This spring, the U.S. Supreme Court faces several decisions that will impact millions of people: legal challenges to the Defense of Marriage Act (DOMA) and the Voting Rights Act, for instance. But another case getting less media attention will affect all Americans who pay health care premiums or taxes.

The Supreme Court will decide whether the increasingly frequent practice of brand-name drug companies paying off their competitors to keep new generics off the market is a violation of antitrust law. As former Federal Trade Commission (FTC) attorney David Balto told Politico “There’s no other case that can have as much impact on reducing health care costs.”

This practice, called “pay-for-delay,” has skyrocketed since an appeals court decision allowed the first such deal in 2005. Since then, over a hundred pay-for-delay deals have delayed generic versions of 20 to 30 brand-name drugs each year, according to federal regulators at FTC.

There is no question delaying access to generic drugs harms consumers. That’s why Community Catalyst has helped consumers and advocacy organizations join legal challenges to pay-for-delay deals that blocked consumer access to generics of Provigil, K-Dur and Tamoxifen for years. We have also filed or joined Amicus briefs, and organized national and state-based advocates calling on Congress to ban pay-for-delay agreements.

Recently, Politico ran another story about how one defendant drug-maker in the case (Solvay Pharmaceutical) claimed that these pay-for-delay agreements don’t harm consumers, a position echoed by the generic drug industry’s trade group GPhA. But the FTC, U.S. Department of Justice, Attorneys-General in 36 states and consumer advocates all disagree. Why? Because access to generic drugs brings big savings for consumers and health plans. Look at GPhA’s own data that estimates access to generic drugs has saved consumers and our health care system more than $1 trillion from 2002 to 2011. That’s because generics cost one-fifth to one-tenth as much as brand-name drugs.

How the System’s Supposed to Work

Traditionally, generic drug companies wait for the patent on a brand-name drug’s active ingredient to expire and then file an application with the FDA to bring the generic version of the drug to market. Then the brand-name drug company sues the generic drug company, claiming some “patent infringement.” But in nearly all cases, the drug itself is off-patent. So the infringement is of a “secondary” or “defensive” patent that addresses some minor detail, like how the drug is formulated into a pill, or some step in the manufacturing process. The generic drug company then defends themselves from the litigation, and if they win, they launch their generic right away.

How Pay-for-Delay Deals Broke the System

Since 2005, generic and “BigPharma” companies have decided to do what the federal and state anti-trust regulators see as collusion. During litigation, the brand-name drug company offers to settle the patent infringement lawsuit they filed by paying tens or even hundreds of millions to the generic company, which then agrees to not to start selling a generic for several years. Pay-for-delay settlements are very suspicious, not only because they are made in secret but also because the payments are going the wrong way. Usually the patent-infringer is forced to pay if they violate someone else’s patent. But in these pay-for-delay settlements, these roles are reversed.

For example, Bayer sued four generic manufacturers, saying, in essence:  You have infringed the patent on our blockbuster drug Cipro. To show you how angry we are, we will pay you 400 million dollars. But only if you stay off the market.

As a result, consumers did not have a generic version of the antibiotic Cipro for another seven years, while Bayer made billions in unfair profits. Overall, these so-called settlements have caused consumers and their health plans to pay tens of billions right into the pockets of the brand-name drug companies. This creates a powerful incentive to collude and delay competition as long as possible. For the millions who are underinsured, delaying a generic can force patients to pay thousands of dollars a year, or go without needed medicine.

One story we collected from a consumer from Kansas describes his struggle to afford Provigil, whose generic was delayed from 2006 to 2011 by pay for delay. He reported: “[Despite] paying almost $17,000 in annual premiums for my family [health insurance plan] last year, I was paying around$650/month [for Provigil]… That is out of pocket money I have to come up with until later in the year when I reach my deductible [sic] and I can enjoy a few months of only paying $60/month. I cannot describe to you how much stress and difficulty this has caused for me and my family the last several years…”

The real question is whether the high court will allow these secret deals and legal maneuverings to continue? Or will it restore legitimate competition to this market, lowering health care costs and ensuring better access to affordable medicines for all Americans?

Stay tuned. We will be blogging regularly about this case as it unfolds and calling attention to how pay-for-delay deals harm consumers and increase the cost of health care.

Consumer advocates, doctors, employers and leaders in Congress alike have all written letters this month urging the Centers for Medicare & Medicaid Services (CMS) to implement the Physician Payment Sunshine Act (PPSA), making drug industry payments to doctors public and transparent. Passed into law as part of the Affordable Care Act (ACA) in 2010, the PPSA requires manufacturers of drugs, medical devices and biologics to report payments they make to doctors and teaching hospitals to the Department of Health and Human Services (HHS), which must disclose these payments in a publicly available, searchable online database.

