Drug Industry Is Told to Stop Gifts to Doctors

By ROBERT PEAR

ASHINGTON, Sept. 30 — The government warned pharmaceutical companies today that they must not offer any financial incentives to doctors, pharmacists or other health care professionals to prescribe or recommend particular drugs, or to switch patients from one medicine to another.

The government informed the industry that many practices commonly used in the marketing and sale of prescription drugs could run afoul of federal fraud and abuse laws.

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Specifically, the government said that drug makers could not offer incentive payments or other "tangible benefits" to encourage or reward the prescribing or purchase of particular drugs by doctors, health plans or companies that manage drug benefits for employers and insurers.

The new standards, the first of their kind, were issued by Janet Rehnquist, inspector general of the Department of Health and Human Services, as guidance to the pharmaceutical industry.

Aggressive marketing is the norm in the industry. For years, drug makers have treated doctors to free Broadway plays, weekend trips, expensive meals and other lavish perks. Many companies have rewarded middlemen, or pharmacy benefit managers, for putting their products on lists of recommended drugs, known as formularies. Some companies have also rewarded doctors and drugstores for switching patients from one medication to another.

Similarly, doctors in a position to influence the prescribing of drugs for large numbers of patients have been retained as advisers and consultants to drug manufacturers.

While the new standards do not have the force of law, drug makers that flout them are more likely to be investigated and prosecuted for violations of federal fraud and kickback statutes.

"In today's environment of increased scrutiny of corporate conduct and increasingly large expenditures for prescription drugs," Ms. Rehnquist said, "it is imperative for pharmaceutical manufacturers to establish and maintain effective compliance programs."

The public will have 60 days to comment on the standards. The government may revise them in the light of those comments.

The government said it was concerned about the industry's marketing practices because they could improperly drive up costs for Medicare and Medicaid, the federal health programs for 75 million people who are elderly, disabled or poor. The federal government spends $400 billion a year on the two programs combined, and the cost is expected to double in 10 years.

The new standards say "switching arrangements," under which drug companies offer financial incentives to shift patients from one drug to another, "are suspect under the anti-kickback statute."

Similar arrangements, under which companies pay drugstores or pharmacy benefit managers to contact patients or doctors to encourage them to change from one drug to another, are also suspect, the government said. It warned companies that they would run afoul of the law if they rewarded pharmacies and pharmacy benefit managers for "moving market share" from one product to another.

The inspector general said that payments to consultants, advisers and researchers "pose a substantial risk of fraud and abuse" if the payments exceed "fair market value for the services rendered."

The new guidelines say that drug makers can violate the kickback statute when they offer entertainment, recreation, travel, meals or similar benefits; when they sponsor "educational conferences"; and when they offer research grants, gifts, gratuities and "other business courtesies" to doctors, hospitals and other health care providers who influence the prescribing of drugs.

The standards also apply to financial incentives given to purchasing coalitions that buy drugs and medical devices for hospitals. The buying groups are sometimes paid by manufacturers whose products they are supposed to evaluate objectively.

Ms. Rehnquist said that every drug company should appoint a compliance officer, establish a hotline to receive complaints of fraud and abuse and consider paying rewards to employees who report misconduct.

Under the new standards, companies are responsible not only for their own employees, but also for sales agents and contractors who "engage in improper marketing and promotional activities" on their behalf.

In April, the Pharmaceutical Research and Manufacturers of America, a trade group for brand-name drug companies, adopted a voluntary marketing code setting out what sales representatives may do in dealings with doctors and other health care professionals.

The code says, for example, that a drug maker cannot give golf balls emblazoned with the company's name to doctors, because the products do not provide a benefit to patients.

The inspector general said that compliance with the industry code was desirable, but "will not necessarily protect a manufacturer from prosecution or liability for illegal conduct."

Employers and health plans hire pharmacy benefit managers to review and pay claims for prescription drugs, to help control costs and to coordinate care for patients.

Barrett Toan, chairman of Express Scripts, a pharmacy benefit manager in St. Louis, said drug makers paid rebates to pharmacy benefit managers "to make their products more attractive — to improve their position on the formulary," increasing the likelihood that their drugs will be prescribed, in preference to products made by other companies.

John M. Rector, senior vice president of the National Community Pharmacists Association, said, "Pharmacy benefit managers increasingly take payments from drug makers, with the result that patients are switched from a product that might be the best prescription drug for them to a more expensive brand-name product."

The new standards say that drug companies may be subject to civil and criminal penalties if they report inaccurate or incomplete data on the prices or sales of their products. The government uses such information to compute reimbursement under Medicare and Medicaid, and the inspector general said the reported prices should reflect any discounts or rebates offered to buyers.

Ms. Rehnquist said that if drug makers found "credible evidence" of violations of federal law or regulations, they should notify the government within 60 days, or sooner if beneficiaries could be harmed.

In recent years, the government has issued guidance to other segments of the health care industry on how to prevent fraud and abuse. Those guidelines were addressed to doctors, hospitals, nursing homes, laboratories, home care agencies and suppliers of medical equipment.