The Road to Compliance
With Federal and State Regulators All Weighing in, OEMs Face a Path Increasingly Difficult to Navigate
There was a time in the medical device industry when compliance meant following the FDA's regulations to the letter. Device OEMs built their compliance programs largely around the requirements for product approval, a strategy that helped them meet regulatory obligations most times.
But in this age of the Sarbanes-Oxley Act, whistleblower suits and increasing fines and settlements stemming from fraud and abuse charges, device manufacturers are re-examining their compliance efforts and finding many holes in their programs. No longer is the FDA the sole watchdog; many other government agencies are joining the ranks, including the Office of the Inspector General (OIG) and state attorneys general. As federal regulators relax regulations in some areas, observers say, their counterparts on the state level are picking up the slack and becoming more emboldened to go after violators.
"States are more active in terms of enforcement, followed by the OIG and a distant third with the FDA," said James Ravitz, an attorney specializing in FDA and healthcare at Arent Fox PLLC, a Washington, D.C.-based law firm. "Fraud and abuse complaints no longer live in a box. The way these complaints and suits are playing out, there are multiple paths of action."
Ravitz, a columnist for MPO, said fraud and abuse prosecutions can be every bit as daunting as FDA compliance. In part, he noted, states themselves are enacting laws that may be used to prosecute non-compliant manufacturers. These come on top of federal guidelines that device manufacturers must observe.
Page from Pharma
According to industry observers, a heightened focus on non-compliance stems from many factors, but one reason for stepped up scrutiny has nothing to do with device manufacturing. Non-compliance among pharmaceutical companies, some say, has led regulators to view the device industry in the same light. They contend that pharma manufacturers have been the "low-hanging fruit" that have been the easiest for prosecutors to go after. But as they cull out violators in that industry, they now turn their sights on medical device manufacturers.
Blair Childs, vice president of strategy at AdvaMed, the medical device industry's largest trade association, said it's no surprise that enforcement officials are taking a closer look at OEMs.
"The OIG said for years it would turn its attention to the device industry, and it appears to be happening," he commented. "There is no question that the device industry is under incredible scrutiny."
In response to greater scrutiny, he said the association set out several years ago to revamp its code of ethics. It completed the revision in 1993 and made an amendment in 2004. In addition to the input of member companies, the revision also included feedback from the OIG, Childs said. He called the resulting work a comprehensive document that provides uniform standards to medical device manufacturers of all ilk.
"This code provides incredible guidance to the industry and it keeps them out of trouble and helps them to operate at the highest ethical level," Childs said, adding that an overwhelming percentage of members have adopted the code.
A Code Is No Shield
But having an industry code in place is no guarantee that investigators will stay away. The pharmaceutical industry has had a code in place for many years but it still came under intense scrutiny. And the heat it has been taking is now spreading to medical device manufacturers.
Paul LaViolette, the chief operating officer for Natick, MA-based Boston Scientific, heads up the AdvaMed committee overseeing the development of the code of ethics. He said that it's unfortunate that medical device manufacturers have been dragged into the pharmaceutical industry's troubles because the two businesses are significantly different in the ways they operate. Moreover, he added, physicians require greater communication from device manufacturers than from drug representatives.
"There are public pronouncements about increasing compliance. Personally I feel a lot of that has been driven by pharma," he said. "I think the device industry in many ways is distinct from the pharmaceutical business because of the close interactions we have with physicians."
LaViolette said part of AdvaMed's goal is to help companies navigate today's byzantine regulatory environment in addition to helping reassure customers, regulators and others outside the business that device manufacturers have a code to which they can abide. He noted that the organization will continue to examine ways to improve the code and communicate the ethics standards to companies outside the industry that have contact with medical device companies (see sidebar, p. 38).
Indeed repercussions from developments in the pharmaceutical industry have had an impact on the medical device industry. For instance, the fallout from the Vioxx scenario case has certainly led the FDA to place a greater emphasis on post-market surveillance. It remains to be seen how the agency will ultimately handle the current recalls of implantable defibrillators by Guidant-a case that some believe may parallel Merck's dilemma.
Fraud and Abuse
Perhaps no area has come under greater scrutiny than fraud and abuse, especially in light of recent developments. In March, the U. S. Attorney General's Office in Newark, NJ issued subpoenas to at least five orthopedic device manufacturers in an investigation of physician consulting practices. While the office declined to discuss its investigation, public companies that were subpoenaed disclosed that they were asked for documents relating to consulting agreements with physicians. While no further actions have been announced, the case is perhaps the most sweeping enforcement action taken against the industry in recent years.
