The updated Code, effective January 1, 2020, and last updated in 2009, addresses the evolving regulatory risk landscape vis-à-vis manufacturers’ interactions with the modern medical technology marketplace. To that end, a select committee of AdvaMed members, with Reed Smith’s assistance, worked to revise the Code to incorporate learning from the last decade, and to provide guidance on common, but not previously addressed, interactions and arrangements between medical technology companies and HCPs (which include practically all manufacturer customers, and sales and marketing targets). New Code sections include the following:
- Joint Education and Marketing Programs
- Communications about Safe & Effective Use of Products
- Consigned Products
- Company Representatives providing Technical Support in the Clinical Setting
The last 10 years show that investigative and enforcement entities – especially the federal Health and Human Services Office of Inspector General (OIG) and Department of Justice (DOJ) – consider the AdvaMed Code the baseline standard of acceptable marketplace behavior. In our experience, a successfully defended corporate compliance program always includes written standards of conduct that incorporate AdvaMed Code guidance.
That said, as AdvaMed Code-based corporate compliance programs have become commonplace in the industry, the risk window continues to shift. The DOJ and OIG now expect more than written standards of conduct and complex document-intensive compliance operations; they expect a company’s compliance program to evolve to meet its evolving risks. The DOJ and OIG will not hesitate to reject a “paper tiger” compliance program that fails to address and mitigate a company’s true compliance risks. Companies are therefore best served by having compliance programs that demonstrate efficient integration with business operations to detect and prevent misbehavior before it arises and that show facility with business systems and operations.
The AdvaMed Code revisions reflect the maturation of an evolving medical device marketplace. This is an opportune time for companies to assess the efficiency and efficacy of their compliance program’s implementation maturity through business process analysis and systematic forensic interrogation of compliance program standards and outputs (a service Reed Smith provides to its clients). People, process, and technology should align to drive insight and value to the business, and to provably manage organizational risk real-time.
The remainder of this client alert summarizes the new and updated concepts and clarifications introduced in the updated Code, and discusses implications of the same for medical technology manufacturers.
New sections and concepts
The updated AdvaMed Code discusses interactions and issues not previously addressed, despite being increasingly common in the modern medical technology marketplace. The Code revisions reflect AdvaMed members’ collective risk management approach and, as with the original Code, should be considered the benchmark with respect to these activities and arrangements.
Joint education and marketing programs
The updated AdvaMed Code includes a new section titled “Jointly Conducted Education and Marketing Programs” to address co-marketing programs. These are partnerships between companies and HCPs to coordinate efforts on joint education and marketing, particularly to highlight both a company’s products and the HCP’s expertise regarding the use of such products. These programs, and specifically the allocation of business risk and benefit between the co-marketing partners, implicate the Anti-Kickback Statute (AKS) and other fraud and abuse standards, and have been the subject of multiple investigative and enforcement actions over the past decade. They also can be beneficial, and so the updated AdvaMed Code offers the following key risk management principles with respect to these programs:
- Companies must have a bona fide, legitimate need for engaging in these activities, i.e., a program must offer educational or marketing benefits to the company;
- Programs must be balanced and promote both the company and its products, as well as the HCP’s services as they relate to relevant medical conditions; and
- The company and the HCP should be bona fide partners, and contributions and costs related to these programs should be shared fairly and equally between the parties.
Compliance programs should be examined to test whether program outputs demonstrate consistent adherence to these principles.
Communications about safe and effective use of products
This section addresses recent Food and Drug Administration (FDA) enforcement actions and guidelines related to truthful and non-misleading information about a company’s products, and specifically off-label communications.
The updated AdvaMed Code includes the following principles related to communicating about medical and scientific information:
- Company responses that contain information regarding unapproved or uncleared uses should be provided by authorized personnel;
- Communications must be truthful and non-misleading; and
- Information regarding unapproved or uncleared uses should be identified as such.
The updated Code further encourages companies to develop policies and controls consistent with the above principles and the requirements of other applicable guidance, including FDA guidance.
Demonstration, evaluation, and consigned products
The federal Sunshine Act, which imposes HCP-payment transparency-reporting requirements on medical device manufacturers, was passed since AdvaMed last revised the Code. Consequently the updated Code expands prior guidance on evaluation and demonstration products to address transparency-reporting requirements that may apply to such arrangements. The updated Code includes details about factors to consider when determining an appropriate length of time necessary for product evaluation (with these relating to transparency as well as anti-corruption compliance), and about terms that should be included in written agreements related to such arrangements.
Further, and more significantly, section XII of the updated Code titled “Demonstration, Evaluation and Consigned Products” now discusses consigned products, which are defined as medical technologies (a) that a company provides to an HCP for use in and storage at the HCP’s patient care setting and (b) to which the company retains title until the product is used.
Maintenance of consignment inventory facilitates efficient consumption of medical technologies by shortening the distance between the two endpoints of the supply chain, and by putting HCP customers in control of determining appropriate levels of at-hand stock based on expected utilization. It also raises compliance concerns, primarily because of common issues relating to inventory reconciliation and allocation of consignment inventory across, for example, manufacturer special pricing and warranty arrangements.
Consignment is an area where the updated Code, rather than strictly defining the appropriateness of consignment arrangements, highlights the issue for manufacturers and proposes controls relevant to managing the operational complexities that increase risk relevant to overseeing sales operations. The Code recommends that arrangements for such products should be subject to an agreement that addresses the terms of the consignment, including, for example, the quantity of product to be placed, requirements to segregate such products from other products, and storage space rental terms (if applicable).
