Global Compliance: Domino Effect

In february, local news papers in the United Kingdom reported on disciplinary judgments made by the Association of the British Pharmaceutical Industry (ABPI) against four pharma manufacturers. The disciplinary actions consisted of public reprimands for three companies, and suspension from the association for at least six months for the fourth company.

These punishments were based on claims that the companies violated the association's code of conduct. The ABPI cited the companies for providing inappropriate hospitality for health professionals, distributing offensive leaflets that negatively portrayed a competitor's product, aggressive marketing practices, and misrepresentation of professional medical advice. The violations were severe enough that the ABPI decided to revise its code of conduct at the beginning of 2006 to be stricter and impose harsher consequences for inappropriate actions.

Around the world, individual countries, like Britain, have begun to institute voluntary conduct codes—especially in the areas of sales and marketing—to keep pharma companies in check. Other countries are updating existing voluntary codes. At the end of 2005, the Canadian Pharmaceutical Industry Association (Rx&D) implemented tighter rules for pharma companies. This move was made partly in response to one large multi-national pharmaceutical company who was accused of taking doctors to a conference on the French Riviera and on an educational trip to a luxury hotel in Jamaica.

Such actions indicate a growing readiness of industry standard-setters worldwide to review the integrity of pharma marketing practices. Keeping up with new standards will soon be one of growing companies' most important jobs.

New Area Codes

The Road to Improving Standards

In the past few years, perhaps as a result of relentless enforcement by US authorities, the Pharmaceutical Research and Manufacturers of America (PhRMA) and the European Federation of Pharmaceutical Industries and Associations (EFPIA) issued new or updated codes of conduct aimed at guiding some of the behavior criticized by prosecutors and investigative agencies. Smaller markets also have followed suit. Given that pharma companies have gone through the extraordinary effort of joining together in so many markets to issue codes of conduct, it is reasonable to expect a local government agency to use the code as a benchmark for behavior in that market—even if it is not a binding, legal requirement.

Intent and Purposes

At a glance, the various voluntary codes address issues such as discounts, grants, rebates, support for educational programs, and sample distribution. The codes strive to define the proper context for such activities and to address other practices, such as gift giving, hospitality, and entertainment, which have been criticized by government authorities because of the influence those offerings can wield over a physician's prescribing. The codes seek to limit these gifts and thereby eliminate the potential for abuse or the appearance of impropriety. For companies, the codes also can play a very real role in helping them understand and define the different interpretations of what are considered acceptable gifts around the world. It is vital to understand how local culture and customs could drive the perception of activities in relation to their modesty and reasonableness.

Companies should read individual associations' codes of conduct to determine each country's definition of "modest" or "reasonable" gifts. However, the problem is that some codes are less specific than others. Take the following example. In Greece, the code states that gifts of a "modest" value can be offered to healthcare professionals—and doesn't go on to provide further guidance. This can be misleading. The term "modest" can be interpreted to mean anything from giving gifts such as a pen to a weekend trip, depending on the individual provider.

Or consider honoraria payments. The European Union set standards calling for reasonable honoraria payments and asked each of the member countries to abide by them. But a doctor's compensation in Spain will differ from that of a doctor in England or Germany. So for EU countries seeking to apply a truly reasonable honorarium payment, they may consider not only the European guidelines, but also local market conditions—such as using a range of salaries specific to local doctors to determine a reasonable amount.

Code Conundrum

The voluntary codes of conduct in different countries pose a tremendous challenge to multi-national pharmaceutical companies that operate across borders. First, the voluntary codes of conduct impose another level of standards in addition to those otherwise applicable under local laws. In many cases, the codes add more defined parameters around sales and marketing activities. In others, they don't. However, it's still the company's responsibility to ensure it has the processes and controls in place to effectively address the obligations imposed by local standards and now, too, the voluntary codes.

More compelling is that both headquarters and local management will need to gain a full appreciation of all the standards (whether compulsory or voluntary) that apply in the markets in which the company operates. Also coming into play are cultural issues, history, and the competitive environment present in each locality. Such knowledge forms the basis for proper controls, and senior management needs to remember that the parameters on promotional practices vary among countries.

A Robust Compliance Structure

Any global or regional division will most likely be subject to the local restrictions when it deals with healthcare providers. Thus, the pharmaceutical company's headquarters, even if it is thousands of miles away, must provide the proper processes to ensure compliance with local standards.

However, managing compliance with such differing standards requires careful planning. In Brazil, for instance, there aren't any limits in the code of conduct regarding free samples if the recipient is qualified to prescribe. Other countries allow for the distribution of samples to physicians, but limit the permissible quantity. In the UK, for example, the ABPI industry code states that no more than 10 samples of a drug may be provided to an individual health professional during the course of the year.

The requirements become even stricter in Greece, for example, where the SFEE Hellenic Association of Pharmaceutical Companies has adopted a code that limits the distribution of any samples unless previously authorized by the National Drug Organization, Greece's regulating body.

To handle those issues, companies should put robust compliance structures in place throughout their organizations. That structure should be headed by a senior compliance team at the headquarters level, which should provide consistent direction on compliance activities, minimum standards, education, and communication strategies to local affiliates.

After considering what the company needs, this team must perform assessments of the actual practices in each market. In addition to establishing the internal standards or codes of conduct and having each country office customize them, global pharmaceutical companies must implement the policies.

Minimum Standards

An important emerging strategy is for company headquarters to issue minimum standards on specific promotional activities throughout all markets. These can be viewed as a floor, for they become the actionable standards in the absence of local guidance or where the local standard is less defined or ambiguous. In this way, it is increasingly common for companies to seek a level of comfort by adopting clearer standards and limits at the expense of taking a more restrictive stance than competitors. To adopt minimum standards, it is imperative that the company has at least a good awareness of the major markets as well as other particularities affecting the drug promotion. To deliver practical, on-point guidance, management must be informed of the regional variations and needs.

In addition, pharma companies should establish audit methods and programs to measure compliance with company policies, local laws, and codes. Audit issues can include donations to physicians' practices and their relationship to the business (e.g., volume of past sales and recipient of the donation). They also would include the brand planning process and the permissibility of objectives and tasks under company rules (e.g., off-label marketing and promotion through post-marketing studies). Other issues include how to approach discounts and other price concessions to customers, and promotional activities—such as contract sales organizations and distributors—for third parties.

By taking proactive steps to assess their operations and adopt clear policy positions, companies will be poised to succeed globally—without stepping into the confusing quagmire of violating country and voluntary codes associated with promotional practices.

Melissa Whitman, manager at Ernst & Young, contributed to this article.

Ted Acosta is the national leader of health sciences in the Fraud Investigation and Dispute Services (FIDS) at Ernst & Young. He can be reached at ted.acosta@ey.com