Increased Scrutiny of Off-Label Promotional Issues Possible
Sidley Austin LLP
The healthcare trade press, and even mainstream newspapers such as the Wall Street Journal, USA Today and the New York Times, have included stories about the off-label promotional risks faced by pharmaceutical companies. It is no secret that the healthcare enforcement environment has become increasingly aggressive as of late, with federal and state prosecutors investigating a number of pharmaceutical companies for marketing and sales tactics that, in the government’s view, involve the illegal off-label promotion of a drug. Typically, these inquiries are part of a larger investigation of a company’s sales and marketing activities that are directed at customers such as physicians, hospitals and managed care entities.
To date, the government has not focused heavily on off-label promotional activities in the medical device industry. However, as a result of recent statements made by influential prosecutors at industry conferences, and given the overall increased scrutiny of the device industry’s sales and marketing practices—as exemplified by recent settlements and enforcement activities directed at some of the country’s largest orthopedic manufacturers—it seems likely that it is only a matter of time before the government turns its attention to the medical device sector and begins focusing on the prevalence of off-label promotion in this arena. In fact, it is possible that such investigations already are underway and simply haven’t become public yet.
Increased Scrutiny Would Follow Other Trends
As this column discussed in the January/February issue of ODT, the government already has increased its scrutiny of the device industry’s activities from a fraud-and-abuse compliance perspective. The major focus has been on whether certain device companies’ sales and marketing practices are consistent with the Medicare and Medicaid Anti-Kickback Law. That law is a broad criminal prohibition against the knowing or willful offer, solicitation, payment or receipt of anything of value (directly or indirectly, overtly or covertly, in cash or in kind) that is intended to induce the purchase of an item that is reimbursable by any federal healthcare program, including Medicare and Medicaid.
Under the federal government’s interpretation of the statute, this law may be violated if only one purpose of an arrangement is to induce referrals, even if there are other legitimate purposes for which a payment may be made. Violations of this law constitute a felony punishable by a maximum fine of $25,000, imprisonment of up to five years, or both. The government or others may attempt to use an anti-kickback violation as the basis for a False Claims Act case. The Office of Inspector General also may initiate administrative proceedings to impose civil monetary penalties and to exclude violators from the federal healthcare programs.
Another powerful weapon that the government has in its arsenal is the False Claims Act. Most of the major healthcare fraud settlements that have been entered into over the years have resulted from actions that initially were brought under this law. The penalties for violating this law can be substantial. For example, the government is authorized to collect three times the actual damages it suffered as a result of the false claims, in addition to up to $11,000 per false claim submitted.
Although the anti-kickback law and the False Claims Act are the two major legal provisions that healthcare prosecutors have sought to invoke when bringing actions against medical device companies, a number of manufacturers do not realize that the government also can allege that the company is engaging in “off-label promotion” and argue that this amounts to a violation of one or both of these laws.
The Risks of Off-Label Promotion
In general, the FDA prohibits the marketing of a drug or device for any use that has not been approved as safe and effective by the agency. Although physicians generally are permitted to prescribe healthcare items and services for any reason they want, marketing an unapproved use is considered “off-label promotion” and would include, by way of example, using a device for a condition that is not indicated on the label.
The Food, Drug and Cosmetic Act specifically provides administrative and criminal sanctions for off-label promotion. In addition, the promotion of a device for off-label purposes can result in a warning or “cease and desist” letter from the FDA. Furthermore, in one federal court case, the court held that a manufacturer may be held liable under the False Claims Act for off-label promotion that causes the submission of false claims for government reimbursement.
In today’s aggressive enforcement environment, medical device companies face very real risks related to off-label promotion. As a result, companies need to make sure they have appropriate policies and procedures in place that will prevent or, at the very least, reduce the likelihood that sales representatives will engage in activities or interactions with customers that could be interpreted as involving off-label promotion. Furthermore, companies need to make certain they implement and monitor these policies. To that end, companies should consider developing and implementing appropriate compliance policies and procedures to ensure that:
• Sales representatives are appropriately educated about off-label promotional rules
• Sales representatives do not exclusively or primarily market products to physicians who are reasonably known to only or primarily prescribe those products for off-label indications
• Sales representatives do not develop and implement a marketing strategy based on increasing off-label use of the company’s products by its customers
• Sales representatives re-port any possibly inappropriate off-label promotional activities they may become aware of to the company’s compliance department
• A non-marketing and non-sales division of the company (perhaps in conjunction with the legal and/or compliance departments) has the ultimate responsibility for approving any off-label communications and making sure they are not misleading or untruthful, and otherwise are in compliance with the law
Although these measures, in and of themselves, will not guarantee that a company won’t be the target of an off-label promotional investigation, if they are combined with a robust corporate compliance program and internal auditing and training mechanism, they should go a long way toward reducing a company’s potential exposure.
Mark Langdon is an attorney with the Washington, DC office of the law firm Sidley Austin LLP. He is a nationally recognized expert on healthcare compliance issues, with a particular focus on fraud and abuse and reimbursement matters. Mark primarily represents device and pharmaceutical companies, hospitals and physicians. He can be reached at (202) 736-8162 or firstname.lastname@example.org.