulations (discussed below).

Likewise, the Office of Inspector General (OIG) of Health and Human Services (HHS) has established regulatory safe harbors (10) to shield certain specified payments by pharmaceutical and medical device companies. Among the numerous safe harbors, the ones most applicable to pharmaceutical and medical device manufacturers include remuneration applicable to discounts, personal services and management contracts, group purchasing organizations, employees, and risk-sharing arrangements. Arrangements that don’t fit within an exception or safe harbor are not per se illegal but will be subject to scrutiny by OIG.

Food, Drug & Cosmetic Act

The federal Food, Drug, and Cosmetic Act (FDCA) and ancillary regulations (e.g., prescription drug marketing and advertising, labeling and manufacturing regulations) (11), authorize the US Food and Drug Administration (FDA) to oversee the safety of food, drugs, medical devices, and cosmetics. Two types of labeling are important for biopharmaceutical compliance. FDA-approved labeling requires that a package label and insert include adequate directions for product use (e.g., sufficient information about product hazards and other risk information). Promotional labeling includes all other labeling, including promotional materials and oral statements (12).

Drugs and devices will be deemed misbranded (hence, illegal) if their labeling is false or misleading in any particular way. All promotional materials must include information relating to side effects, contraindications, and effectiveness. All product claims must adhere to approved labeling. General claims can be made only if supported by substantial evidence and must be balanced by risk. Violative practices include product comparisons that lack specific proof, overstated safety or efficacy claims, misrepresentation of clinical study results, and failure to provide a fair balance of side effects and contraindications.

Of particular interest to biopharmaceutical and medical device companies is regulation of promotion for unapproved uses. With the proliferation of prescription drug and device use in the United States, companies are constantly trying to find new uses for medicines and devices already on the market. “Off-label” marketing occurs when a doctor prescribes a drug or device for a use that has no
t received FDA approval. Although doctors have the unfettered right to prescribe the best drugs or devices for their patients — including the right to prescribe approved drugs and devices for unapproved uses without FDA approval (13) — pharmaceutical and medical device manufacturers cannot promote their products for unapproved uses. This is true even if such use is supported in medical literature. This paradox incentivizes manufacturers to avoid the time and cost of obtaining approval for a new use by spreading the word on off-label new uses. That is to say, but for the FDCA, manufacturers could enjoy the benefit of drug or device sales arising from a new use without spending the time or money to obtain FDA approval. Accordingly, promoting off-label uses causes products to be misbranded in violation of the FDCA (14). Likewise, distribution of written or oral materials by or on behalf of a manufacturer describing an unapproved use of a drug or device is also prohibited as misbranding (15).

But that bright-line rule preventing off-label promotion has generated litigation that ultimately provided some relief to manufacturers. Specifically, the Washington Legal Foundation (WLF) challenged the distribution of off-label reprints and reference texts to doctors to support unapproved uses. The WLF’s suit challenged the constitutionality of FDA’s guidance documents relating to corporate support of continuing medical education (CME) and distribution of off-label reprints and reference texts (16). The district court held that the FDA’s policies were unconstitutional because the distribution of peer-reviewed reprints describing off-label uses and sponsorship of CME programs is “commercial speech” protected by the first amendment. The US Court of Appeals for the District of Columbia vacated the decision without reaching the first amendment issue. The WLF decision, however, provides a mechanism for the affirmative distribution of off-label reprints to doctors and has shielded CME programs from FDA enforcement. Should the FDA take enforcement action, it is likely to not rely on off-label distribution itself and, instead, to rely on conduct beyond the distribution of peer-review articles, such as sales representative behavior or poor article quality.

As a result, all reprints must be manufacturer-approved before use by sales representatives. The articles must present well-controlled and readily reproducible studies. This practice was clarified by the FDA’s Notice on Good Reprint Practices, issued in January 2009. That document authorizes the distribution of certain medical articles discussing off-label uses (17). The Good Reprint Practice guideline provides some clarity on the types of articles that can be distributed (peer-reviewed, discussing adequate and well-controlled investigations, not manufacturer-altered, with no suggestion of safety and efficacy for off-label use) as well as methods of distribution (by sales representatives without discussion, in settings appropriate for scientific exchange and also presenting contrary articles if such exist). In certain instances, manufacturers may provide scientifically valid reprints and technical monographs describing off-label uses in response to unsolicited requests by doctors and other healthcare practitioners.

Maneuvering within the FDCA’s restrictions is a challenge. Failure to comply with the FDCA can result in FDA notices of violations, warning letters, and other sanctions such as immediate cessation of use of all violative materials, “dear doctor” letters correcting any misconceptions, corrective advertising, and the requirement of preclearance approval. The FDA — through the Department of Justice and/or the OIG — has the power to enjoin manufacturers from promotional activities, seize all offending materials, impose fines, and ultimately file civil and criminal lawsuits against manufacturers for FDCA violations.

Other Laws

In addition to the FDCA, other statutes apply to the biopharmaceutical and medical device arena. Such regulations include the Health Information Portability and Accountability Act (“HIPAA”), the Medicaid Rebate Statute, the Foreign Corrupt Practice Act, the Prescription Drug Marketing Act, and US Securities Laws. And myriad state pharmaceutical compliance and disclosure laws and codes are applicable, including the PhRMA Code on Interactions with Health Care Professionals and the AdvaMed Code of Ethics on Interactions with Health Care Professionals.

Compliance Preparation

The US government maintains a powerful toolbox to combat fraud and abuse in the biopharmaceutical and medical device industries. The statutes and regulations at its disposal are broadly interpreted by the courts, providing a challenge to industry. Corporate compliance personnel need to understand those laws — especially the punishment inflicted upon violators — to properly emphasize the role of compliance. Failure to do so could result in consequences of magnitude for corporations and individuals.

In part 2 we review recent industry settlements and trends, then offer suggestions for creating robust compliance programs.

About the Author

Author Details
Corresponding author David Restaino, Esq. is a partner in the Princeton, NJ office of Fox Rothschild LLP; 1-609-895-6701; Leslie Gladstone Restaino, Esq. is general counsel of Validus Pharmaceuticals LLC.


1.) US Code. Title 42.

2.) US Code. Title 42.

3.) US Code. Title 42.

4.) US Code. Title 42.

5.) US Code. Title 42.

6.) US Code. Title 42.

7.) US Code. Title 31:3729-3733.


9.) US Code. Title 31:3730.








17.) Fed. Reg. 74.

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