david lerner and cindy nguyen | pharmaceutical compliance monitor | 1 august 2016
This article appeared in Pharmaceutical Compliance Monitor.
Citizens.org recently published a report on the trends in fines and settlements in the pharmaceutical industry and the most striking finding is the overall reduction in fines in the years 2014 and 2015. Financial penalties declined sharply since 2013. According to the research, “Just $2.4 billion in federal financial penalties were recovered in the most recent two-year period (2014-2015), less than one-third of the $8.7 billion in federal penalties in 2012-2013 and the lowest two-year total since 2004-2005.” While the authors don’t delve into the potential causes of that reduction, nor the potential impacts to the industry, the data is a positive indication that the industry is changing. Although it is premature to draw any long term conclusions from this current data, the future looks cautiously optimistic for continued change within the compliance culture within the pharmaceutical industry.
There are a number of factors that are contributing to the reduction of fines and whether or not the industry will be able to sustain this positive momentum in the future. But, before the analysis is presented, there are a few important limitations that should be pointed out.
First, fines alone are not representative of the “compliance health” of the industry. Other actions such as observations, warning letters, consent decrees and injunctions, publicly-disclosed investigations, and corporate integrity agreements could also be used as indicators of the level of compliance of specific companies, functions within specific companies (e.g. R&D, Manufacturing, Marketing and Sales) and the overall compliance health of the industry.
Second, the data collected on fines include both civil and criminal settlements. According to the industry group PhRMA, “the report aggregates all settlements involving the pharmaceutical industry, with little regard as to whether the companies actually broke the law. Civil settlements rarely resolve the question of guilt. Yet the report glosses over its own finding that 88% of the settlements reported were civil, not criminal.”
Finally, the fines data only considers U.S. data and not actions or implications of international compliance issues. Against that backdrop, below is a look at the strongest factors that are impacting the level of fines within the pharmaceutical industry.
Decrease in fines and settlements are expected
The report showed a sharp decline in fines in 2014-2015 after a consistent increase in the previous six years, which could be expected due to the cyclic nature of compliance enforcement. Fines typically cover a number of years of transgressions. Therefore, the fines and settlements prior to 2013 would have cleared out past issues. As an example, recently Pfizer agreed to pay $784.6 million to settle a False Claims Act allegations for overcharges to Medicaid that occurred when Protonix was part of Wyeth in the early 2000’s. Transgressions would have to continue to accumulate (in addition to the time for investigation and prosecutions) before further actions can be expected. The prosecutors know this, and as a result they will naturally focus their attention on other areas and return to these topics if warranted.
The potential to slip backward is high but can be addressed by companies working diligently to prevent another spike in legal actions, not only to avoid future fines and other criminal and civil actions, but to avoid reputational risk.
Legal actions are resulting in changed enforcement priorities
Since 2011, legal action has been taken around promotion and off-label marketing with regard to protected free speech. While unlawful promotion is only one type of violation, as a result of these legal actions the FDA has been forced to curtail its enforcement activities in this area. The issue is of such great importance that Janet Woodcock, Director of the Center for Drug Evaluation and Research (CDER), has identified the need to “re-evaluate our regulation of drug advertising and promotion in light of current jurisprudence around the 1st Amendment” as a top priority in 2016.
The following three court cases have clarified the extent to which truthful and non-misleading discussion of off-label indications is protected first amendment free speech:
Sorrell v. IMS Health, Inc., (June 2011, US Supreme Court) in which the U.S. Supreme Court struck down a Vermont law that limited use of prescription records without permission from individual providers based on first amendment principles.
S. v. Caronia, (December 2012, US v. Caronia) in which the Second Circuit overturned the conviction of a pharmaceutical sales representative for off-label promotion ruling that “the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug.”
Amarin v. U.S. Food and Drug Administration, (August 2015, Amarin v FDA) in which the Second Circuit court ruled that Amarin may engage in “truthful and non-misleading speech” promoting the off-label use of Vascepa.
Ultimately, these rulings will result in fewer fines in the future for off-label marketing, at least when compared to the 2007-2013 data. Going forward, companies need to watch how the FDA re-evaluates drug advertisement and off-label promotion, since enforcement effort will likely increase once the FDA has issued its new guidance.
