On March 11, 2009, the Massachusetts Department of Public Health (the “Department”) released final regulations that impose restrictions on pharmaceutical and medical device manufacturers’ sales and marketing activities.1 The final regulations—which implement section 14 of the Massachusetts Act to Promote Cost Containment, Transparency and Efficiency in the Delivery of Quality Health Care (the “Act”)2 — also require companies to file annual disclosures of all fees, payments and economic benefits paid to health care professionals that total $50 or more.  

Massachusetts now joins seven other jurisdictions that have issued similar requirements. Currently, California and Nevada both require manufacturers to adhere to restrictions on marketing activities, and the District of Columbia, Maine, Minnesota, Vermont and West Virginia all mandate periodic disclosures of payments and other economic benefits to health care professionals. Massachusetts, however, has the broadest regulations in two regards. First, Massachusetts is the only state to include both a marketing code of conduct that is specifically enumerated in detail in the regulations, and annual financial disclosure obligations. Other jurisdictions require adherence to a marketing code or disclosure, but not both. Second, Massachusetts is the first state to require financial disclosure from medical device companies. Financial disclosure requirements in other states currently only apply to pharmaceutical companies.  

The following Alert describes the final Massachusetts marketing restrictions and disclosure requirements, including a list of key dates for compliance and a chart detailing the Massachusetts marketing code.  

I. Marketing Code of Conduct

A. Overview

As noted above, the final regulations establish a code of conduct (“Marketing Code”)3 that restricts the nature and extent of pharmaceutical and medical device companies’ interactions with health care practitioners in Massachusetts. Under the final regulations, any “pharmaceutical or medical device manufacturing company” that “employs or contracts with a pharmaceutical or medical device manufacturer agent” must adopt a marketing code of conduct in compliance with the Massachusetts Marketing Code described in the regulations.  

A “pharmaceutical or medical device manufacturing company” is defined as any entity that:  

  • Is engaged in the production, preparation, propagation, compounding, conversion or processing of prescription drugs, biologics or medical devices; or  
  • Is directly engaged in the packaging, repackaging, labeling, relabeling or distribution of prescription drugs, biologics or medical devices.4  

A “pharmaceutical or medical device manufacturer agent”—a new term not contained in the proposed regulations—means an employee or agent of the company who:  

[E]ngages in detailing, promotional activities or other marketing or prescription drugs, biologics, or medical devices in the commonwealth to any physician, hospital, nursing home, pharmacist, health benefits plan administrator, other health care practitioner or person authorized to prescribe, dispense or purchase prescription drugs, biologics or medical devices.9  

Companies subject to the Marketing Code must also implement a training program on the Marketing Code. Specifically, such training programs must ensure that all representatives employed by or acting on behalf of the company who “visit” health care professionals have “sufficient knowledge” of the Marketing Code, “general science” and product-specific information. In other words, a sales representative should be able to provide health care professionals with the most accurate, up-to-date information on the product he or she is selling. Further, any such training program must include regular assessments of employees or agents to ensure that they comply with the Marketing Code and with internal company policies.5  

B. Changes from Proposed Version

The final Marketing Code contains some notable changes and clarifications from the proposed version issued in December 2008. These include the following:  

  • Application to Out-of-State Conduct. Informal guidance posted to the Department’s website provides some clarifications with respect to open issues from the proposed regulations issued by the Department in December 2008. In particular, the Department clarifies in its informal guidance that the Marketing Code provisions apply only to activities that take place in Massachusetts or involve a Massachusetts-licensed health care practitioner.  
  • Scholarships to HCPs in Training.?Under the proposed Marketing Code, companies would have been permitted to provide scholarships to allow medical students, residents, fellows, and other HCPs in training to attend major educational, scientific or policy-making meetings of national, regional, or specialty medical associations, so long as the selection of the recipients was made by the trainee’s academic or training institution. The final Marketing Code removes this section (although the provision of such scholarships is not specifically prohibited). Based on this deletion, it is unclear whether such scholarships are no longer permitted under the Marketing Code or whether the Department has opted simply not to list the scholarships as a permissible activity. The Department did not address this issue in any informal guidance.  
  • Samples, Product Demonstration Units. Under the proposed regulations, Massachusetts had intended to allow companies to provide “prescription drugs or medical device demonstration and evaluation units to a health care practitioner solely and exclusively for use by and education of the health care practitioner’s patients.” There was concern in the industry that this provision did not allow for evaluation or demonstration medical device units for health care practitioners to evaluate and assess, but not for use on patients. The final regulations make clear that such units are permitted, specifically allowing for the provision of demonstration and evaluation units to health care practitioners “to assess the appropriate use and functionality of the product and determine whether or not and when to use or recommend the product in the future.”  
  • CME Events, Conventions Held in Massachusetts. The Department clarifies in both the final regulations and in informal guidance posted to its website that the Marketing Code does not prohibit continuing medical education or other scientific or professional meetings and conventions from being held in Massachusetts. The Marketing Code specifically allows for “the use of hotel facilities, convention center facilities or other special event venues for CME or other third-party scientific, educational or professional meetings or conferences.” The Department notes that drug and device companies can sponsor or provide payments for such meetings or conferences, so long as they are organized by third-parties who remain responsible for the content, selection of speakers and distribution of funds.  
  • Meals at Conventions and Meetings.?The Department’s informal guidance also clarifies that drug and device companies may not directly pay for meals outside of a “hospital setting”; however, third-party sponsors of CME or other meetings can use general funds from manufacturers to provide meals to attendees.  
  • Charitable Donations. The final regulations add a provision to the Marketing Code that specifically permits companies to provide charitable donations in the form of financial support to a 501(c)(3) tax-exempt organization or in-kind donations of drugs, biologics or medical devices to support the charity care of patients.  

