American Association for Clinical Chemistry
Better health through laboratory medicine
June 2009 Clinical Laboratory News: Ethics Code Changes for Diagnostics Manufacturers

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June 2009: Volume 35, Number 6

Ethics Code Changes for Diagnostics Manufacturers
Why Should Laboratorians Take Notice?
By Bill Malone

Who comes to mind when asked to give an example of an unethical person? With today’s headlines, you might not have to think for very long to come up with some extraordinary examples. We all have a fairly good idea of what being ethical means, based on our own experiences, values, and beliefs. But today, ethics has taken on new importance in all types of businesses, including healthcare. News media have relentlessly scrutinized the ties between pharmaceutical companies and physicians, leading to embarrassing revelations and Congressional investigations. Now ethics is being highlighted in the relationship between diagnostic manufacturers and clinical lab professionals.

Why now? In an effort to avoid negative attention on manufacturers in the medical devices industry, Advanced Medical Technology Association (AdvaMed), which counts many IVD companies as members, is rolling out a new code of ethics for industry that tackles the relationships between healthcare professionals and manufacturers. Effective July 1, the revised code seeks to head off demands from regulators while nurturing the unique role that laboratorians and other healthcare professionals play in developing and refining new technology.

“With an eye on the fact that several of its members have been involved in settlements with the government, AdvaMed is looking to retain that reputational edge that device companies currently have over other players in the healthcare continuum,” said Peter Claude, a partner with PricewaterhouseCoopers’ Global Pharmaceutical and Life Sciences Group. “This is a preventive treatment against further media and regulatory scrutiny and to help its members do the right thing. There is nothing worse than the spotlight on an industry that shows up in the front page of the Wall Street Journal.”

Under Pressure

While national media attention has focused mainly on kickbacks and conflicts of interest between physicians and pharmaceutical companies, legislators and other stakeholders are increasingly including medical device companies in discussions of reform. Diagnostic devices fall into the same general regulatory category as bed pans, hip joints, and cardiac stents: all are devices under Food and Drug Administration (FDA) regulations. Consequently, AdvaMed and other trade groups that represent device manufacturers represent this odd assortment of companies. While no major ethical breaches between lab directors and IVD companies have come to light, in today’s business environment, it’s not hard to imagine why AdvaMed wants to protect its constituent organizations.

The issue of ethics in the medical arena also has not escaped the eye of the Institute of Medicine (IOM). In a report published in April, the IOM sharply criticized the gifts, consulting arrangements, and education support offered by both pharmaceutical and device companies to physicians and other healthcare professionals. It recommended sweeping changes to industry practices, as well as government action. Congress should require pharmaceutical, biotechnology, and device firms to report through a public website any payments made to academic health centers, professional societies, physicians, researchers, and others involved in medicine, according to the report. It also calls on physicians to forgo gifts of any amount, and recommends that accredited continuing medical education be as free as possible from industry funding and influence.

Congress also wants to get in on the action. Senators Charles Grassley (R-Iowa) and Herb Kohl (D-Wisc.) are co-sponsoring legislation that would require manufacturers to report any kind of payments made to physicians over a cumulative value of $100. Department of Health and Human Services (HHS) would then post the information on a public website.

These efforts, as well as long-standing laws against kickbacks and other obviously illegal activities (See Box, below), are drawing slowly receding borders around the area where the medical device industry can regulate itself. Device companies are especially vulnerable when it comes to intellectual property and consulting arrangements with their customers, reflecting the intimate connection between companies and practitioners in developing new products, explained Claude. “In the medical device industry, much of the innovation comes from the practitioner—whether the practitioner has a great new idea, or a specific need they help the company commercialize. This is what industry wants to protect.”


New Code of Ethics Traces Federal Law

Behind the new AdvaMed code of ethics for IVD manufacturers and other device companies are laws that are designed to prevent fraud, abuse, and waste in Medicare, Medicaid, and other federal programs. The Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) investigates problematic practices by Medicare providers and suppliers, as well as drug and device manufacturers.

One of the primary laws enforced by OIG is the Anti-Kickback Statue, a felony statute that makes it unlawful for companies to bribe healthcare providers and other entities in exchange for referrals, recommendations, or the provision of products and services paid for by Medicare, Medicaid, and other federal programs. “If someone in a healthcare system is getting a kickback to recommend a particular type of diagnostic test that’s payable by Medicare or Medicaid, then both the payer of the kickback and the solicitor or receiver of the kickback are at risk,” explained Elizabeth Carder-Thompson, a partner with Reed Smith, the law firm that serves as outside legal counsel to AdvaMed and helped the association draft the new code of ethics. “The theory is that the payment and receipt of kickbacks or other remuneration could lead to overutilization or mis-utilization.”