While Congress intended for CMS to have final rules in place back in January 2012, the agency faced understandable obstacles to that goal. When CMS published its proposed rule on November 15, 2011, it received an unprecedented flood of stakeholder comments, forcing it to push back all associated deadlines so it would have time to take all of the input into consideration. During the first half of 2012, CMS also faced uncertainty on whether the ACA would be ruled unconstitutional, taking the PPSA down with it. However, any larger questions about the ACA were settled in June, and instead of issuing a second draft of its guidance in July, CMS sat on its hands all summer. The agency promised rules by the end of 2012, which would allow companies to collect data January 1, 2013 and disclose all financial relationships with doctors to the public by September 1 of this year. Bloomberg News reports that CMS spokesperson Brian Cook has promised the regulations “soon.” Yet, the agency refrains from saying when we can expect final regulations and begin bringing transparency to doctors’ conflicts of interest.

Due to the ongoing delay, patients remain in the dark about whether their doctors are accepting lavish dinners or travel from drugmakers, and whether those relationships may be affecting their patient care. In his letter to White House Chief of Staff Jacob Lew, PPSA co-author Sen. Charles Grassley (R-IA) pointed out that CMS won’t be able to collect data on time, now that the statutory deadline is 15 months past due. “At best, the public may miss an entire year’s worth of data collection—perhaps more,” he noted. “This is unacceptable.”

On January 14, Community Catalyst organized 18 consumer, patient and labor organizations in urging the Obama Administration to issue the final rules. Others weighing in on the delay include medical student and physician advocates, a number of high-profile doctors, Senator Grassley and Rep. Sharon Treat (D-ME). Even drug and device manufacturers have been calling on CMS to publish the final rules, in order to gain clarity.

While all sides agree the rules should be out soon, how quickly the rules are put in place may be controversial. Patients want this information as soon as possible, but industry is on record asking for as long as half a year. Such an additional delay is unacceptable for two reasons. First, nearly all the drug and device manufacturers have been reporting their payments under state law requirements in Vermont, Massachusetts and Minnesota for years. Secondly, nearly half the biggest drug manufacturers have been tracking and reporting payments to the federal government under settlement of criminal and civil prosecutions for illegal marketing.

Unfortunately, even after CMS issues PPSA rules, consumers will still have to wait until April 1, 2014 for the first public disclosures, a full year later than originally planned by Congress. We cannot wait any longer.

– Khadijah M. Britton, JD, Program Associate, Prescription Access and Quality

Earlier this month, the 2nd Circuit Federal Court of Appeals refused to prosecute pharmaceutical sales representative Alfred Caronia for conspiring to sell a drug “off-label” (without FDA approval for that indication). While Caronia was caught in the act, and the lower court found him guilty of the conspiracy, the majority in this 2-1 panel decision ruled the government was prosecuting Caronia for his First Amendment-protected speech, and vacated the lower court’s judgment. The punishment he avoided was no more than a $25 fine and one year’s probation, yet this case might go all the way to the Supreme Court.

The narrow reading of the court’s ruling is that it hinders the FDA’s ability to prosecute misdemeanor off-label marketing by sales representatives, forcing them to focus their energies on the bigger fish up the food chain, such as sales managers and corporations. The broad reading is that it eliminates the FDA’s power to prosecute for off-label marketing at all. Pro-pharma pundits claim the holding goes so far as to limit the government’s ability to bring a civil suit under the False Claims Act (FCA) for off-label sales. However, we cast a more skeptical eye. While we believe the case was wrongly decided, its impact as a precedent is likely limited to pharmaceutical sales representatives accused of a misdemeanor, not their bosses or the corporation.

Take Two of These and Call Me in the Morning

Here’s how the issues in this case play out. Imagine your doctor gives you a drug because you have insomnia and the bottle says “use as directed,” but the label gives you directions for people with some disease you’ve never heard of. You search for directions for use with insomnia and cannot find them – anywhere. You look closer at the bottle’s Black Box warning and see language that scares you: “This drug is a known drug of abuse. Even at recommended doses, use has been associated with confusion, depression and other neuropsychiatric events. Important adverse events associated with abuse of this drug include seizure, respiratory depression…. with instances of coma and death.”

You call your doctor who prescribed the drug, and he assures you that it is “perfectly safe.” He can’t remember where he got the idea, but he’s confident that a half dose should be fine for insomnia.

