50 5 2005

Over the last three years, the federal government has increasingly regulated, investigated, and fined the pharmaceutical industry. Now, the states are taking their turn. Amidst rising state Medicaid costs, constituent concern over DTC advertising, and public scrutiny of industry motives, individual states are enacting their own legislation regulating industry behavior. However, while OIG guidelines focused on providing companies a broad ethical-operating framework, the states have enacted laws requiring more specific actions.

For pharma, the problem lies not with the act of complying with this or that particular law. Instead, the inconsistent standard of legislation across the states poses the greatest challenge to compliance for the industry. The state laws that have passed generally fall into one of four broad categories. (See "Looking at the Laws") But each state's requirements differ, with some calling for broad disclosures and others requiring detailed reporting of every promotional line item given to healthcare providers. Therefore, operational implementation of policies that respond to these compliance standards poses a considerable burden for companies in terms of time and expense, and is set to worsen unless the industry changes the way it responds to state laws.

Looking at the Law

In the past, companies would develop local responses when a state passed legislation regulating industry practices. When Minnesota created its law limiting gifts to healthcare providers in 1993, most pharma companies developed policies and training programs only for sales reps in that state. When Vermont enacted its marketing-cost disclosure law in 2002, companies again used a localized approach to frame their responses. Only in 2004, when California enacted its law requiring companies to establish a comprehensive compliance program that included an annual spend limit on healthcare professionals, did some firms begin to consider the impact of the new law on the overall business approach—as opposed to just the business in one particular state.

Today, six states have passed legislation regulating pharma's sales and marketing practices, and at least 23 other states have laws pending. (See "States that Regulate.") That's created a situation in which it is no longer efficient or effective for companies to tackle compliance on a state-by-state basis. Going forward, companies can be more strategic and better leverage internal resources by examining state laws from a national vantage point. In doing so, companies should develop systems that track all sales and marketing information across the country, so it can then segment out specific data according to a state's requirements. That approach offers several advantages:

• Allows companies to have sound strategies for data collection already established so that they can respond to new laws in a timely manner. This way, the operating infrastructure is in place no matter which states pass laws, and no matter what the requirements are for compliance to those laws.

• Avoids duplication of efforts in terms of setting up systems that collect and analyze data.

• Allows companies to more completely capture and monitor their sales and marketing spend, which not only allows them to better adhere to compliance legislation, but more effectively understand their sales and marketing spend.

Six states have passed legislation regulating pharma's sales and marketing practices; at least 23 others have laws pending. As a result, it is no longer effective for companies to tackle compliance on a state-by-state basis. Companies that examine state laws from a national vantage point will be at a strategic advantage.

Pharma companies can take five steps toward formulating a national approach to the varying operational requirements of state-level compliance. In doing so, companies can be proactive in developing their compliance infrastructure, and be better positioned to keep pace with the changing regulatory landscape.

1. Cross-Functional Teams

To comply with states' requirements, pharma companies must obtain data from a variety of internal departments and external providers. This includes capturing data not only from sales and marketing groups, but also from other operating departments, such as managed-market account managers, medical science liaisons, clinical medical groups, federal pricing departments, and vendors, such as advertising agencies and meeting-planning companies. As such, companies must retrieve data from a variety of sources, including call logs, T&E reports, promotional activities, like speaker programs and conventions, and contractual arrangements, such as investigator contracts and consultant agreements.

To most efficiently pull this information, companies should create cross-functional teams that include members from sales and marketing, finance, medical, managed markets, and strategic sourcing. Such teams are more easily able to locate the required types of spend and get sources of data more efficiently than requiring one department to determine this on their own. Companies will find that instituting cross-functional teams greatly enhances the speed of data collection while providing greater assurance that all areas of spending are identified.

2. Track Everything

In order to move from a state-level view to a national approach to compliance, companies must track and itemize all items of spending on healthcare providers to the most granular level of detail. This includes identifying what type of healthcare professional is the recipient of such spend (be they physicians, nurse practitioners, pharmacists, formulary committee members or medical students), and segmenting the items and activities of spending into mutually exclusive categories. It's important to remember that spending on healthcare professionals is not just limited to sales and marketing activities, but should also include other payments or items provided to licensed prescribers, such as investigator compensation or meals at clinical subject-recruitment meetings.

Then, companies must allocate each of these spend categories to an individual healthcare professional, which is usually done by tracking spending against an existing unique identifier for the physician. (Typically, firms opt to use the same ID number to record and track sales call data.) This should be done for all US prescribers and healthcare professionals—no matter what their state of licensure may be.