Often used in conjunction with the Anti-Kickback Statue is the Civil False Claims Act that covers fraudulent claims for government funds. “For example, if a manufacturer pays a kickback to a lab to use their test, the government could allege that all the Medicare or Medicaid claims that resulted from this relationship become false,” said Carder-Thompson. “Here you’d have an application of both laws at the same time.”

The new code aims to steer healthcare providers and companies clear of running afoul of either of these laws. But a company’s compliance with the code will also reduce the likelihood that OIG will look upon the company with suspicions said Carder-Thompson.

“The bottom line is that every fruit basket is not a kickback. At the same time, if the government were to come in and look at a company that had not adopted the code, then the government might more readily assume that the company was not very concerned with compliance with the kickback statute and other laws.” For those companies which do adopt the code, Carder-Thompson sees a benefit for the company if one of its employees should somehow cross the line. “It will be much easier for a company that has been very compliant with the code to demonstrate that this was a rogue employee, someone off the reservation.”

So on the heels of the Pharmaceutical Research and Manufacturers of America (PhRMA) having revised its own code of ethics, AdvaMed decided not to wait any longer. But notable differences between the two codes point to the special way in which device companies depend on physicians and laboratorians to cultivate innovation and translate research into commercial products that benefit patients.

Parsing the New Code

Among other things, the new code will banish the pens, notepads, mugs and other giveaways branded with a company logo that are common at IVD conferences and trade shows. The same is true of lavish meals or any kind of recreation and entertainment offered to customers. But the effects on less trivial, and more intangible symbols of industry’s bond with laboratorians could be trickier to deal with.

One of the areas the new code expands upon is the consulting fees, royalties, and other financial deals between healthcare professionals and manufacturers. These can come into play when laboratorians evaluate a new instrument for a manufacturer, when a company works directly with a lab professional on developing a new product, or other types of consulting arrangements that might involve payment or royalties. “This can be viewed in two ways: who else would be better positioned to understand a new instrument or technology than a PhD in a complex lab? But there is also the idea of a close old-boy network between IVD companies and PhDs who are in a position to recommend what gets bought later on,” said Bruce Friedman, MD, a long-time lab industry observer and commentator, and active professor emeritus of pathology at the University of Michigan Medical School. “Some people might see this as too tight and too cozy of a relationship. But who better to evaluate these instruments than the people who will be using them?”

This is one of the dilemmas that the new code offers more details on, not just to make clear what’s inappropriate or unethical, but also to protect those elements of the interactions with companies that are so essential, explained Claude. “The way that the government is headed is to reduce or eliminate any financial relationships that could be perceived as being a conflict of interest, and that was starting to have a rollover effect into these royalty arrangements and other intellectual property arrangements. The enhanced AdvaMed code now recognizes that medical device and diagnostics companies have a specific need to keep that flow of innovation coming in and to be able to award the practitioner for that innovation. By codifying this, it helps to make sure that these practices can endure in the future by helping people understand how to better support them and to avoid concerns of kickbacks.”

The trickiest part of how the code treats consulting arrangements comes out of the requirement that compensation for consulting be ruled by fair market value. The idea is to avoid abuses where a healthcare professional gets paid for advice that’s essentially meaningless as a way to pay off or entice the person to use a company’s products. Companies may struggle with the documentation requirements that will need to prove how an arrangement is fair market value, according to Claude. There are few benchmarks for valuing intellectual property or expertise, and explaining or making a case for fair market value in this area will be difficult, he noted.

Aside from innovation and new products, laboratorians also team up with companies on advocating proper reimbursement for new tests. Here, both sides have something at stake, and ideally, so do patients. The list of permissible activities includes: identifying the clinical value of medical technologies; conducting joint advocacy on coverage and reimbursement; assisting healthcare professionals with obtaining patient coverage decisions from payors; and providing information on economically efficient use of medical technologies. What’s not allowed is for a company to interfere with a healthcare professional’s decision making or to offer coverage and reimbursement help that eliminates overhead or expenses. In other words, a company cannot provide so much free help that it constitutes a service that might be an inducement for the healthcare professional to prefer that company’s products. Just how much collaboration or information a company can provide before it’s inappropriate isn’t spelled out in detail.

“Provision of coverage, reimbursement, and health economics information is an area that companies are going to have to decide for themselves what’s the most appropriate way to handle,” said Andrew Van Haute, AdvaMed’s associate general counsel. “I think the very clean way to say it is: on one side there is providing accurate, objective information on reimbursement for your own company’s product with the goal of making sure the best product and the best technologies are available to people that need them. On the other side of that is putting one of your employees in a physician’s office whose job is to handle all the reimbursement for your company’s product that your doctor uses. That’s obviously inappropriate. In between that is where companies are going to land.”

