Publication: Journal of Health Care Compliance
Publication Date: January, 2005
How the AdvaMed Code of Ethics Affects Physicians, Hospitals, and Other Providers
Physicians, nurses, hospital-materials-management staff, clinical staff, and others who regularly interact with medical-device sales representatives may have noticed changes in those interactions during the past ten months. In January 2004, AdvaMed, the trade association for over 1,100 medical-device manufacturers, adopted a Code of Ethics on Interactions with Health Care Professionals (AdvaMed Code). (1) The AdvaMed Code and related Frequently Asked Questions is available at http://www.advamed.org/publicdocs/coe.html.
Although the AdvaMed Code has been in effect for almost a year, anecdotal feedback suggests that:
- There are still interactions between medical-device companies (or their sales representatives) and health care professionals that violate the AdvaMed Code.
- Physicians and other customers are confused about the changes, think they are just an effort to avoid sponsorship, and do not know what is and is not permitted by the AdvaMed Code.
The purpose of this article is to help physicians, nurses, clinic staff, and hospital-purchasing and materials-management personnel understand why there have been and will continue to be changes in what medical-device companies and their representatives can provide and pay for as a result of the AdvaMed Code or the individual medical-device companies’ AdvaMed Code policies.
Why Medical-Device Companies are Adopting the AdvaMed Code
The federal government has received over two billion dollars from the pharmaceutical industry in civil and criminal settlements for alleged anti-kickback and other violations. These companies also paid tens (if not hundreds) of millions of dollars in legal fees. The federal government has publicly stated the medical-device industry is next.
Although some of the alleged misconduct for which the pharmaceutical industry entered into settlements is not applicable to medical-device companies, there is still a significant amount of overlap in anti-kickback enforcement risks. The federal government states that it has already uncovered a considerable amount of misconduct in interactions between medical-device companies and their customers. Consequently, medical-device companies have and are continuing to realize they need to be more careful about their interactions with customers to avoid qui tam lawsuits and large settlements.
Although it is just as illegal to accept a kickback as it is to give a kickback, the government has not historically prosecuted many physicians for anti-kickback violations. It is much more cost efficient for the government to prosecute the pharmaceutical and medical-device companies and require them to change their practices to prevent illegal kickbacks in the future. Most health care professionals are prosecuted for false claims violations – such as billing for services never provided.
But, that does not mean health care professionals are off the hook. The government may prosecute a few physicians and other providers to send a message to the rest of the provider community. For example, as part of the TAP case, in which the government collected almost $1 billion from TAP Pharmaceutical, six physicians were indicted for various criminal and civil violations. At last report, five physicians pled guilty or agreed to a civil settlement and one physician was still under indictment.
Keep in mind that insurance policies may not cover the costs of defending against anti-kickback claims or the costs of settlements or fines. If not, those fees and costs come out of your pocket.
Medical-Device Company Policies Implementing the AdvaMed Code
The AdvaMed Code was adopted to promote industry compliance with the federal anti-kickback laws by adopting guidelines that, if followed, should reduce the likelihood that a medical-device company and its customers will engage in conduct that the government considers an illegal kickback. However, the AdvaMed Code is still high-level guidance. For example, it does not state specific dollar amounts that are permissible for meals, define what is meant by a modest hotel, or establish an annual limit for gifts.
The individual medical-device companies establish their own policies with these details. For example, the AdvaMed Code requires any meals to be “modest.” Different companies may define “modest” differently – and they may have different “modest” definitions for different geographic areas. One medical-device company may decide that dinner during a business meeting should not cost more than $100 per person, while another company may decide on a $150 per person limit. One company may decide to have a higher per meal limit for New York than for Kansas City.
As a result, health care professionals may see somewhat different practices among different medical-device companies. That does not necessarily mean that one company is being compliant and the other isn’t. It may simply mean that based on their business they came to different conclusions about how to implement the AdvaMed Code and still comply with anti-kickback laws.
But, you should be concerned about a medical-device company that is routinely and significantly more generous than other companies with gifts, meals, education grants, research grants, etc. The more generous company may expose you to law enforcement action for accepting illegal kickbacks.
