For medical device manufacturers or doctors seeking to enter into a consultation agreement, its important to be very wary of the legal problems posed by the arrangement. These contracts come under heavy scrutiny from the government for Anti-Kickback violations, being aware of these issues is absolutely vital before entering these agreements.
The Federal Anti-Kickback Statute (42 USC 1320(a)-7b(b)) prohibits (1) any payment or exchange of value (2) made with the purpose to induce (3) the generation of federal healthcare program business. Under the Anti-Kickback Statute, consulting agreements created with the purpose of giving a medical device manufacturer federal health care program-reimbursable business (ie. increasing the amount of Medicare or Medicaid-paid surgeries that use the device) can violate the law. Furthermore, even a lawful purpose for these consultation agreements will legitimize those unlawful payments. Violators may be subject to criminal penalties, civil monetary sanctions, and exclusion from the federal health care programs.
Numerous medical device manufacturers have been prosecuted for consulting arrangements that violate this rule. In 2006, a medical device manufacturer of spinal implant devices agreed to pay $40 million to settle a claim that they offered kickbacks in the form of consulting and royalty agreements to physicians to induce them to choose devices marketed by their company. (Medtronic Inc, 2006). In addition to the financial settlement, they also agreed to be subject to government monitoring and make periodic reports.
To avoid liability under the Anti-Kickback Statute, a device manufacturer or doctor consultant must show that the agreement is a bona fide agreement where the consultant is paid fair market value. There are two courses of action for device makers and consultants seeking to enter a consulting agreement with a physician: (1) structure the agreements to fit within a safeharbor provision or (2) structure the agreements to abide by PhRMA guidelines.
Option 1: Safe Harbor Provision: The first course of action is structuring the arrangement to fit inside a safe harbor provision. Safe harbor provisions are exceptions to the Anti-Kickback Statute that describe business arrangements that are acceptable under the Anti-Kickback Statute. A contract that falls in a safeharbor is fully protected from any liability under the Anti-Kickback Statute. For consultation agreements, the two safe harbor provisions provided by the government are:
(a) Personal services and management contracts (42 CFR 1001.952(d)) – this safe harbor protects consulting payments from the manufacturer to the physician as long as seven conditions are met, including:
(1) the contract specifies when the physician is paid, how the physician is paid, and under what terms
(2) if payments to the physician are not full-time, but are periodic or sporadic, the contract specifies the schedule of the payment intervals, precise length, and exact charge for the intervals
(3) the payments are for fair market value
(4) the payments do not take into account the volume or value of business generated under Medicare, Medicaid, or other Federal Health care programs
(b) Employees (42 CFR 1001.952(i)) – this safe harbor provision protects consulting payments from the manufacturer to the physician if that physician is a bona fide employee of the entity
Option 2: Structuring the Agreement According to the PhRMA Guidelines
If the arrangement between the manufacturer and the consultatnt cannot fit within a safe harbor, steps should be taken to ensure the contract falls within PhRMA Code on on Interactions with Healthcare Professionals (PhRMA Code). For consulting agreements outside the safe harbor, the federal government has recommended the PhRMA Code as a guide on consulting agreements. While the PhRMA Code will not automatically protect the manufacturer as a matter of law, it’s recommended as a way of demonstrating a good faith effort to comply with the Anti-Kickback Statute.
Before the Contract
- The device manufacturer should identify a legitimate need for the consulting services before asking for consultation and entering into the agreement with the consultant
- The device manufacturer’s criteria for picking the consultant (ie. the “Qualifications of Consultant” section on Exhibit B) must directly relate to its legitimate need
- The device manufacturer’s person that selects the consultant should have the expertise necessary to determine whether the particular healthcare professional meets those criteria
The Contract Itself
- The device manufacturer’s contract must specify the nature of the consulting services to be provided and the basis for payment of those services
After the Contract
- The number of healthcare professionals the device manufacturer retains as consultants should not be greater than the number reasonably necessary to achieve the identified purpose
- The device manufacturer should keep records concerning the service the consultant provides and how the company makes appropriate use of those services
- Anytime the device manufacturer meets with consultants, the venue and circumstances of the meeting must be conducive to the consulting services and activities related to the services are the primary focus of the meeting. Basically, resorts are not appropriate venues.