The Code recommends that companies implement appropriate controls with respect to consumption and resupply of consigned products, such as taking periodic inventory; reconciling discrepancies between company records and inventory results; and the return or removal of expired product. These are common sales operations, and the Code reinforces that the alignment between sales and compliance needs to extend to consignment arrangements.
Technical Support in the Clinical Setting
In recognition of the important technical support role company representatives may play in the clinical setting, the updated AdvaMed Code includes a new section titled “Company Representatives Providing Technical Support in the Clinical Setting.” Such technical support can ensure the safe and effective use of medical technology and may
include a company representative explaining how a product functions or providing recommendations with respect to the same, or assisting the clinical team to ensure all necessary devices and accessories are available during a procedure.
The updated Code includes the following principles related to company representatives providing technical support in a clinical setting:
- Representatives should only enter and be present in the clinical setting at the request of and under HCP
supervision;
- Representatives should be transparent about the fact that they are acting on behalf of the company in a
technical support capacity;
- Representatives should not interfere with the HCP’s independent clinical decision-making;
- Representatives should comply with all applicable facility policies and requirements; and
- A company’s technical support should not eliminate an overhead or other expense that the HCP should otherwise incur while providing patient care.
Additional clarifications and enhancements
In addition to the new sections and concepts addressed above, the updated AdvaMed Code also includes revisions intended to clarify or otherwise enhance the content included in the current Code, including with respect to the following:
Statement of cornerstone values
The revised Code identifies specific “cornerstone values” that companies should consider in reviewing interactions with HCPs, and especially those interactions that are not specifically addressed in the Code. The values are innovation, education, integrity, respect, responsibility, and transparency.
Additional definitions
The revised Code includes new definitions for certain terms used throughout it, including Commercial Sponsorship, Educational Grant, Satellite Symposium, Third-Party Program, and Third-Party Organizer.
Clarifications regarding consulting arrangements
The updated Code includes a section on consulting arrangements with HCPs that is largely consistent with the current Code (and aligned with the AKS). At the same time, the updated Code does offer some additional clarification with respect to consulting arrangements.
For example, the updated Code expands upon the principle of “legitimate need,” offering examples of what may and may not qualify as a legitimate need by a company for a consulting arrangement with an HCP. For example, according to the updated Code, the need for clinical expertise in conducting product research and development may represent a legitimate need; however, generating business or referrals from the consulting HCP would not be a legitimate need.
The updated Code also includes guidance on how a company can establish fair market value of consulting services and suggests that companies should confirm the services performed by a consultant HCP.
Updated travel guidance
Under the current Code, guidance related to travel is discussed throughout other sections of the Code (e.g., travel in the context of consulting arrangements or training activities). The updated Code creates a new, distinct section to address travel, titled “Travel and Lodging; Venue,” which consolidates all guidance related to travel.
Although the guidance remains largely unchanged, the updated Code does offer additional clarity with respect to when a company is permitted to pay for travel and lodging and when it is not. Importantly, there must be an objective, legitimate reason to support the need for travel, which may include consulting services, company-conducted training and education concerning its products, and speaking on a company’s behalf at a third-party program.
The updated Code makes clear that travel is not permitted for general education sessions not concerning a company’s medical technology, or for an HCP to attend a third-party
program.
Commentary on meals
The updated Code also consolidates into one section, titled “Providing Modest Meals and Refreshments to Health Care Professionals,” all guidance on meals included under various sections in the current Code. The updated Code “strongly encourages” companies to develop meal policies, which may include per meal spending limits that account for geographic variations (e.g., a meal in New York City may be more expensive than in other areas).
Support for third-party programs via grants, donations, and sponsorships
The updated Code consolidates into a single section guidance related to providing support for third-party educational, charitable, and research programs. The guidance with respect to these concepts remains generally consistent between the current Code and the updated Code, but the updated Code offers additional clarification, by (1) including a checklist of questions companies should consider in their review of requests for educational grants to support third-party programs; (2) expanding upon the requirements for supporting independent research through grants; and (3) expanding upon the requirements for providing charitable donations.
The updated Code also includes a new discussion on satellite symposiums, which are defined as company-organized and funded programs that are appended to a third-party program agenda, but that the third-party organizer does not itself control. The updated Code permits companies to host satellite symposiums, and pay certain travel fees related to the same, if relevant requirements are met.
Implications and recommendations
Government investigative and enforcement entities cite the AdvaMed Code as the model for compliance program standards. The AdvaMed Code and state and federal law and guidance now mutually reflect one another. Increasingly, state laws specifically mandate compliance with AdvaMed Code standards by name.
As noted above, AdvaMed’s release of the updated Code offers an opportunity for companies to examine the people, process, and technology resources they devote to compliance operations to ensure the operations effectively and demonstrably manage risk in accordance with the evolving medical technology marketplace.
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Reed Smith was honored to serve as outside counsel to AdvaMed in connection with drafting the original, current, and revised versions of the AdvaMed Code; its attorneys assist clients worldwide in optimizing their compliance programs to efficiently and effectively manage organization risk in line with business and operational priorities. We are pleased and available to provide additional information on the updated Code and the assistance it provides medical technology manufacturers.
Client Alert 2019 - 035
