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Corruption Risks for Drug and Medical Device Companies

The Justice Department has let everyone know that they are focusing FCPA enforcement on drug and medical device companies.  They have made it clear since at least 2008 that they have a number of companies under investigation.  There has been no let up in this enforcement focus, and DOJ’s efforts in 2012 and 2013 will continue.

Pharma and medical device companies have significant corruption risks.  As in the US, they  have significant interactions with foreign government officials.  Health care is a heavily regulated industry, especially in foreign countries.  Doctors, pharmacists, lab technicians, nurses and other health care professionals are tied to state-owned health care operations such as hospitals and other provider organizations.  As a result, these professionals are “foreign officials” for purposes of the FCPA.  Payments made to them to influence their purchasing decisions can be  considered “bribes” under the FCPA.

Companies can run into problems with sponsorship of health care events and attendance by health care professionals and managers for promotion and continuing medical education and other research, especially in the area of clinical trials and research.  Unlike Europe which has established industry regulatory bodies, the emerging markets have little in the way of self-regulation which often creates real significant corruption risks. There is huge competitive pressures on local subsidiaries to participate in such sponsorship activities in order to “compete” with other more locally-based companies.

The risks extend beyond some of the more obvious interactions with government officials and include nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of drugs and medical devices.   In many countries, especially in Asia and in Russia, third party agents have significant connections and influence with doctors and state-owned medical facilities.  The network of agents can be overwhelming to monitor and control, even for some of the more sophisticated compliance professionals.   

Another area of risk is charitable contributions which often can be linked to specific doctors and research priorities for certain medical professionals.  These contributions, if not carefully monitored, can be interpreted as payments to induce doctors and other professionals to promote or increase the use of drugs and devices.

For the pharma and medical device companies, compliance should not be so difficult.  They are already used to operating in a tightly regulated industry restricted by the Anti-Kickback and Stark laws.  The types of corrupt payments that violate the FCPA are not any different than the items of value that would violate the Anti-Kickback Statute if given within the United States – cash, gifts, charitable donations, travel, meals, entertainment, grants, speaking fees, honoraria, and consultant arrangements.  Domestic compliance programs should be expanded to include global operations.  

The Justice Department will continue its aggressive enforcement program against the drug and device industries until appropriate compliance programs are implemented.

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1 Response

  1. January 29, 2012

    […] Cassin about the law’s “big lesson.” Mike Volkov has some insight on the corruption risks faced by drug and medical device companies. James McGrath looks at the poultry FCPA complaint. Tom Fox […]