You take the drug, go to sleep, wake up three and a half hours later sweating profusely, take another dose, go to sleep again and sleepwalk into your neighbor’s yard. In the morning, your neighbor wakes you and invites you in for a much-needed cup of coffee. Luckily, she’s a lawyer. She goes online to find the drug company has been sued for fraud to the tune of $20 million, for marketing to patients, like you, that don’t have the disease indicated on the label. Moreover, the company failed to report 72 negative reactions and ten deaths last spring. As it turns out, your doctor got the idea to prescribe – and those directions – from a sales representative for the drug company, along with a doctor the sales rep recommended.

Who is at fault, here? Anyone? Everyone?

The Facts

This is the question explored in the Second Circuit’s majority opinion, along with a vigorous dissent. In 2002, Xyrem received FDA approval for one very narrow use: the treatment of cataplexy (weak or paralyzed muscles) associated with narcolepsy. The US population suffering from narcoleptic cataplexy is extremely small (between 20,000 and 50,000 patients). To expand its profit potential, Orphan Medical resorted to a marketing strategy designed to promote Xyrem for numerous unapproved indications. This marketing strategy led to $20 million in 2005 sales alone.

Orphan had a policy in place for what sales reps should do when asked by doctors about off-label uses of Xyrem: direct that doctor to fill out a request for information to be sent to the company, for the company to address. Yet, Mr. Caronia recommended prescribing the drug to patients as young as 14 for uses including fibromyalgia, chronic fatigue or chronic pain – even advising on which diagnostic codes to use. We know this because every word was being recorded by his potential “customer” – a doctor working off his plea deal with the government by serving as an informant for the FBI. It turns out Mr. Caronia was hired a few months into the investigation of illegal Xyrem marketing that led its manufacturer to pay a $20 million settlement with the US government in 2007.

The Law

Mr. Caronia’s case went before the 2nd Circuit Court of Appeals just after the Supreme Court’s Sorrell v. IMS decision on data mining. The majority in Caronia’s opinion accepted the sales representative’s interpretation of Sorrell as protecting his First Amendment right to say anything about Xyrem, as long as his statements did not reach the level of fraud, thus invalidating the most compelling evidence for misdemeanor misbranding: his speech. This, despite him calling the drug “perfectly safe” when it holds a black box warning. The majority here protects “truthful, non-misleading” off-label marketing, even if that speech is evidence of a conspiracy to bring drugs to market for unapproved purposes. This is a bad outcome when applied to the facts of this case, but a disastrous outcome when applied more broadly to corporate and individual prosecution under the FDCA.

Conclusion

Mr. Caronia’s case should not serve as precedent for a change in the way US courts interpret the FDCA. Drug companies have overwhelming incentives to maximize sales before patents run out, and sales representatives are under the gun to deliver those profits however possible. As products liability lawyer Bill Cash opines: “[d]rug sales representatives are low-level employees, often with little or no medical training, who have only one function: to push pills.” Given the vast difference in culpability between a sales representative and those at the top that knowingly apply the pressure to their own ends, the case is a poor choice for SCOTUS review of the breadth of the FDCA. Individual violators should be prosecuted when appropriate, but more importantly, companies should be held both criminally and civilly liable for the dangerous practice of off-label marketing. Any threat to that is a threat to consumers, to the intent of the FDCA and to the purpose of the Food and Drug Administration.

– Khadijah M. Britton, JD, Program Associate, Prescription Access and Quality

Yesterday, DPH issued temporary regulations that, unless changed, will gut the state’s drug and device marketing regulations, which were proudly heralded in 2008 as a step toward curbing drug industry marketing abuses and addressing spiraling health care costs. In a shocking capitulation to industry, the DPH regulations go even further than the amendments passed this summer by the legislature, which had weakened the ban on industry providing lavish meals to physicians. DPH would allow drug, device and biotech companies to pay for physician meals outside clinical settings, with no restrictions on the cost of the meals.

A DPH staffer acknowledged that the administration’s Mass Life Sciences Center was consulted about the language— companies meeting down the street at the BioPharm America 2012 Conference must be thrilled. Pharma’s lobbyist, Marjorie Powell, was quoted in the Globe on Thursday,, saying “the Massachusetts law was placing unnecessary restrictions on the industry as it tries to work with health care providers” and she reported meeting with DPH employees who were drafting the regulations. Yet DPH refused to meet with consumer advocates in the Massachusetts Prescription Reform Coalition, nor incorporate any of our written recommendations.

This summer, the Massachusetts legislature repealed the component of the gifts and disclosure law that prohibits pharmaceutical and device companies from giving gifts to Massachusetts doctors, nurses, and other health care providers. The amendment made it legal for the industry to provide “modest meals and refreshments” off-site, at restaurants and other facilities “conducive to informational communication.” DPH was then required to define these terms but it failed to do a credible job, allowing “modest” to simply mean “similar to what a health care practitioner might purchase when dining at his or her own expense.” If that isn’t bad enough, public health experts at the DPH also decided not to address the issue of industry paying for wine or alcohol. Can this possibly be reasonable, given the law’s requirement that payment for meals and refreshments be allowed only in a venue “conducive to informational communication?”

