Underscoring the increased legislative focus on transparency in relationships between manufacturers and healthcare providers, Massachusetts became the latest state to enact a comprehensive law containing copious compliance and reporting requirements for medical device companies. California and Nevada also have enacted similar laws that already are in effect, and Massachusetts’ new law has followed on their heels. Signed by the governor on Aug. 10 and set to become operative at the start of 2009, the law contains a number of requirements that could present compliance challenges for orthopedic device companies.

    
In general, Governor Deval Patrick (D) signed into law new compliance requirements applicable to medical device and pharmaceutical manufacturers that participate in a Massachusetts healthcare program and employ a person to sell or market a drug or device in Massachusetts. In particular, the new law requires manufacturers to comply with a marketing code of conduct that will be developed by the state and subjects companies to reporting requirements pertaining to certain payments provided to certain healthcare providers.
 

Requirements of the Law

The law contains two basic requirements. First, companies must satisfy the requirements of a marketing code of conduct to be developed by the state. Second, companies must make certain disclosures to the state on an annual basis and adhere to certain training obligations relating to their employees.
 
Marketing Code of Conduct            
Orthopedic companies that participate in a Massachusetts healthcare program and employ a person to sell or market prescription drugs or medical devices in the state must comply with a marketing code of conduct that will be developed by the Massachusetts Department of Public Health. This code must be based on applicable legal standards and incorporate principles of healthcare, including requirements that the activities of the manufacturers be intended to benefit patients, enhance the practice of medicine and not interfere with the independent judgment of healthcare practitioners. The law provides that the code must be no less restrictive than the codes set forth by the Pharmaceutical Research and Manufacturers of America as well as the Advanced Medical Technology Association (AdvaMed). The Department of Public Health must update the marketing code of conduct at least every two years.
    
According to the law, the new code shall prohibit the following:
   
    • The provision of or payment for meals for healthcare practitioners when part of an entertainment or recreational event; are offered without an informational presentation; are offered outside of the practitioner’s office or hospital setting; or are provided to a practitioner’s guest or spouse

    • Any entertainment or recreational items of any value to any healthcare practitioner who is not a salaried employee

    • Sponsorship or payment for continuing medical education (CME) that does not meet ACCME Standards for Commercial Support

    • Financial support for the costs of travel, lodging or other personal expenses of non-faculty healthcare practitioners attending third-party educational or professional meetings

    • Funding to compensate for the time spent by healthcare practitioners participating in any CME event or third-party meeting

    • The provision of or payment for meals directly at a CME event or third-party meeting

    • Payments in cash or cash equivalents to healthcare practitioners, except for bona-fide services

    • Any payments in exchange for referrals
 
The law provides that the code should allow:

    • The provision, distribution, dissemination or receipt of peer-reviewed academic, scientific or clinical information and the purchase of advertising in peer-reviewed academic, scientific or clinical journals

    • Compensation for the substantial professional or consulting services of a healthcare practitioner in connection with a genuine research project or a clinical trial

    • Payment for reasonable expenses necessary for technical training on the use of a medical device if that expense is part of the vendor’s purchase contract for the device

Reporting and Training Obligations
In addition to adherence to the code of conduct, the law specifically requires manufacturers to provide regular code-of-conduct training to appropriate personnel. The Massachusetts law identifies sales and marketing personnel as among the “appropriate employees” that must receive this training mandated under the law. Further, companies subject to the law must:

    • Conduct annual audits to assess compliance with the marketing code of conduct
 
   • Adopt policies and procedures for investigating noncompliance with the marketing code of conduct

    • Adopt policies and procedures that describe how the company will investigate noncompliance reports and what corrective actions the company will take in response to noncompliance

    • Adopt policies and procedures that require the company to report instances of noncompliance to “appropriate state authorities”

In addition, the law requires manufacturers to identify a compliance officer responsible for “operating and monitoring” the Massachusetts marketing code of conduct.

Perhaps the most controversial requirement of the new law relates to the disclosure and reporting obligations of companies. Manufacturers annually must file by July 1 with the Department the following information: a description of the company’s code of conduct training program and investigation policies; the compliance  officer’s name, title, address, telephone number and e-mail address; and a certification  that the company has conducted its annual audit and is in compliance with the  marketing code of conduct.
   
In addition, manufacturers must report to the Department of Public Health the value, nature, purpose and recipient of any fee, payment, subsidy or other economic benefit of $50 or more that they provide, directly or through their agents, to certain healthcare providers and facilities authorized to prescribe, dispense or purchase prescription drugs or medical devices in the state. The disclosures must be made by July 1 of each year, with the first such disclosure due as soon as July 1, 2009, depending on the department’s implementation timeline for reporting.     
    
A few other states have a similar reporting requirement in place. Unlike other states that have treated such information as confidential or that allow manufacturers to designate certain information as confidential, all data disclosed to the Department will be made publicly available on the Department of Public Health’s Web site. The department will be held responsible for reporting to the Massachusetts Attorney General any payment, entertainment, meals, travel, honorarium, subscription, advance, services or anything of value provided in violation of the marketing code of conduct.

Implications of the Law

Because of the increased enforcement and legislative focus on the orthopedic device industry in the past year, it is likely that many manufacturers already have in place robust compliance programs, policies and procedures that are consistent with the AdvaMed Code. Therefore, they may not need to make significant changes to comply with the requirements of the new Massachusetts law.
   
That said, there are some areas on which companies may wish to focus particular internal evaluation, including the frequency of marketing activity audits and the nature of company policies and procedures with respect to external reporting of instances of noncompliance. Companies that have limited or prohibited certain practices only in particular states in response to specific legislation in those states may need to consider expanding such limitations or prohibitions to their Massachusetts activities.
   
In addition, all companies will need to carefully consider how to implement appropriate systems to ensure timely and accurate reporting with the state. Presumably, many orthopedic companies already will have some experience with this based on their programs in other states (such as California and Nevada) that also have reporting and disclosure laws. However, given the breadth of the Massachusetts reporting provisions, replicating this approach in Massachusetts to conform to the specifics of that state’s law might prove challenging.
   
Finally, companies should continue to monitor developments on both the state and federal legislative front with respect to laws imposing compliance and reporting obligations on medical device companies.

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 [email protected].