High-Risk Interactions
Some of the most common interactions between medical-device companies and their customers, as the most likely bases for enforcement action as illegal kickbacks, include:
- Educational grants
- Sponsoring fundraisers and providing other charitable contributions
- Paying for journals, textbooks, and other educational materials
- Sponsoring fellowships
- Paying for referral dinners and patient brochures
- Sponsoring a professional association’s annual congress
- Research grants
- Paying for health care professionals to attend a professional association’s annual conference
In some cases, medical-device companies unilaterally provide these benefits to customers. In other cases, customers ask for them. In yet other cases, customers demand them. The rest of this article discusses these types of interactions between medical-device companies and their customers, and what may and may not be permitted under the AdvaMed Code.
Meals, Travel, and Lodging
The AdvaMed Code requires meals and lodging to be “modest” and travel to be “reasonable.” Individual companies should have more specific criteria; such as dollar limits, acceptable hotels, and acceptable airfares. The following provides some examples of meals, travel, and lodging likely permitted and prohibited under the AdvaMed Code:
| Permitted Meals, Lodging, and Travel |
Prohibited Meals, Lodging, and Travel |
- Modest meals during meetings to discuss the company’s products, negotiate contracts, and explain sales and service terms
- Modest meals during meetings with customers providing consulting, research, or other services to discuss such services
- Modest meals during training programs about the company’s products
- Modest lodging during a meeting or training program at a local hotel
- Coach airfare
- Car service that is priced comparably with taxi service
|
- Meals for staff not participating or appropriate to participate in a meeting or training program
- Meals for spouses or other guests who have no business reason for attending the meeting or training program
- “Immodest” meals or lodging
- “Unreasonable” travel
- Referral dinners for a customer’s possible referral sources, unless it is legitimate co-marketing (2)
- Meals during a meeting among physicians that does not qualify for an educational grant
|
There are many questionable meals, lodging, and travel arrangements, but each medical-device company will have to decide that for itself. For example, can a suite at a five-star hotel qualify as “modest” lodging, or can first-class airfare qualify as “reasonable” travel? Generally not, but others may disagree. These are areas in which you may see differences among the medical-device companies.
Educational Grants
The era of the unrestricted educational grant is over. Under the AdvaMed Code, there are two ways in which a medical-device company can provide an educational grant:
- Supporting Third-Party Educational Conferences (Article III)
- Charitable Donations to Advance Medical Education (Article VIII)
In order to qualify as a third-party educational conference, it must be a “[b]ona fide independent, educational, scientific, or policymaking conference… [that] promote[s] scientific knowledge, medical advancement and the delivery of effective health care.” Third-party educational conferences typically take the form of:
- Conferences sponsored by:
- National, regional, or specialty medical associations
- Accredited continuing medical education providers
- Grand rounds
Medical-device companies can also give scholarships to health care professionals in training, such as medical students, residents, and fellows, to attend third-party educational conferences. Typically, such scholarships will be provided to the conference sponsor or the professional-in-training’s educational institution – not directly to the professional in training.
Medical-device companies can also provide donations to charitable organizations to advance medical education. For example, they can sponsor fellowship programs that are charitable or have an academic affiliation or a charity hospital’s public education program.
If the purpose of the educational grant does not qualify as either a third-party educational conference or medical education charitable donation, it is probably prohibited under the AdvaMed Code.