HCFA reports that at yesterday’s Public Health Council meeting to review and approve the regulations “a number of Council members were openly skeptical. One member asked about alcohol. The DPH staffer explained that they saw rationale in the law for barring alcohol. Another Council member asked how the restrictions would be enforced. Self-reporting was the answer. How would DPH know whether the ‘educational’ sessions were truly educational? The DPH replied that it would be up to the drug manufacturer to make its own decisions.”

The gifts ban and disclosure law was an early reform aimed not only at protecting patients but also reducing health care costs—an important goal for sustaining our near-universal coverage in Massachusetts. Numerous peer-reviewed studies show that marketing tactics such as providing meals and gifts influence prescribers to select the latest, most expensive drugs when generics or other lower-cost, equally effective alternatives are available.

Although the gift ban is backed up by sound policy rationales and studies, the politics have been challenging. The pharmaceutical industry teamed up with the restaurant industry and lobbied hard to withdraw the gift ban in 2009, 2010 and 201l. But now they have nearly succeeded in undermining the law, gaining far more concessions from the Patrick administration in these regulations than the legislature allowed.

The DPH regulations would end all disclosure requirements, which under the law apply not just to physicians but to all providers. The DPH regulations dismantle this system as well as the $2,000/company annual fee that supports it. The pretext is the upcoming implementation of the Physician Payments Sunshine Act in Obamacare, which requires industry to report all payments to physicians and teaching hospitals. But the MA law includes disclosure of payments to all providers, including nurse practitioners and physicians’ assistants, key primary care providers in MA who are increasingly the target of industry marketing. Such disclosures are not preempted by the federal law.

Fortunately, Massachusetts medical schools and medical centers have enacted their own policies to shield physicians, researchers, physicians-in-training and other staff from the influence of inappropriate marketing. They have instituted bans on gifts, meals, inappropriate consulting and other marketing, basing their policies on a strong commitment to medical professionalism and good patient care. These institutions acknowledge that relationships with pharmaceutical, device and biotech companies are essential for research and innovation—we all agree with the Mass Life Sciences Center on that. However, these institutions are also committed to erecting firewalls that protect patient care and medical education from industry influence. But they cannot regulate physicians that are not in their systems—the Massachusetts law bridged that gap by creating a blanket policy for all providers.

We call on patients, consumer advocates, legislators, physicians and other providers to join us in reversing the DPH emergency regulations and maintaining the letter and spirit of this important law.

–Marcia Hams, Director of Prescription Access and Quality

– Anna Dunbar-Hester, Policy Analyst

This blog was made possible by a grant from the Attorney General Consumer and Prescriber Grant Program which is funded by the multi-state settlement of consumer fraud claims regarding the marketing of the prescription drug Neurontin.

On June 28, the Supreme Court made its momentous decision upholding the Affordable Care Act, a major win in the effort to ensure that all Americans can go to a doctor when they get sick and receive high-quality, affordable care. The ruling paved the way for the law to be fully implemented to benefit the American people. It means that insurance companies can no longer deny care to people when they get sick or if they have a pre-existing condition, benefit expansions such as closing the Medicare prescription drug “donut hole” for seniors and people with disabilities are secure, and new coverage programs for those without insurance can be implemented.

And the decision means many other innovations and consumer protections in the ACA will go forward, including the Physician Payment Sunshine provisions, which Community Catalyst, the Pew Prescription Project and others have championed for many years. The Sunshine provisions mandate that all payments to physicians and teaching hospitals made by makers of drugs, medical devices and biological products be reported to the government, and then disclosed to the public. This broad transparency program is intended to improve quality of care by reducing the incidence of fraudulent or unethical promotions to prescribers and the resulting wasteful costs to patients and public programs.

Fraudulent and highly unethical industry payments to medical professionals have led to lawsuits against virtually every major drug and device company. Just this month, a new record-breaking settlement of $3 billion with Glaxo-Smith-Kline revealed that GSK salespeople paid or compensated doctors through illegal kickbacks related to seven different drugs: Avandia, Paxil, Wellbutrin, Imitrex, Lotronex, Flovent and Valtrex.

“GSK’s sales force bribed physicians to prescribe GSK products using every imaginable form of high priced entertainment, from Hawaiian vacations to paying doctors millions of dollars to go on speaking tours to a European pheasant hunt to tickets to Madonna concerts, and this is just to name a few,” said Carmen M. Ortiz, U.S. Attorney in Massachusetts.