Financial penalties are changing compliance behaviors
The authors argue that these fines are insufficient to shift behaviors and mindsets. Moreover, companies may consider the fines as “cost of doing business” especially since the financial penalties amount to only 5% of the $711 billion net profits made by the 11 largest global drug companies over a 10-year period. These are valid points, but as a result of enforcement by the DOJ and FDA companies have implemented programs to enhance their internal compliance processes and practices. As these programs are becoming embedded into corporate DNA, pharmaceutical companies are realizing the value of strong compliance programs through reduced fines and sanctions (e.g. Corporate Integrity Agreements). Additionally, as enforcement actions against individuals have become more prevalent, the threat of imprisonment and personal exposure are motivating executives and senior management to endorse compliance programs.
There are a number of risk-mitigating trends contributing to the reduction of fines, including the following:
Robust education: Companies are placing greater focus on enhancing compliance training and awareness programs to ensure employees and external customers/partners (e.g. healthcare professionals, third party vendors, patients) are knowledgeable of corporate integrity and compliance policies and procedures and are equipped to “do the right thing.”
Integration of technology: Integration of compliance systems with company Finance and Enterprise Resource Planning systems provides transparency of transactions and payments to HCPs and allows for greater financial controls and monitoring. Such integration also enables streamlining of compliance processes for analytics, reporting and business intelligence based on improved data integrity such as accuracy, consistency and completeness.
Re-engineering processes: Internal processes are being overhauled and re-designed with internal controls to curb compliance violations. Examples include changing sales incentives to limit rewards (and even penalize) for off-label prescriptions, requiring more detailed capture of sales interactions with customers into the customer relationship management (CRM) systems, and implementing mechanisms where violations can be reported to management.
Increased transparency reporting: Payment disclosure requirements in the U.S. and similar global legislation and codes have compelled companies to re-evaluate the nature of their financial relationships with customers, so as to minimize risks of (and even perception of) undue influence, bribery and/or corruption.
Compliance risk assessments: The complexity and depth of compliance risk assessments are evolving and companies are conducting assessments at a global, regional and local levels to mitigate risk exposure across all levels of the organization. Risk assessments are only as effective as the subsequent risk response. Therefore, companies are coupling risk assessments with clearly defined disciplinary guidelines, escalation processes, open communications and corrective/mitigation actions.
Reorganization of compliance functions and risk committees: Compliance functions are restructuring to ensure coordinated governance and oversight at the global, regional and local levels of companies. These levels of oversight are critical for multi-national companies that are subject to local legislation and cross-border transactions. Companies are also establishing Compliance Champion Networks or “user communities” to facilitate compliance at the local level and align to global policies especially in higher risk markets where cultural ways of doing business conflict with acceptable standards.
Positive compliance culture: Beyond the fundamental elements of a compliance program (e.g. the policies, procedures etc.), companies are actively shaping their internal vision and commitment to compliance. While the culture can take various forms ranging from rules-based to values-based, companies are looking to foster cultures that embrace consistent messaging and behaviors, accountability at all levels and proactivity.
A look ahead: what should companies do?
Pharmaceutical companies should remain focused on the following areas to ensure this positive trend continues into the future:
Tracking compliance performance and processes and address any issues as they arise in order to prevent reverting back into previous ways of working.
Taking a firm stance demonstrating commitment to adhering to regulations including active management of whistleblower programs and self-reporting violations.
Understanding the nuances and distinctions of the regulations that directly affect them versus healthcare practitioners (who may not be subject to the same regulations as is in the case of off-label promotion and off-label drug use), payers and patients.
Actively scanning for emerging regulations and compliance issues outside of the current enforcement focus.
Building an overall strategic and longer term vision for compliance and evolving the organization’s culture to enhance compliance efforts.
The bottom line is that the clarity in policies and improvements in processes and systems should bring about real change in the compliance culture and result in long term reduction in fines. But the degree of success will require sustained diligence in proactively managing compliance risks and educating employees, to avoid sliding back into suspect behaviors.
David Lerner and Cindy Nguyen are life sciences experts.