U.S. Warns Drug Makers On Illegal
Sales Practices April 28, 2003
Risk Prosecution for Kickbacks
By ROBERT PEAR
Washington, April 27 – The Bush administration
told drug companies today that many of the techniques
they use to sell their drugs run a high risk of violating
federal fraud and abuse laws.
The warning came as the government issued a compliance
guide for the drug industry, telling manufacturers that
they must not offer any financial incentives to doctors,
hospitals, insurers or pharmacists to encourage or reward
the prescribing of particular drugs.
Such payments have “a high potential for fraud
and abuse,” said the guide, issued by Janet Rehnquist,
inspector general of the Department of Health and Human
Federal law prohibits payments intended to generate
business under Medicare or Medicaid, the federal health
programs for 80 million older, disabled or poor people.
The law, known as the antikickback statute, forbids
some practices that are common in other industries,
Ms. Rehnquist said.
She said she was particularly concerned about marketing
practices that drive up federal costs, interfere with
clinical decision-making and lead to overuse or inappropriate
use of drugs.
Medicaid and Medicare spend more than $30 billion a
year on prescription drugs. The amount would soar if
President Bush and Congress agreed on a plan to provide
comprehensive outpatient drug benefits to older people.
Drug companies objected to many provisions of the compliance
guide when the government invited public comment on
its ideas in October. The final version of the document
clarifies the government’s interpretation of the
law and explains why federal officials oppose some drug
company practices, including offering doctors gifts,
payments and entertainment.
“Any time a pharmaceutical manufacturer provides
anything of value to a physician who might prescribe
the manufacturer’s product, the manufacturer should
examine whether it is providing a valuable tangible
benefit to the physician with the intent to induce or
reward referrals,” the compliance guide says.
“A lawful purpose will not legitimize
a payment that also has an unlawful purpose,”
It also says drug companies risk prosecution when they
encourage the use of their products by making payments
to health plans and to the companies that manage drug
benefits for millions of Americans. Such companies,
known as pharmacy benefit managers, often receive money
from the manufacturer of a drug if sales of that drug
reach a certain level – say 40 percent of the
prescriptions for drugs that lower cholesterol.
The inspector general said such payments could violate
To help control costs and improve the quality of care,
many health plans and benefit managers establish lists
of recommended drugs, known as formularies.
If a drug is on such lists, its sales can rise rapidly.
Given the importance of formularies, Ms. Rehnquist said,
“some unscrupulous manufacturers and sales representatives”
offer payments to the people who develop them. The payments
“are suspect,” she said.
Ms. Rehnquist said consumers could benefit from legitimate
discounts, defined as a reduction in the price of a
prescription drug “properly disclosed and accurately
Drug companies and benefit managers can protect themselves,
she said, by disclosing their financial arrangements
to the people who pay for prescription drugs, including
employer-sponsored health plans.
Those arrangements have long been shrouded
in secrecy. But in advertisements last week, one benefit
manager, Express Scripts, promised to “provide
our clients with a detailed disclosure of our sources
of revenue and financial relationships with drug manufacturers.”
Ms. Rehnquist also warned drug companies that their
research and education grants must be divorced from
their marketing, or they risk violating the law.
If a drug company has any influence over the content
of a professional education program or the choice of
speakers, “there is a risk that the program may
be used for inappropriate marketing purposes,”
the compliance guide says.
It also says that when drug companies pay doctors to
conduct research, they must make sure the research is
legitimate, “not simply a pretext to generate
prescriptions of a drug.”
Research and education grants are suspect if they are
“based in any way, expressly or implicitly,”
on a doctor’s ability to generate business for
a drug maker, the guide says.
Ms. Rehnquist said drug makers might violate the law
when they pay doctors for the opportunity to observe
the treatment of patients. Drug companies defend these
programs as a way to educate their sales agents. But
Ms. Rehnquist said the payments could also be a subtle
way to encourage or reward the use of particular medicines.
Ms. Rehnquist also condemned a new arrangement under
which drug companies pay doctors for the time they spend
listening to sales pitches. The pitches are typically
made by a sales representative who visits doctors in
These payments “are highly suspect under the
antikickback statute, are highly susceptible to fraud
and abuse and should be strongly discouraged,”
the guide says.
Medicare and Medicaid often pay for prescription drugs
based on price and sales data reported to the government
by drug makers. Ms. Rehnquist said drug companies had
often tried to maximize their income by reporting inaccurate
data in violation of the False Claims Act.
Under federal law, state Medicaid programs are often
entitled to the “best price” a drug company
offers to other buyers. But, Ms. Rehnquist said, companies
sometimes conceal the discounts they give other buyers.
“Manufacturers have a strong financial incentive
to hide de facto pricing concessions to other purchasers,
to avoid passing on the same discount to the states,”
the compliance guide says. Drug companies are responsible
for the integrity of the data they report to the government,
and the data must take account of any discounts, rebates,
price concessions or other benefits offered to private
purchasers, it says.
Ms. Rehnquist said a drug company’s commitment
to fighting fraud and abuse could be measured by the
way it trains and pays its sales agents. Excessive compensation
can be evidence of “improper intent,” the
compliance guide says.
“For example,” it says, “if a manufacturer
provides sales employees with extraordinary incentive
bonuses and expense accounts, there may well be an inference
to be drawn that the manufacturer intentionally motivated
the sales force to induce sales through lavish entertainment
or other remuneration.”