This is fresh on the heels of last month’s shocking revelations about Abbott’s payments to professionals at nursing homes to promote the over-use of Depakote to treat the elderly.

Congress included the Sunshine provisions in the ACA out of concern for such practices and their impact on patient care and medical professionalism. Now industry will be required to report all payments made to doctors and teaching hospitals on a public website. This will allow patients, researchers, Medicare, Medicaid, private health plans, medical schools and academic medical centers can continually monitor these financial exchanges and evaluate whether they could be leading to bias in prescribing or medical education.

Now that the Sunshine provisions are clearly the law of the land, the Obama administration should finalize the regulations promptly so that industry reporting and public disclosure can proceed.

 – Marcia Hams, Director, Prescription Access and Quality

The Affordable Care Act created some desperately needed means to start controlling ever-rising health care costs. Many — like preventive care or delivery reforms — will take some time to realize savings. In contrast, new anti-fraud efforts look to be paying off right away, in amounts much bigger than expected.

The health reform law provided $350 million over ten years to increase anti-fraud investigation and enforcement resources for the Department of Justice (DOJ) and State Attorneys-General. The goal? Saving $6.4 billion over the next decade. Given that some estimate that fraud and waste cost as much as $60 billion a year, or $600 billion over a decade, saving one percent of that amount seems a pretty modest impact.

But wait! New estimates project that current or pending settlements of drug fraud litigation by the DOJ and the Attorneys-General will top $8 billion in FY2012 alone, according to the group Taxpayers Against Fraud. (See their list below.) This is not the culmination of hundreds of lawsuits; it’s just the eight biggest. So it looks like this anti-fraud effort under the ACA will meet and then surpass this ten-year goal in less than two years!

To be fair, some of these fraud investigations were undoubtedly underway before the increased funding for anti-fraud efforts reached the DOJ and State Attorneys-General offices. But there is little doubt that providing these over-worked regulators with increased resources was a big help in increasing enforcement. DOJ probably has fewer lawyers working on all their pending drug fraud cases than some of the biggest drugmakers hire to defend in just one lawsuit. But despite these disparities, the results show that very modest government investment in fighting fraud, coupled with hard work by government lawyers and whistleblowers, can pay off big.

For example, earlier this week drugmaker Abbott Labs in Chicago settled a civil and criminal investigation of their illegal promotion of the anti-convulsant drug Depakote as an unapproved treatment of dementia in seniors, and of various conditions in children. Abbott pleaded guilty to promoting these unapproved, or ‘off-label’ uses of Depakote, and agreed to pay $1.6 billion – one of the biggest settlements for the illegal promotion of a single drug.

There could be a couple hundred pending whistle-blower lawsuits that are filed under seal and being investigated now by the federal or state regulators. These pending lawsuits may add up to billions of dollars of additional settlements.

Some critics have warned that even billion-dollar fines are an inadequate deterrent when a drug company can profit far more on illegal sales of a drug.

For instance, the $1.2 billion record-breaking settlement with Eli Lilly in 2009 for illegal promotion of their antipsychotic drug Zeprexa was less than 5 percent of Lilly’s gross sales. Yet eight months later, DOJ shattered this record with an even bigger $2.3 billion settlement with Pfizer, which amounted to 14 percent of their gross sales of eight illegally marketed drugs.

Similarly, this month’s $1.6 billion Depakote settlement is nearly 12 percent of the drug’s $13.8 billion in gross sales revenue from 1998 to 2008. Furthermore, DOJ is pioneering two mechanisms to deter future illegal conduct by Abbott, along with this hefty fine.

First, the Depakote settlement places Abbott on probation and imposes a corporate compliance and monitoring program, for five years. If Abbott violates the compliance agreement or significantly violates the law, the government can exclude Abbott, and all their drug products, from federal health care programs. That would cost Abbott billions in lost sales on numerous drugs.

The settlement also aims to hold Abbott’s corporate leadership accountable. Abbott’s CEO must personally certify compliance and the board of directors must review and report on compliance each year. If the CEO or board is lax in these duties, they could be excluded from their positions at Abbott. And if they intentionally lie to the government to cover up any misconduct, they could face personal criminal liability under the federal False Statements Statute.

Sadly, Abbott’s illegal promotion of ineffective and dangerous uses of Depakote has both harmed and put at risk what is arguably the most vulnerable patient population – seniors suffering from dementia, who live away from their families in nursing homes. Undoubtedly millions of seniors were and continue to be given Depakote inappropriately as a result of Abbott’s illegal promotional campaign.

More to come on (1) actions that Medicare and Medicaid can take to address the continuing effects on patients of illegal promotions of off-label use of drugs and (2) how the Arkansas AG fought prescription drug fraud, winning huge fines to plug the state’s Medicaid budget deficit. This blog was also posted on Health Policy Hub.