Other provisions of the final Marketing Code, as noted above, remain substantially the same. These include the following:  

  • No Kickbacks. Grants, scholarships, subsidies, consulting arrangements, or other items of value cannot be furnished to health care practitioners in exchange for prescribing, disbursing, or using prescription drugs, biologics or medical devices, or for a commitment to continue doing so in the future.  
  • Meals. Meals must be modest and occasional, provided in connection with an informational presentation and provided in the health care professional’s office or in the hospital setting. The term “hospital setting” includes a company’s specialized training facility.
  • Entertainment. Entertainment or recreational items of any value (e.g., theater tickets, sports equipment, trips, etc.) are strictly prohibited.
  • Reminder Items. “Complimentary” items such as pens, coffee mugs, gift cards or calendars are prohibited. (Importantly, the Department’s final memorandum on the Marketing Code indicates that it declined to impose an across-the-board gift ban—as had been requested by consumer advocacy groups.6)
  • CME. Funding for CME can only be provided for events that meet the Standards for Commercial Support of the Accreditation Council for CME (“ACCME”) or equivalent standards. Further, a company cannot pay for the cost of travel, lodging, attendance or other personal expenses of non-faculty health care professionals, nor can a company make direct payments for meals at a CME event.
  • Training Costs. Medical device manufacturers can reimburse health care professionals for reasonable costs necessary for technical training on a medical device, so long as the terms of the reimbursement are subject to a written purchase agreement for the device. (The Department notes in its memorandum on the final regulations that it specifically declined to make changes to this section, even though many in the industry argued that training often predates a sales contract.)
  • Price Concessions.?Price concessions, such as discounts and rebates, are permissible.
  • Reimbursement Assistance.?Companies can provide technical assistance concerning reimbursement information (e.g., identifying appropriate coverage, coding, or billing information).  

A chart attached to the end of this Alert provides an expanded and detailed summary of the final Marketing Code.  

C. Key Dates for Adopting the Marketing Code

The Department has also clarified key compliance dates for ensuring that a company adopts and adheres to the Marketing Code:  

By July 1, 2009, pharmaceutical and medical device manufacturers subject to the Marketing Code must:  

  • Adopt a marketing code of conduct in compliance with the requirements laid out in the final regulations
  • Adopt and submit to the Department a description of its training program??
  • Certify to the best of the company’s knowledge, information and belief that it is in compliance with the final regulations
  • Adopt and submit to the Department policies and procedures for investigating non-compliance, taking corrective action in response to noncompliance, and reporting instances of noncompliance to appropriate state authorities
  • Submit to the Department the name, title, address, telephone number and e-mail address of the compliance officer identified as responsible for certifying compliance with the final regulations, and for implementing, monitoring and enforcing the company’s marketing code of conduct7  

On or before July 1, 2010—and on or before July 1 of each year thereafter—a company is also required to certify that it has completed an annual audit of compliance with the final regulations.8  

II. Financial Disclosure Requirements

A. Overview

In addition to the Marketing Code, the final Massachusetts regulations require any pharmaceutical or medical device manufacturing that employs or contracts with a “pharmaceutical or medical device manufacturing agent” to file annual reports disclosing all payments or items of value worth $50 or more to health care practitioners, with few exceptions.  

