By John W. Jones, Esq

Investigations of and settlements by pharmaceutical and medical device manufacturers with respect to their arrangements with physicians has led to increased transparency of these arrangements in the industry and heightened awareness over permissible consulting and marketing deals. Drug and devices industry associations have updated their codes on interactions with professionals and several manufacturers are making payments to physicians publicly available.  Although these are steps in the right directions, it is most important that the written consulting agreement between the parties be properly structured.  Physicians and manufacturers should be mindful of the laws and regulations and ethical tenets governing these any consulting arrangement. Anti-Kickback Statute The federal Anti-Kickback Statute proscribes the offering, payment, solicitation or receipt of any remuneration in exchange for a patient referral or referral of other business for which payment may be made by a Federal health care program, including Medicare and Medicaid. Violations of the Anti-Kickback Statute can result in significant criminal penalties, civil penalties of up to $50,000 for each violation, as well as imprisonment. The primary concern for physician relationships with pharmaceutical and medical device manufacturers under the Anti-Kickback Statute is whether the compensation paid to the consultant physician constitutes disguised remuneration for referrals. OIG has historically taken the position that fees for hollow consulting services could result in a violation of the Anti-Kickback Statute. The argument is that the transfer of anything of more than nominal value to a physician may induce the physician to recommend to his patients the purchasing or ordering of federal health care program-reimbursed items or services. Since physicians are in a position to generate business for manufacturers, any value transferred by a manufacturer to physicians with the expectation of a recommendation from such physician to such patients could present significant risk to the parties. Given the severity of the criminal and civil sanctions under the federal Anti-Kickback Statute, physicians need to carefully structure these arrangement and ensure that any such arrangements comply with applicable safe harbor regulations. Personal Services Safe Harbor For purposes of the federal Anti-Kickback Statute, under the personal services and management contracts safe harbor, remuneration would not include any payment made by a manufacturer to a physician as compensation for the services of the physician, provided all of the following requirements are satisfied:

• The consulting agreement is set out in writing, signed by the parties and is for a term of not less than one year.
• The consulting agreement must cover all of the services to be provided by the physician for the manufacturer for the term of the agreement and specify the services to be rendered.
• If the consulting agreement is intended to provide for services on a periodic, sporadic or part-time basis, rather than on a full-time basis, then the agreement must specify exactly the schedule of such intervals, their precise length, and the exact charge for such intervals.
• The aggregate compensation paid to the physician over the term of the consulting agreement must be set in advance, be consistent with fair market value in arms-length transactions and not be determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under federal health care programs.
• The services performed under the consulting agreement must not involve the promotion or counseling of an activity or business arrangement that violates any state or federal law.
• The aggregate services under the consulting agreement must not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services.

When entering into any services arrangement with a medical device manufacturer, physicians should also be mindful of the prohibitions concerning telemarketing of medical equipment and supplies. In March 2003, OIG issued a special fraud alert regarding telemarketing by DME suppliers, reminding suppliers of the general prohibition concerning unsolicited telephone calls to Medicare beneficiaries.  OIG indicated that suppliers cannot do indirectly what they could not do directly and, therefore, could not use independent marketing firms or other third parties, such as physicians, to make such solicitations. Physicians should review their consulting arrangements with suppliers to ensure compliance with these laws. Violation of the federal anti-solicitation provisions could result in denial of payment for any item furnished pursuant to an improper solicitation. Stark Generally, Stark prohibits a physician (or immediate family member) who has a financial relationship with an entity from making referrals to that entity for the furnishing of designated health services for which payment may be made under the federal health care programs, unless an exception or safe harbor is satisfied. Stark is often implicated in the pharmaceutical and medical device contexts because physicians (who have some form of financial relationship with the pharmaceutical and medical device manufacturers) are in a position to influence their patients’ purchasing decisions over federal health care program reimbursed designated health services. For example, physicians may enter into a consulting or other form of services arrangement with the manufacturers such as to provide educational or training services to the physicians’ patients, which could implicate Stark. Any services agreement with physicians for the provision of such services would have to satisfy the requirements of the personal services safe harbor under Stark (which requirements are similar but not the same as the requirements under the personal services and management contracts safe harbor of the federal Anti-Kickback Statute) in order to avoid any risk to physicians. Violations of Stark could result in denial of payment, civil penalties, disgorgement of reimbursements received and exclusion from federal health care program participation. False Claims Act The False Claims Act prohibits a physician from submitting or causing to submit a false or fraudulent claim for payment to the government. The False Claims Act could be implicated when claims for payment are submitted based on a false certification that the physician submitting the claim has complied with all applicable laws and regulations. Where claims are submitted pursuant to an otherwise illegal arrangement (for example, an arrangement that violates the federal Anti-Kickback Statute or Stark), it is considered a false claim. Sanctions for violating the False Claims Act include treble damages, fines and administrative penalties. Physicians also need to consider the ethical tenets and state medical board regulations applicable to their arrangements with manufacturers.  In addition, to comply with applicable safe harbor requirements, Physician consulting arrangements should be structured with the following guidelines in mind:

• Consulting arrangement should be for legitimate services and provide for fair market value compensation.
• Payments strictly for consulting services should be fee-for-service-based.
• Physicians should not, as part of any consulting arrangement, market a supplier’s product to the physicians’ federal health care program beneficiaries where payment for such marketing services to the physician is based on the volume of products sold or the success of such marketing efforts.
• Physicians should not receive payments or other gifts or inducements to meet with sales representatives (modest meals may be appropriate).
• Physicians should not enter into any arrangement with a supplier for the provision of incentives to federal health care program beneficiaries in order to induce to such beneficiaries to order the supplier’s products and services.
• The arrangement should not increase costs to the federal health care programs, result in overutilization or be an attempt to circumvent Medicaid Best Price rules.
• Physician consultants should be selected based on their qualifications and expertise not their ability to market products and refer business.
• The arrangement should not present patient safety issues or quality of care concerns.
• The arrangement should not interfere with or compromise clinical decision-making of the physician.
• The parties shall periodically revisit their consulting agreements to ensure compliance.

John W. Jones, Esq., is a partner in the Health Care Services Group at Pepper Hamilton LLP in Philadelphia, Pa.  For contact information, go to www.pepperlaw.com.