– Wells Wilkinson, Director, Prescription Access Litigation
Staff Attorney, Community Catalyst

Projected Drug Fraud Settlements in FY 2012

Gifts, big and small, can have an impact on how we feel and what we do. We all know it. When your co-worker unexpectedly gives you a holiday box of chocolates, you feel guilty and petty about snubbing him because he stole your stapler.

And no one knows more about using gifts to win people’s hearts than the drug industry. In what may be a surprise to many patients, the majority of doctors accept some kind of payment, gift, drug samples, meal, or other gift from the drug industry. These range from the free lunches delivered to their hard-working office staff, to hundreds of thousands of dollars in consulting or speaking fees. A 2009 survey found that 84 percent of doctors had some interaction with a drug company that involved payment, gifts, travel, consultancy or speaking fees, drug samples, or other reimbursements or payments.

While some exchanges, like samples or legitimate research are generally appropriate, other relationships are problematic. And some of these relationships have landed drug companies in hot water, leading to over seven billion dollars in settlements with the federal government over the last four years. For instance, Allegan, the manufacturer of Botox, created phony advisory boards “to reward hundreds of [the drug’]s top injectors,” according to a federal prosecution settled for $600M in 2010. How did 200 of these physicians ‘advise’ Allergan? By flying an oceanfront resort in Newport Beach, California in 2005 and 2006, and getting paid $1,500 to listen to presentations on unapproved, off-label uses of Botox. But Allergan is not alone. Forest labs paid doctors $1,000 for letting a salesman follow them around all day, while prompting the doctor to prescribe Forest’s anti-depressants Celexa and Lexapro. A Forest subsidiary pleaded guilty to one felony and two misdemeanors, and Forest paid the feds a $313 million settlement. Other examples  abound.

So last week,  the Centers for Medicare and Medicaid Services (CMS) gave patients, consumers, and others a different kind of gift – strong draft regulations on public disclosure and transparency of drug and device industry payments and gifts to doctors to implement the Physician Payments Sunshine Law, the ground-breaking transparency law passed in 2010 as part of the Affordable Care Act. This law will allow anyone to see when and how much their doctor is being paid or given gifts by the drug companies.

The scope of what drug companies must report – any “payment or transfer of value” – is  very broad, and will include nearly anything that has any value: a coffee mug, pens, dinner at a nice restaurant, or a big consulting contract. But the law allows for a number of exceptions: drug samples, educational materials for patients, and small items under $10 in value, so long as the total value in a calendar year doesn’t add up to more than $100.

But when a drug maker doesn’t make a payment directly and the money goes through a third party, to a doctor or hospital, what happens? 

Under the law, the payment is not reported if the drug manufacturer is unaware of the identity of the doctor or teaching hospital that receives the payment made indirectly via a third party. This is potentially a significant loophole that could encourage pharma to simply farm-out their gift-giving to marketing firms, etc. and attempt to sidestep the public transparency purpose of the law.

The good news is CMS wants to narrow this loophole as much as possible, and has proposed a strong standard to prevent the loophole from undermining the law. The draft rule has defined being “unaware” of a doctor’s identity to be when the manufacturer does not actually “know . . . the identity of the covered recipient,” so long as the manufacturer has not tried to act in “deliberate ignorance”  or “reckless disregard” of learning the identity doctors or hospitals that received payments from them via a third party. So a drug company cannot simply turn a blind eye to where their funds are being distributed by third parties.

CMS has further advised that if the names of the recipients are ‘publicly available,’ then the manufacturer is deemed to know the identity and must report these payments. Similarly, if an “agent” of the manufacturer, such as a staff member, employee, or paid consultant knows these identities, then the manufacturer must report.

How might this work? Well, if Pfizer paid a medical education company to pay for the travel and registration costs for all the cardiologists at a state university medical school, Pfizer would need to report these payments. Similarly, if Merck paid an event planner a lump sum that was intended to cover the travel costs of all the doctors presenting at a professional conference, Merck would need to report these transfers of value because the identities of these doctors would be publicly available, or would likely be easily available to conference attendees,

A recent blog by Daniel Carlat looks at how this will affect disclosure of industry payments to continuing medical education companies that then pay doctors to speak.

While there are a lot of details that must be worked out, CMS is setting the stage for broad transparency to bring the financial relationships to light. This is a nice year-end gift for patients, consumers, health plans, and advocates who are eager to know about and better understand the relationship that drugmakers have with their doctors and hospitals.

Wells Wilkinson, Director, Prescription Access Litigation project

In his keynote address to the “After Heparin” convening today, FDA Principal Deputy Commissioner John Taylor said the agency has not made enough progress in transforming its oversight system, but that bills before the last Congress—the Bennet and Dingell bills–could help accelerate that process.

