Life Science Compliance Update

May 22, 2017

California Senate Passes Ban on "Gifts" to Physicians


Late last week, California passed legislation in the state senate that restricts pharmaceutical companies from giving gifts and incentives to medical professionals. The legislation restricts pharmaceutical companies from providing flights, travel, speaking fees, entertainment, consulting payments, or other financial benefits to healthcare providers.

The sponsor of the bill, Senator Mike McGuire, stated, “I’ll be the first to say that the vast majority of physicians and medical professionals put the needs of their patients first. There’s a reason why doctors answer the call to practice medicine – to help people in their time of need. But growing evidence reveals that financial relationships between some physicians and pharmaceutical companies confirm what has been suspected – financial incentives change minds.”

According to Senator McGuire, data shows that in 2014 California physicians received the highest number of gifts and payments from pharmaceutical companies of any state.

“The facts are clear. Current voluntary efforts are not enough. California physicians and medical professionals lead the nation in the number of gifts taken, over $1.4 billion in 2014.  SB 790 will curb financial payments, gifts and incentives to medical professionals and help drive down the skyrocketing costs of prescription drugs for millions in California.”

Senator Ted Gaines, an opponent of the bill, believes its passage will affect patients, noting that, “Successful products provide the funding for the research, for cures. Why would we do anything to diminish the ability of pharma companies to be successful in providing these new products?”

Senate Minority leader Patricia Gates, also pointed out that gifts from pharmaceutical companies to doctors are already regulated. She also believes that doctors may now be deterred from participating in clinical trials and limit Californians’ access to experimental drugs.

As drafted, this bill looks like it would only apply to drug manufacturers and prescribed medications, not device manufacturers and any products that have a medical device as part of the combination. Interestingly, it also included a provision toward the end that says if the Sunshine Act is repealed, the state would enact a similar provision to disclose payments.

The Bill is drafted as a hybrid between VT’s and MN’s gift ban law. It explains what allowable expenditures are, and then carves out certain exceptions from the “gift” definition (e.g., samples, reprints, scholarships, rebates, etc.)

Under the legislation as currently drafted, “Gift” means either of the following:

(1) Anything of value provided for free to a health care provider.

(2) A payment, food, entertainment, travel, subscription, advance, service, or anything else of value provided to a health care provider, unless it is an allowable expenditure as defined in subdivision (a) or the health care provider reimburses the cost at fair market value.

For example, companies are permitted to pay for meals for doctors as long as the costs are below $250 per year per individual doctor and educational events but not all education.

They did give some allowable expenditures including:

Payment by a manufacturer of a prescribed product to the sponsor of a significant educational, medical, scientific, or policymaking conference or seminar, provided that all of the following conditions are satisfied:

(A) The payment is not made directly to a health care professional or pharmacist.

(B) Funding is used solely for bona fide educational purposes, except that the sponsor may, in the sponsor’s discretion, apply some or all of the funding to provide meals and other food for all conference participants.

(C) All program content is objective, free from industry control, and does not promote specific products.

(2) Honoraria and payment of the expenses of a health care professional who serves on the faculty at a bona fide educational, medical, scientific, or policymaking conference or seminar, provided that all of the following conditions are satisfied:

(A) The honoraria or payment is governed by an explicit contract with specific deliverables which are restricted to medical issues, not marketing activities.

(B) Consistent with federal law, the content of the presentation, including slides and written materials, is determined by the health care professional.

(3) For a bona fide clinical trial, the annual direct salary support for principal investigators and other health care professionals.

(4) For a research project that constitutes a systematic investigation, is designed to develop or contribute to general knowledge, and reasonably can be considered to be of significant interest or value to scientists or health care professionals working in the particular field of inquiry, all of the following:

(A) Gross compensation.

(B) Direct salary support per health care professional.

(C) Expenses paid on behalf of each health care professional.

Royalties and licensing fees paid to health care providers in return for contractual rights to use or purchase a patented or otherwise legally recognized discovery for which the health care provider holds an ownership right.

 The payment of reasonable expenses of an individual related to the interview of the individual by a manufacturer of prescribed products in connection with a bona fide employment opportunity or for health care services on behalf of an employee of the manufacturer.