The following are examples of likely permitted and prohibited educational grants under the AdvaMed Code:
| Permitted Educational Grants |
Prohibited Educational Grants |
- Sponsoring a professional association’s annual education conference to reduce overall costs, resulting in lower registration fees
- Sponsoring a modest reception during a third-party educational conference
- Paying an academic institution for a grand rounds speaker’s reasonable and modest travel and lodging expenses
- Providing a scholarship to a training institution or conference sponsor that helps pay for a student’s, resident’s, or fellow’s registration fee and reasonable travel expenses to attend a third-party educational conference
- Funding a charitable organization’s public education program regarding a specific disease or condition
- Sponsoring a fellow at an academic medical institution
|
- Paying an honorarium directly to the faculty for a professional association’s annual meeting
- Paying registration and travel costs for a fully trained physician to attend a third-party educational conference
- Sponsoring a fellow for a private practice
- Paying a customer an honorarium to attend a third?]party educational conference
- Sponsoring a $500 per person dinner during the conference (3)
- Sponsoring a monthly meeting of local physicians when there is no structured agenda, educational goals, or CME/CEU credits (4)
- Directly paying a resident the registration fees and travel costs for attending a third-party educational conference
|
Research Grants and Consulting Agreements
The era of the unrestricted research grant and the consulting agreement that has no independent value to the medical-device company is also over. Medical-device companies can pay physicians and other health care professionals to provide research and other consulting services as a consultant under Section V. But, the research or consulting services must meet several requirements, including:
- The compensation must be consistent with fair market value for the services provided
- There must be a legitimate need and purpose for the research or consulting services
Research can also be supported through charitable donations under Section VIII. But, again, the grants can only “support genuine medical research.”
As a result of these and other Article V requirements, medical-device companies complying with the AdvaMed Code may not simply pay money for undefined and unnecessary research or other consulting services. Typically, all research grants and consulting arrangements will have to be documented and justified by legitimate need. For example, in the case of research grants, you might start seeing requirements for a research protocol and other documentation establishing the legitimacy of the research.
Charitable Contributions
There are many legitimate and appropriate charitable contributions medical-device companies can and do make under the AdvaMed Code, including:
- Fundraisers to support tax-exempt charitable organizations, including customer-related foundations
- Product contributions for indigent patients, especially when part of a charitable mission
- Supporting genuine medical research
- Supporting educational activities
- Buying educational materials for charitable hospitals
However, in order to qualify as a charitable contribution under the AdvaMed Code, the contribution:
- Cannot be for the purpose of inducing business with a customer
- Needs to be made to a charitable organization (5)
The following are some examples of permissible and prohibited charitable contributions under the AdvaMed Code:
| Permitted Contributions |
Prohibited Contributions |
- Sponsoring a fundraiser for a tax-exempt charitable organization
- Providing free products for a charitable mission to provide free health care to indigent patients in a third-world country
- Paying travel and shipping costs related to a charitable mission
- Sponsoring a fellowship at an academic institution
- Funding a public education program
- Paying for scientific journals, medical textbooks and other educational materials for a charitable hospital library
|
- Paying a private practice physician’s marketing costs, e.g., a referral dinner or patient brochure (6)
- Paying any of a private practice’s administrative or operational costs, except in the case of a genuine charitable mission (7)
- Purchasing textbooks for a private practice or non-charitable hospital (8)
- Sponsoring a fellow at a private practice
|
Gifts
The holiday gift basket or lunch for staff without a meeting or training program are also things of the past under the AdvaMed Code. Section VI of the AdvaMed Code requires gifts to be occasional and modest and to:
- Benefit patients, or
- Serve a genuine educational function
Except for medical textbooks and anatomical models, a gift cannot have a fair market value that is more than $100. Medical-device companies can also occasionally give customers minimal value branded promotional items – the most common examples of which are branded pens and post-it notes. No cash or cash equivalents, e.g., gift certificates, are permitted.
The following are some examples of permitted and prohibited gifts under the AdvaMed Code:
| Permitted Gifts |
Prohibited Gifts |
- Medical textbooks and anatomical models
- Minimal value branded pens, post-it notes, padfolios, laser pointers, safety glasses, etc.
- X-ray bags that cost less than $100
- Memory sticks with educational information, with only as much memory as necessary to include the educational information, costing less than $100
|
- Anything that is valued at more than $100, except for medical textbooks and anatomical models
- Food for staff that is not provided as part of a legitimate meeting or training program
- Food, wine, or other types of gift baskets
- Golf balls and other golfing or sports related items
- Non-medical related clothing
- Sports tickets
- Computers
|
Conclusion
This article does not address all of the interactions that can occur between medical-device companies and their customers, but it does highlight some of the most common interactions and, under the AdvaMed Code, some of the most troublesome.