For instance, let's look at a typical promotional-speaking program where a physician is contracted to speak to a group of other providers. In this case, a pharma company will typically pay the speaker an honorarium at fair market value and reimburse them for travel. During the meeting, the speaker eats a modest meal alongside attendees.

In this scenario, firms should record each of these costs separately, as distinct data fields, such as "speaker honoraria," "speaker travel," and "speaker meal," and associate each of these costs with the speaker's unique ID number in their promotional-speaking program database or IT system. Similarly, the firm needs to record the attendees by their unique ID numbers and attribute the amount of their meals into a data category, such as "program attendee meals."

Companies should conduct this type of detailed tracking for all activities in which they provide value to healthcare professionals. This way, regardless of any state's required permutations of disclosure, companies will be ready to report, track, or disclose any spending that a state may require.

3. Short-Term Policies, Long-Term Strategies

For pharma, the backbone to state-level compliance is robust reporting systems. But building new or enhancing existing infrastructure often requires substantial amounts of time and investment. Companies often must make do with existing technology and rely on developing new policies to safeguard against compliance issues, as they look more long-term to improve their technology capabilities.

For instance, systems may not be in place to trace actual gift spending to a specific physician. As a result, in the short-term, companies may find themselves developing a corporate policy that limits frequency and types of gifts in lieu of recording and tracking all gifts to all physicians. However, over time, that dynamic will switch to a greater reliance on leveraging technology to track actual expenses.

To see where they are on that path, companies must first conduct a technology gap-assessment of their existing infrastructure for capturing the required data. For instance, using the prior example of a promotional speaking program, a company should ask questions such as if it has a technology system in place capable of tracking attendees by their unique ID numbers. After completing this, companies will then be able to identify in which areas to develop new policies in the short-term and know which systems will need to be developed or further enhanced over time.

As companies develop these IT systems, executives will be better able to address reporting shortfalls. Eventually, the new systems can be created and integrated with third-party vendors, greatly improving the accuracy of per-physician reporting.

4. Communicate and Train

Companies must develop new policies and pathways that address the organizational response to new state laws. However, it is often more difficult for companies to enforce their policies. Therefore, executives should consider the following steps to communicate with and train employees on their new protocols:

• Dispatch general communication—through an Intranet or newsletter—to inform the entire organization, explaining the new state laws and their impact on the organization.

• After informing employees, educate them on new policies and organizational changes using either online or live modules.

• Update vendor contracts to include required data reporting and the desired format of the data. For instance, ad agencies will need to breakdown national DTC spending on a per state basis, and medical education and communication companies will need to capture and record spending to specific attendees.

• Conduct state-specific training for employees in affected states, describing the specific requirements and definitions used in the applicable law. Training programs can be rolled out in live or e-learning-based modules.

Executives should record and document their communication and training efforts to gain credit for implementing two of the OIG's seven elements of effective compliance programs—namely, education and training and lines of communication—as well as the requirement for attestation in California. (See "Fair Market Value," September supplement to Pharm Exec)

5. Audit Against Adherence

Management guru Peter Drucker once said, "If you can't measure it, you can't manage it." But when it comes to state-level compliance, who should do the measuring?

Some companies are proposing a new operating group whose operational responsibility will be to manage, monitor, and report state-law compliance. Others are expanding the responsibilities of existing operational groups, such as business services, business analysis, public affairs, or finance. In any case, the group responsible for ensuring state-level compliance should be unique from legal or compliance, which should focus on interpreting and setting policies around these laws, respectively.

In order to ensure compliance, companies will need to audit against new operational policies. Companies must ensure that the auditors understand the compliance concerns and operational processes involved with the various state laws. This will involve auditing third-party vendors, internal sales staff, and contract sales organizations, as well as marketing activities such as promotional speaking programs and conventions.

Here to Stay

Operations and compliance departments are likely to continue to face burdens as pending legislation develops into new law. And the six states with existing laws are still moving targets—they may decide to expand or revise their requirements in the future. But companies that set up a holistic national plan to address state-law compliance will be better positioned to respond to any new regulatory requirement.

In addition to internal compliance and operational efforts, industry should consider lobbying for a common standard of legislation, to preempt further disparity in reporting requirements. Similarly, industry could look to develop a common standard of data exchange with vendors, to improve compliance with state laws. This combination of internal operational enhancements and external industry-wide efforts will best prepare companies for responding to existing and pending state laws.

Jonathan Wilkenfeld is a senior manager and Judith Braun-Davis is a compliance specialist at Polaris Management Partners. They can be reached at jwilkenfeld@polarismanagement.com and jbraundavis@polarismanagement.com respectively.