He also laid out a global strategy plan to revamp its monitoring system that would rely more on third-party inspections, improved risk-based intelligence, data-sharing and cooperation with partners in the public and private sectors.

Taylor brought big numbers to illustrate the big gap between the domestic nature of FDA’s founding mission and the new global realities. There are 300,000+ FDA-regulated products coming into the U.S. from 150 countries. By 2008, Taylor said, the U.S. import imbalance on pharma products had increased 10-fold, to $18 billion.

The impressive range of stakeholders around the table today – from chemical manufacturers to consumers representing the patient who takes her medicine – covered a lot of ground and came to some important consensuses around needed policy reforms to close the gaps. Here are some major themes:

Info-sharing/collaboration
One common refrain from Taylor’s keynote to the closing remarks was the need to share information strategically on safety and monitoring systems. Martin VanTrieste, head of Rx-360, a non-profit industry audit-sharing organization, promoted the efficiencies his group has gained in sharing audit info and planning group audits, which offer the potential for more in-depth visits and cuts down on redundancy.

Falsifying drugs is a perfect crime, said Guy Villax, board member of the European Fine Chemicals group and CEO of Hovione, and he proposes to tackle it with info-sharing databases like the one the European Medicines Agency has developed.

Inspectorama
Inspections remain an important piece of the overall quality picture, though everyone agreed there aren’t enough resources to inspect anywhere close to all the sites that make raw materials and substances that go into U.S. drugs. The 2010 GAO update and last night’s 60 Minutes (and the PostScript archives) all have those numbers.

FDA’s Deb Autor said that gaining parity between domestic and foreign inspections are just not feasible, and in some cases, the every two years required for domestic sites would be excessive, even wasteful. But Marcia Hams of Community Catalyst reminded the group that it’s partly that very level of inspection that allowed regulators to find and monitor the flagrant quality problems at Johnson and Johnson’s three domestic factories—and to eventually take them over.

Who’s gonna pay for this?
There was, predictably, less consensus about how to pay for inspections. Though all agree that cost-savings is the major driver in the shift of supply and manufacture to emerging markets, Prabir Basu of the National Institute of Pharmaceutical Technology and Education, said that cost savings is directly linked to the low- or un-regulated climates of those markets, and can’t be accounted for by labor costs alone. But it’s unclear that the greater risk that comes with industry savings is being matched with a willingness to spend on safety and quality systems.

One solution discussed was a user fee that would go toward inspections; right now user fees go to pay for approval. But Mylan President Heather Bresch said that a user-fee system should be holistic – that is, it should support bringing safe, quality products to market and then ensure their safety once they’re on the shelves.

Cheating to the test
The culprits responsible for the adulterated heparin linked to the American death developed a molecule that fooled up more than a dozen different country’s and companies’ tests, including the US Pharmacopeia, which now has an updated heparin assay. USP’s CEO Roger Williams said that a thoughtful updated test is a critical factor in assuring safety and quality, and called for legislative support for such standards.

But physical audits are absolutely key, said Philippe Andre, a China-based auditor whose photos bore that out. Andre and Brant Zell, past chair of the Bulk Pharmaceuticals Task Force, both underscored that when it comes to working with overseas suppliers, knowing what you’re getting ahead of time is critical. Andre said he’s surprised by how many companies contract with suppliers in China without ever visiting the plant. And Zell pointed out the importance of companies doing proactive physical audits. “If you just test, you don’t get all the answers,” he said. “Quality’s built-in, and if you visit, you get an idea about how things are being done.”

National Security Rx
Drug safety is, at its core, a national security issue. An industry in which bad actors are economically motivated and able to infiltrate the legitimate supply chain with a relatively low risk of penalty is ripe for exploitation, and in this way, heparin is a shadow of the bioterrorism threats that captivated the nation a decade ago and caution for the bigger crises inevitable if the system goes unfixed. Attendee Laurie Garrett from Council on Foreign Relations pointed out that one of the lesser-hyped documents in the Wikileaks case was a State Department memo listing of overseas sites of national security interest to the U.S.: more than 30 percent were drug, vaccine and biological manufacturing sites.

Nearly all the parties around the table agreed that the safety gaps in the pharma supply pose a great and growing threat to public health, and that incremental scale-ups won’t solve the sort or scope of risks that the new globalized drug supply chain pose.

This has got to be a paradigm shift. And we fail to make it at the patient’s peril.

“We just need to figure this out, we just need to step it up,” said AARP’s Ahaviah Glaser. “As a consumer rep, I still look to the FDA, but it’s got to be group accountability.”