It’s important that AdvaMed defend this element of collaboration between companies, stressed Claude, as the lab community always faces an uphill battle to make sure that tests get paid for. “The fact that the code permits, or one might even say encourages, collaboration between manufacturers and the stakeholders to achieve payor decisions that enhance access to the test is something that is very helpful.”

Similarly, though recommendations such as the recent IOM report seem to imply that educational events for healthcare professionals should be as free as possible from industry money, others make the case that if done properly, industry money can be essential. The new AdvaMed code does allow support of third-party educational events sponsored by professional associations or other entities, just so long as bona fide educational content takes priority and the third-party organization independently controls content.

Friedman thinks that the device industry and labs are paying the price for abuses by physicians and the pharmaceutical industry. “I’ve been in this industry a long time, and I just don’t see unethical behavior. I think lab people are industrious, not flamboyant, not looking for corporate handouts. It’s the nature of the industry. They are not extremely wealthy people going around flaunting their wealth. People are very dedicated to doing good work in the lab and serving patients with quality results.”

A New Way of Doing Business
AdvaMed Rolls Out Revised Code of Ethics

The revised AdvaMed (Advanced Medical Technology Association) Code of Ethics which goes into effect July 1 is intended to help IVD and other medical device companies avoid inappropriate activity in their relationships with healthcare professionals. The code further clarifies and distinguishes between appropriate and inappropriate activity between health care professionals and representatives of AdvaMed member companies, which include diagnostics manufacturers and medical device manufacturers. While not mandatory, companies are strongly encouraged to adopt the code and to implement an effective compliance program. AdvaMed will post on its website a list of companies that certify their adoption of the code. Non-member companies also have the opportunity to adopt the code, in order to better unite the industry in addressing common issues in a consistent manner.  Highlights of the revised code include:

Gifts and Entertainment
Giving gifts of any kind to healthcare professionals is prohibited. The new code expands this to include not just food, flowers, or cash, but even promotional items of minimal value such as pens, notebooks, and coffee mugs. The revised code also prohibits companies from paying for any kind of entertainment or recreational events for customers. Modest meals and refreshments are allowed if they are in connection with bona fide business, scientific, or educational meetings.

Consulting Arrangements and Royalties
Healthcare professionals are allowed to consult for manufacturers, including contracts for research, product development, marketing, and training. However, their compensation must be well documented, based on fair market value, and fulfill a legitimate need. Similarly, royalties paid to a healthcare professional must be for a truly novel or significant contribution to a product, and can’t be based on the healthcare professional’s recommending or purchasing a manufacturer’s product.

Reimbursement and Health Economics Information
Companies may provide information or collaborate with healthcare professionals to advocate reimbursement or coverage of a test. They can also help with coding and billing information and provide technical support. Companies are prohibited from doing this in a way that could interfere with a healthcare professional’s decision making, or to such a degree that they are reducing a provider’s overhead or other expenses.

Companies are encouraged to support third-party educational conferences sponsored by professional associations or other groups. Grants must be consistent with the conference sponsor’s standards, and the sponsor must independently control the content, faculty, and materials. Companies may also support meals and refreshments at educational events, as long as they are modest in value and subordinate to the bona fide educational content of the meeting.

A New Marketing Approach

Device manufacturers that adopt the new code will be publicly listed on AdvaMed’s website, meaning the company’s CEO and chief compliance officer sign off on a statement promising to abide by it. Yet industry should take this one step further, suggests Claude. Taking into account the hurdles inherent in securing reimbursement for lab tests, companies should use the revised code of ethics as an opportunity to rethink how they market devices in the first place. “Simply adjusting policy is not the way to ultimately get to the nirvana that comes from decisions that are purely based on medical merit and the needs of patients. Yes, it’s important to get your house in order, but we also think that the fundamental marketing of innovation is going to have to change. The value proposition of diagnostics is going to be more important in order to make a compelling case for reimbursement.”

The new code is just a first step toward redesigning sales and marketing approaches that emphasize cost-benefit and value for money from the payor perspective, Claude said. The point is not that IVD companies currently use shady or unethical means to sell products; rather, by providing greater transparency and supporting the relationships between industry and healthcare professionals, the code should point companies toward refocusing on the broader value of lab tests and their products in healthcare, not just impressing potential customers.

Van Haute agreed that the emphasis should be on maintaining and improving the collaboration between healthcare professionals and industry. “At the end of the day, both industry and healthcare professionals have the same goal, which is to ensure that every decision they make is in the best interest of the patient.” While not laid out in the code, laboratorians have a responsibility in this relationship too. “We recognize more and more that it really is a two-way street. Laws like the federal anti-kickback statute run both ways—a violation of that statue is a violation both by the company and by the healthcare professional. So the idea is that if both sides of the interaction are looking at it in the best possibly way, it really lowers the risk for both parties.”