Marketing Arrangements Spark Concerns for Specialty Pharmacies

Pharmacy owners should spend time reviewing marketing arrangements with an attorney who is well-versed in the anti-kickback law to avoid potential pitfalls.

At the heart of every successful specialty pharmacy is a robust marketing strategy. Oftentimes, business owners develop creative techniques to inform consumers about their products or services. However, specialty pharmacy owners must be cautious when marketing their business because of the many regulations that govern health care.

In particular, pharmacy owners should spend time reviewing marketing arrangements with an attorney who is well-versed in the anti-kickback law.

Anti-kickback Law

The Anti-Kickback Statute (AKS) prohibits persons from knowingly and willfully soliciting, making payment, or receiving remuneration “in return for referring or inducing reimbursable business under state or federal health care programs (See 42 U.S.C. § 1320a-7b[b]).” Under the statute, remuneration may be direct or indirect, overt or covert, in cash or in kind (See United States v. Greber, 760 F.2d 68, 71-72 [3d Cir. 1985]).

The AKS is an intent-based statute that contains both civil and criminal penalties. Violations of the statute constitute a felony and a conviction will lead to exclusion from federal health care programs.

Watch Out for White Coat Marketing

White coat marketing is defined as the practice of advertising or marketing pharmaceutical products by physicians, nurses, and other health care professionals. The government has given heightened scrutiny when advertising involves a health care provider.

Health care providers are regarded as trusted individuals and they may exert undue influence when recommending products. Most patients believe that when a health care practitioner recommends a product, it is in their best medical interests. Patients do not think their practitioner might have a financial incentive to recommend a product.

The Office of Inspector General has additionally been concerned when practitioners act as “consultants,” “advisors,” or “researchers” in connection with marketing and research activities. For example, the government often casts a skeptical eye on arrangements in which pharmaceutical manufacturers engage physicians to perform research, data collection, consulting services, serve on advisory boards, or to speak at meetings.

The AKS was created to ensure that the exercise of medical judgment is not corrupted by any outside considerations. The government asserts that fraud risks are lower when marketing is accurate, passive, and provided through general broadcast media, i.e., not directed to a particular patient.

Safe Harbor Provisions

The Department of Health and Human Services has promulgated safe harbor laws that identify actions that are not subject to the AKS statute since these actions would be unlikely to result in fraud or abuse (See 42 C.F.R. § 1001.952). For marketers, the pertinent regulatory safe harbor is the personal services and management contracts safe harbor provision.

The government sets out seven safe harbor provisions for marketers to follow. Here, even though safe harbor compliance is not mandatory, it creates a presumption of compliance and an affirmative defense if indicted.

When examining potential marketing agreements, spend some time reviewing provisions concerning these three areas:

  • The agreement is set out in writing and signed by the parties.
  • The term of the agreement is for no less than one year.
  • The aggregate compensation paid to the agent over the term of the agreement is set in advance, is consistent with fair market value in arms-length transactions, and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare, Medicaid, or other federal health care programs.

Suspect Behavior

Finally, in reviewing arrangements that do not fit safe harbor laws, the government has pointed out several arrangements that appear to be associated with fraudulent behavior. These characteristics include:

  • Compensation based on percentage of sales.
  • Direct billing of a federal health care program by the seller for the item or service sold by the sales agent.
  • Direct contact between the sales agent and physicians in a position to order items or services that are then paid for by a federal health care program.
  • Direct contact between the sales agent and federal health care program beneficiaries.
  • Use of sales agents who are health care professionals or persons in a similar position to exert undue influence on purchasers or patients.
  • Marketing of items or services that are separately reimbursable by a federal health care program (e.g., items or services not included in the Skilled Nursing Facility Prospective Payment System), whether on the basis of charges or costs.

Doris O. Dike, Esq., is health care attorney at Friedman & Feige. LLP., a law firm based in Dallas, Texas. She represents specialty pharmacies, home health companies, healthcare entrepreneurs, and other health care providers nationwide. She can be reached at ddike@fflawoffices.com.