Provision of meals for a health care provider that do not exceed two hundred fifty dollars ($250) per person, per year in value.

(5) Voluntary provision of care

 The bill, passed by a 23-13 vote, now heads to the California Assembly and if it passes there, then it heads to the governor’s desk for a signature.    This bill could put a huge chill on the biotech industry in California.  With little to no evidence that payments for services or meals lead to more prescribing the myth of "gifts" is still promoted throughout legislatures.

The Financial Risk of Waiting – 340B, Duplicate Discounts and Diversion


The purpose of this article is to give manufacturers some initial background on the topics and some tools that could be considered.The review methodology described has been proven to help manufacturers and has been the starting point for developing an on-going monitoring.

Over the last few years, the 340B Program has experienced rapid expansion as the result of participation by new covered entities under the Affordable Care Act (“ACA”) and from covered entities contracting with multiple contract pharmacies. As it has grown, the 340B Program has come under significant scrutiny from the Government Accountability Office (“GAO”), the U.S. Department of Health and Human Services (“HHS”), and Congress, primarily to address what is perceived as an inadequate level of oversight by the Health Resources and Services Administration (“HRSA”) as well as a lack of specificity around the program’s requirements. HRSA was attempting to issue final regulations around the program but even those were frozen earlier this year with the Trump adminstrations regulatory freeze.

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May 19, 2017

Medicare Cuts in the Future of HACRP Hospitals


As has been noted, CMS named 769 hospitals that will face Medicare payment cuts in fiscal year (FY) 2017 under the Hospital-Acquired Condition Reduction Program (HACRP), which for the first time considered rates of infection from antibiotic-resistant bacteria in its calculations. The HAC Reduction Program requires the Secretary of the Department of Health and Human Services to adjust payments to applicable hospitals that rank in the worst-performing quartile of all subsection (d) hospitals with respect to risk-adjusted HAC quality measures. These hospitals will have their payments reduced to 99 percent of what would otherwise have been paid for such discharges. In the FY 2017, HAC Reduction Program, hospitals with a Total HAC Score greater than 6.5700 are subject to a payment reduction.


From Modern Healthcare: “Our goal is for all hospitals to improve,” and roughly half did improve enough to escape the bottom quartile, said Dr. Patrick Conway, the CMS' deputy administrator and chief medical officer. Federal data on quality measures released earlier this month by the Agency for Healthcare Research and Quality also showed that between 2010 and 2013, progress was made in reducing patient harm and preventing avoidable deaths, he said.


The Advisory Board collected reaction from stakeholders. Some noted that hospitals cannot fully control antibiotic-resistant infections that occur in their facilities. Louise Dembry, a professor at the Yale School of Medicine and president of the Society for Healthcare Epidemiology of America, said, "The reality is we don't know how to prevent all these infections."

Moreover, some critics take issue with the way HACRP assesses penalties. Because the program penalizes the 25 percent of hospitals that perform worst overall, in some cases a hospital is penalized even though it has reduced its rate of avoidable complications. Nancy Foster, vice president for quality and patient safety at the American Hospital Association, said, "The HAC penalty payment program is regarded as rather arbitrary, so other than people getting upset when they incur a penalty, it is not in and of itself changing behavior"

Example from Emory

Three Emory-affiliated hospitals were fined for high rates of hospital-acquired conditions for fiscal year 2017. Emory University Hospital Midtown (EUHM) is being fined for the third consecutive fiscal year, and Emory Johns Creek Hospital (EJCH) for the second consecutive fiscal year. Emory University Hospital (EUH) is being fined for a second fiscal year, the first instance occurring in 2015.

But Emory’s response is worth considering. Director of Media Relations of Emory Healthcare Janet Christenbury wrote in a statement that the ratings inaccurately compared hospitals because they are “based on methodologies that often do not sufficiently take into account the differences in patient populations and the complexity of conditions that certain hospitals treat.”

Teaching hospitals, such as Emory’s Midtown facility, are unique because they conduct various common and complex procedures and provide clinical education and training to current and future medical providers, Christenbury said. Consequently, there is more data to report to CMS in comparison to other facilities that treat patients with limited specializations or more common conditions, Christenbury added.


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