During the next 1-2 years, medical-device companies will probably adopt more formal procedures for requesting and granting educational grants, research grants, consulting arrangements, charitable contributions, etc. In actuality, this is a blessing in disguise.
These procedures will probably include detailed criteria for evaluating requests and proposals. Following such procedures may protect against governmental allegations of illegal kickbacks. As long as the medical-device company complies with its own program, and the criteria it uses to make decisions are not based on a customer’s past or future purchases, it will be difficult for the government to prove an illegal kickback – which is good for medical professionals as well as the medical-device company.
Regardless of how the companies try to comply with the AdvaMed Code, one should never require a company to give a gift, pay for a meal, make a contribution, or provide any other type of benefit as a condition of doing business. As far as the government is concerned, that makes the benefit an illegal kickback.
If a medical-device company says “no” to a request for financial support – even if they’ve provided it in the past – they may be helping you stay out of trouble. If another company says “yes” to something everyone else has said “no” to – instead of blessing your good fortune, question whether you may be getting yourself into trouble by accepting their generosity. The government might consider it a kickback.
If you are part of an organization that has a compliance office, talk with your compliance office before you ask for or accept any funding, sponsorship, or gifts from the medical-device industry. Your organization may have its own policies about what can and cannot be requested or accepted. If you fail to check with your compliance office, you could be faced with a situation where it is not an illegal kickback, but you are in trouble for violating your organization’s policies.
If you are not part of an organization with a formal compliance office, you may want to talk with the medical-device company’s compliance office. Although they cannot advise you personally, they can often provide you helpful information and guidance – including why they cannot fund something they’ve funded in the past. Medical-device company compliance officers are concerned about keeping their company and their customers from becoming a law enforcement target for investigation and prosecution. Getting your customers into trouble with the federal government is not good customer service – even if your customer asked for the funding or sponsorship in the first place.
The government appears to be serious about anti-kickback enforcement within the medical-device industry. Based on what government enforcement staff has been saying during the last year, we should start seeing serious enforcement activity during the next 18-36 months. Avoid being a target by making sure that interactions with the medical-device industry comply with the AdvaMed Code.
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1 Many health care professionals may have already experienced similar changes in their interactions with pharmaceutical companies as a result of the Pharmaceutical Research and Manufactures of America (PhRMA) Code on Interactions with Healthcare Professionals (PhRMA Code). The PhRMA Code was adopted in April, 2002, and is available at http://www.phrma.org/
mediaroom/press/releases/19.04.2002.390.cfm
2 See footnote 6.
3 Something significantly less than $500 per person is where the modest vs. immodest line would be drawn. Questions will likely be raised for dinners that are over $150 per person.
4 Although it is not an absolute rule, a good rule of thumb is that something that does not qualify for CME/CEU credits probably does not qualify as a third-party educational meeting.
5 In rare cases, the contribution can be to an individual engaged in a genuine charitable mission – e.g., providing free health care to indigent patients. However, a charitable foundation is involved in most charitable missions.
6 It may be possible to structure a co-marketing arrangement with the physician that is not an illegal kickback if the medical?]device company’s products will be part of the marketing effort. For example, a medical-device company and physician may agree to each pay one-half of the costs of a referral dinner for which there is an agenda and the company’s products are a part of the agenda. I believe co-marketing activities are consulting arrangements under Section V of the AdvaMed Code.
7 I don’t believe there is any provision of the AdvaMed Code under which it is possible to help fund administrative or operational costs for a customer that is not a charitable organization, except for legitimate co-marketing as discussed in footnote 6. Section VII of the AdvaMed Code permits medical-device companies to “support accurate and responsible billing… by providing reimbursement information…, including identifying appropriate coverage, coding, or billing of… products, or of procedures using those products.”
The federal government has indicated that they believe there are instances in which medical-device companies have gone beyond this permitted support and provided free consulting services. As a result, medical-device companies may provide less in the way of practice management information, and advice and other operational services, than in the past.
8 As discussed below, it may be possible to purchase textbooks as a gift. |