“If we can’t trust where our drugs are coming from, that’s so fundamental,” said Cleveland Clinic cardiologist Harry Lever. “If my patient isn’t doing well, the first thing I think about now is: maybe it’s a drug.”

Allan Coukell of the Pew Health Group, which hosted the convening, said he was encouraged by the caliber of the discussion: Significant common ground was gained, wide agreement forged on some policy reform proposals, and all with very little finger-pointing.

Hams asked FDA’s Taylor how he saw the role of the consumer: How do we engage the people taking the medicines around safety, and communicate the need to be both vigilant and compliant?

To a degree it’s good, Taylor said, when consumers take the FDA for granted. When their aspirin is safe, and works, then the agency is behind-the-scenes and doing its job. But he agreed of the need to figure out how to engage the public: “We’re going have to explain why we think these changes are necessary…in a way that actually affords consumers an extra level of confidence that the world is changing,” and that the rules must change to meet it.

“We can’t take for granted that folks know that [this] world is changing.”

Tune in tomorrow for Day Two, and follow @SafeRxWatch on Twitter for short, live tweets from tomorrow’s sessions.

–Kate Petersen, PostScript blogger

Can current safeguards in our medicine supply prevent another heparin crisis, and how do we confront quality problems so extensive that the government must seize factories because of the risk to public health? On Monday and Tuesday Mar. 14-15, the Pew Health Group will bring together members of industry, policymakers, regulators and consumers to tackle these and other key questions about overseas drug manufacture, distribution and safety.

“After Heparin” comes at a critical moment. Since adulterated batches of the blood-thinner heparin from China were linked to more than 100 American deaths in 2007 and 2008, a spike in drug recalls and manufacturing violations signal breakdowns in internal quality and oversight systems. Just yesterday, the FDA took over three Johnson & Johnson plants after endemic quality problems that led to near-weekly recalls went unfixed.

The FDA and Justice Department’s seizure, known as a consent decree, “is a strong, but necessary, step to ensure that the products manufactured by this company meet federal standards for quality, safety and purity,” Director of FDA’s Office of Compliance Deborah Autor told CNN. Autor will speak Monday at the “After Heparin” conference.

And on this Sunday’s 60 Minutes (7 ET on CBS Mar. 13), Dr. Sanjay Gupta will look at the problem and proliferation of counterfeit medicines, and how they can make their way back into the legitimate U.S. drug supply. (Here’s a preview). Experts believe the cost-incentive of using adulterated materials was a driving factor in the tainted heparin from China.

As the number of raw materials and ingredient suppliers in low-cost economies mushrooms, knowing where our drugs come from has gotten harder to determine. Eighty percent of all ingredients in medicines brought into the U.S. are now made overseas, and though FDA foreign inspections have increased, an inspectorate designed for a much smaller domestic market has not been able to keep pace.  Congress has proposed legislative solutions to address these safety gaps, and Americans—nine of ten—overwhelmingly support such fixes.

FDA acting Deputy Commissioner John Taylor and U.S. Senator Michael Bennet from Colorado will deliver keynote addresses at “After Heparin,” and roundtables made up of major industry associations, consumer groups – including Community Catalyst – regulators and scientists will look at the major questions and potential policy solutions around quality systems, inspections, and counterfeit detection and deterrence.

For a conference agenda and more information, visit the Pew conference page.

Check back at PostScript Monday and Tuesday for conference exclusives, watch the live webcast here starting Monday at 8:30 am Eastern, and follow SafeRxWatch on Twitter for live updates from the conference.

–Kate Petersen, PostScript blogger

The FDA has banned imports from a factory run by Indian drugmaker Aurobindo following an inspection there in December. The ban on products from the company’s Cephalosporin facility near Hyderabad echoes an import ban on Claris Lifesciences in November after fungal contamination of IV medications made in India went unaddressed. Products from several Ranbaxy factories in India are also still under import bans after widespread manufacturing violations three years ago.

In January, Aurobindo sold its active pharmaceutical ingredients (API) division to a Chinese manufacturer, Sinopharm. China’s drug industry has been in the news in recent weeks as Congress opens an investigation into the heparin crisis that three years ago was linked to more than a hundred American deaths.

Import bans are critical to preventing drugs with suspected or known safety problems from entering the country. However, earlier action is vital as well, since such extreme and sudden blocks in the supply chain can also contribute to problematic drug shortages in hospital and other acute-care settings. To prevent such disruptions, we need to ensure that manufacturers are held accountable for Good Manufacturing Processes (GMP) through audits and sanctions. And FDA needs the authority and resources to inspect foreign plants frequently, instead of the current sometimes-to-never schedule.

For more on the safety of the drug supply, visit Community Catalyst and the Pew Prescription Project.

–Kate Petersen, PostScript blogger