There's No Such Thing as a Free Lunch

Aug. 3, 2006
Pharmaceutical companies are facing increasingly intense scrutiny of their marketing and advertising practices, not only from federal agencies but state authorities as well.

The days when a pharmaceutical company could take a doctor out for a meal or give a holiday gift are quickly coming to an end as the regulatory environment for the pharmaceutical industry has entered a new phase at the state level. In an effort to curb suspect marketing practices, the federal government has increased the number of penalties being issued against pharma companies, the Food and Drug Administration (FDA) announced Prescription Drug Marketing Act (PDMA) sample inspections for this year, and the Drug Enforcement Administration (DEA) for controlled substances has increased monetary penalties against the industry.

Although drug makers are used to working in one of the most highly regulated industries in the country, they are now facing new challenges driven by state governments imposing individual regulations on pharmaceutical gift giving to doctors.

Setting the Scene

In an effort to pressure pharma companies into decreasing the overall cost of prescription drugs, states have latched onto the idea that if pharma companies would spend less on marketing and promotional activities to prescribers then the cost savings generated would result in lower drug prices. As a result of this thinking, states have rushed to pass legislation that regulates gift giving, promotional activities and direct marketing to doctors by pharma sales representatives.

Further complicating matters, pharma companies may eventually have to deal with the potential of having 50 different sets of rules and regulations for every individual state in the United States. These regulatory inconsistencies from state to state are forcing the industry to rethink its selling and marketing techniques, and begs the question, who will deal with the overwhelming amount of additional paperwork and data entry in order to remain compliant?

While there are many questions to the effectiveness of this approach, no matter what your viewpoint is on the issue, the reality of the situation is that pharma companies are facing a nightmare scenario where each governing body is asking these companies to comply in 50 different ways.

There are currently five states – Louisiana, Vermont, Maine, West Virginia and Minnesota – and the District of Columbia that have passed gift disclosure laws requiring pharma companies to provide detailed reporting on gifts, promotional and marketing costs, drug samples, food and entertainment, and trips and travel. Failure to report on these activities to the state can result in fines to the pharma companies of up to $10,000 per violation and, even worse for an industry under increasing scrutiny by the media, public disclosure about the violations. Minnesota actually has pending legislation that would increase the monetary penalty of violations up to $25,000.

California recently passed regulations asking for self-reporting from pharma companies and legislation entitled “Drug Company Gift Disclosure Act” has been submitted in the U.S. Congress.

The Domino Effect: States Moving Fast

The states are wasting no time cracking down on the pharma companies. When my division, BuzzeoPDMA, the compliance arm of Dendrite International, issued our first comprehensive report on the pending state legislation against gifting back in December 2005, there were 13 states considering gift disclosure bills. As you read this article today, there are now 24 other states, including New York, Illinois, Pennsylvania, and New Jersey, with disclosure legislation pending. There’s no telling at this point how many additional states will be joining the others.

Unfortunately for pharma companies, most of the pending legislation is based on Vermont’s which may be the most rigid in the nation. New York is even considering making the data publicly available; spelling out how much money in gifts and promotions each doctor receives from individual pharma companies. This rapid move by the states to legislate is unprecedented and moving so fast that it is difficult for pharma companies to keep track of all the different bills.

For example, in Vermont, West Virginia, Maine and the District of Columbia, advertising costs need to be included as a gift to doctors – including marketing and direct promotion costs such as radio and newspaper advertisements. However, in Minnesota and California, advertising as a gift is exempt from the disclosure / reporting requirements. It remains to be seen how states expect pharma companies to divide up the cost of advertising per doctor – but that is the clear implication of the legislation.

With this rapid movement by states comes a great urgency for pharmaceutical companies to be able to monitor and stay on top of the increasing state-based legislative and regulatory changes. Companies are not only looking to reduce the risks associated with noncompliance, but are also protecting their public image by dodging any and all penalties.

Another pressing issue for the pharma companies is drug sampling. Providing samples of prescription drugs to doctors are a tried and true method of familiarizing a doctor with a new drug and meeting patient’s medical needs. These samples are given free of charge and those savings are passed on to patients who can most benefit from there use. Most of the pending legislation, so far, exempts samples as a gift, but not the District of Columbia where it is included as a gift and needs to be reported as such. It remains to be seen how other states with pending legislation will define sampling programs.

Finding Answers and Taking Action

So how are the pharma companies dealing with the challenges of trying to define, follow and track existing and pending legislation? They are beginning to investigate ways of protecting themselves in order to be sure they are compliant in all 50 states.

One solution available to the market is Dendrite’s best practices approach that we believe will tackle state compliance issues that make sense for pharma companies to implement. The duo of “State Monitor” and “State Guardian” is able to cover every level of need to ensure companies will meet all requirements. “State Monitor” provides a centralized, on demand web-based tool that delivers 24-hour access to the most comprehensive state regulatory information on various topics in all 50 sates, allowing pharma management to make informed decisions while its counterpart “State Guardian,” Dendrite’s state reporting engine, identifies and reports required data, validates that data and provides state-level reports to meet state compliance requirements.

We believe this approach will successfully help pharma companies navigate through this extremely challenging environment. We also suggest the following six practices should be considered for full compliance:

  1. The ability to monitor and act on current and pending state specific regulations;

  2. The ability to identify the data requirements needed for state reporting and disclosure;

  3. The ability to integrate data from sales, marketing and advertising, accounting and finance and drug pricing;

  4. The ability to process and align the data by a single view of each practitioner;

  5. The ability to deliver state-level reports that meet the requirements of each state;

  6. The ability to proactively monitor and track compliance with current and future state requirements.

There is no doubt that new state regulations will make an impact on the pharmaceutical industry. Relationships with doctors, marketing techniques and reporting systems will all be forced to change, which is why immediate action is necessary to prevent the expensive fines, state investigations and onslaught of complicated paperwork before its too late.

The choice now lies in the hands of individual pharma companies to decide their “compliance path.” These regulatory changes are happening quickly and will be unforgiving to those who choose to sit back and delay the implementation process.

About the Author

Ron Buzzeo is chief regulatory officer at Dendrite International. He founded BuzzeoPDMA in 1991 and oversaw the company’s growth until its acquisition by Dendrite in 2005.Buzzeo is a former deputy director of the DEA’s Office of Diversion Control and treasurer of the International Narcotic Enforcement Officers Association.

About the Author

Ronald W. Buzzeo | R.Ph.