In the same month, the OIG accepted its largest civil penalty settlement ever in a kickback case when it agreed to a $6 million fine from Tampa, FL-based PharMedica Drug System, which was accused of excessively paying for a Virginia pharmacy in exchange for the seller agreeing to refer all of its Medicaid and Medicare business to PharMedica.
Kevin McAnaney, a Washington attorney and former staff member with the OIG who now provides consulting work to healthcare companies, said the broad orthopedic investigation underscores the fine line that medical device companies must straddle as they compete with each other while remaining compliant to rules and regulations. He pointed out that because devices such as orthopedic implants require surgeons to work closely with manufacturers in the development of products and techniques, reimbursing them for their time is a necessity. However, companies must also be mindful that not all payments or reimbursements are acceptable, even when they are categorized as training expenses.
"People tend to lump a lot of activities under training," said McAnaney, who helped draft OIG guidance on kickback payments, safe harbor and other issue during his six-year tenure at the office.
Physician consulting agreements will continue to draw the attention of enforcement officials, but there are many other areas which companies fail to adequately address, he said. Among those include off-label promotions, product advertising, discounting practices and others. These are in addition to the everyday compliance issues device manufacturers face when dealing with the FDA.
Greater FDA Enforcement?
Of course complying with FDA requirements remains one of the most challenging tasks facing medical device manufacturers. While rules such as the Quality System Regulation (QSR) aren't new, a number of device manufacturers fail to properly comply with its mandates, and that's where companies can run afoul of FDA's compliance division. For instance, Tim Ulatowski, the head of the division at the Center for Devices and Radiological Health (CDRH), said earlier this year at a meeting that there may be an increasing trend of companies failing to comply with QSR regulations in their outsourcing practice, but he did not provide specific examples.
Arthur Levine, a partner with the law firm of Arnold and Porter in Washington and a former deputy general counsel at the FDA, said he has advised client companies to strengthen specific parts of their compliance programs relating to suppliers and raw materials. Specifically, he pointed out, clients often need guidance with Part 820.50 of Title 21, the section covering purchasing controls and suppliers. He said while he doesn't see a dramatic shift in FDA's enforcement strategy, nevertheless there may be more citings of companies.
"I suspect there may be an uptick in the warning area," he added.
Regardless of whether the FDA has taken a greater number of enforcement actions in the form of warning letters and 483 communication, some industry professionals say when companies are contacted, FDA usually means business. Violations are likely more serious if the agency issues a warning letter, compared with years ago when letters were sent out for lesser infractions.
According to Robert Dormer, a principal at the Washington law firm of Hyman, Phelps and McNamara, about half the warning letters issued are for medical device QSR non-conformance. Some are issued to investigators conducting clinical trials, and others are for failing to adhere to Investigational Device Exemption (IDE) regulations.
He noted that because the medical device industry is so diverse, familiarity with device regulations can vary drastically from company to company. As a result, the strength of compliance programs varies as well.
"There's so much variability to it in terms of the level of sophistication," he pointed out, adding that confusion over design control, change validation and other regulatory requirements can sometimes land a medical device manufacturer in hot water. "I think people tend to make little mistakes that sometimes end up to be big problems. I see very few instances where people intend to do something illegal, but there are those instances."
Dormer pointed out that in some cases companies aren't totally at fault when they fail to comply with specific rules. After all, the medical device market is a dynamic industry, and existing regulations might not cover new developments such as combination products, for instance. While the FDA periodically issues guidances, those documents aren't always clear on the agency's intentions. An example is its previous statements on complying with 21 CFR Part 11, the regulation covering electronic documentation.
States Join the Fray
Beyond federal regulators, though, state regulators are becoming more aggressive in their prosecution of violators. State attorneys general such as New York's Eliott Spitzer has emboldened his counterparts throughout the country to go after violators, even in cases that are usually within the domain of federal departments.
Ravitz noted that recent California legislation that went into effect broadly affected device manufacturers and pharmaceutical makers. The California Marketing Compliance Law, which went into effect July 1, required that any company selling into the state adopt a comprehensive compliance program meeting the pharmaceutical compliance guidance published by the U.S. Health and Human Services. The law was intended for drug companies but its definition also encompassed device manufacturers. It also required companies to publish their compliance program on their web sites.
Because just about every medical device manufacturer distributes in California, the legislation has the effect of being a national mandate. Ravitz said many of his clients recently sought his counsel to make sure they were in compliance with the law.
He noted that this is just one example of the states exerting greater control over an industry. "The is all part and parcel of a greater push for companies to comply," Ravitz added.
Whether the push is coming from the states, the FDA or the OIG, clearly medical device manufacturers are under greater pressure to establish bullet-proof compliance programs. While for many it is a daunting task indeed, they might not have a choice in today's environment of multi-million-dollar fines and settlements.