  • Annual reports (to be filed on a standardized form developed by the Department) must detail:  
  • The value, nature, purpose and particular recipient of ??  
  • Any fee, payment, subsidy or other economic benefit with a value of at least $50??  
  • Paid directly or through its agents??  
  • To any “covered recipient” (any person authorized to prescribe, dispense, or purchase prescription drugs or medical devices, including hospitals, nursing homes, pharmacists, health benefit plan administrators, or “health care practitioners”)10
  • In connection with the company’s “sales and marketing activities.11  

Whether a payment is disclosable, therefore, turns in part on whether it has been made in connection with “sales and marketing activities.” The term “sales and marketing activities” means:  

  • The provision of any fee, payment, subsidy or other economic benefit with a value of at least $50 to a health care practitioner.
  • Advertising, promotion or other activities intended ??
    • To influence sales or market share??
    • To influence or evaluate the prescribing behavior of a covered recipient to promote a prescription drug, biologic or medical device
    • To market a prescription drug, biologic, or medical device??
    • To evaluate the effectiveness of a company’s detailing sales force??
  • Product education and training??
  • Research projects designed or sponsored by the marketing division of a drug or device company with marketing product promotion or advertising as their purpose.12  

The term “sales and marketing activities” does not include:  

  • Clinical trials and genuine research13 where the primary purpose is to generate data in support of an application filed with the FDA seeking approval for a new drug, biologic, or medical device, or “new use,” or similar marketing or labeling claim requiring FDA approval.
  • The provision of prescription drugs to a covered recipient solely and exclusively for use by patients??
  • Demonstration and evaluation units??
  • The provision of in-kind items used for the provision of charity care??
  • Confidential price concessions established in contracts between companies and insurers, pharmacies, pharmacy benefit managers, or health plan administrators and their affiliates.14  

The proposed regulations, by contrast, had originally excluded from reporting only those payments related to the provision of compensation for professional or consulting services in connection with a genuine research project or clinical trial. The other exclusions listed above, such as price concessions, were considered disclosable under the proposed regulations, but are shielded from disclosure under the final version.  

Regardless of the addition of these exclusions to the final regulations, the Department’s financial disclosure requirements remain fairly broad. The financial disclosure requirements, in essence, mandate reporting of all payments of $50 or more in any form to any Massachusetts health care provider with five exceptions—(1) payments for consulting services in connection with research or clinical trials, (2) drug samples, (3) product demonstration or evaluation units, (4) in-kind items for charity care, and (5) price concessions (e.g., discounts and rebates).  

Importantly, the final regulations clarify that the $50 threshold should be computed on a per-event or per-transaction basis and should not be aggregated. In addition, all items disclosed to the state will be posted on a searchable, publicly available database.  

B. Open Issues

Informal guidance posted to the Department’s website provides some clarity with respect to the financial disclosure requirements.15 Specifically:  

Out-of-State Activities.?The disclosure requirements apply to any sales and marketing activity directed at and benefiting a Massachusetts covered recipient, even if they occur outside of the state.

Multi-Division Companies.?The Department specifies that while a company must designate a compliance officer, it may submit one overall disclosure report or several reports at the divisional level.

C. Filings

Companies must start tracking payments to health care practitioners July 1, 2009. The regulations require companies to file the first annual disclosure reports on or before July 1, 2010. The 2010 disclosure report would cover the period of July 1, 2009 through December 31, 2009. Starting July 1, 2011, annual disclosures would cover the previous calendar year (Jan. 1 – Dec. 31, 2010).

Reports will be filed on a form to be developed by the state. Finally, each annual report must be accompanied by a $2,000 filing fee and a certification as to the truth and accuracy of the report.16  

III. Penalties

Under the final regulations, any knowing and willing violation of the Marketing Code or the financial disclosure requirements would be punishable by a fine of $5,000 for each transaction, occurrence or event. The penalties’ section of the regulations is also clear that pharmaceutical and medical device companies are subject to a duty of good faith compliance and, further, that companies cannot retaliate in any way against an employee, agent or HCP who has “taken any action in furtherance of enforcement” of the regulations.17  

The final regulations add a section detailing how fines will be enforced. Ten days prior to the issuance of any fine, the government will provide notice and an informal opportunity to dispute the issuance of the fine. Once a fine has been issued, the manufacturer has the opportunity to seek judicial review in the Massachusetts Superior Court.18  

IV. Conclusion

With the issuance of its final regulations, Massachusetts becomes the eighth jurisdiction in the United States to issue final rules on pharmaceutical and medical device companies’ sales and marketing activities and/or on mandating financial disclosure. As noted in a December 2008 Reed Smith Client Alert on the proposed Massachusetts regulations, it is unclear whether the unique nature of the Massachusetts regulatory scheme—i.e., dual marketing and reporting requirements—will become the model for future state laws in this area.  

In addition, it is also unclear how state regulations such as the Massachusetts requirements will be impacted by preemption language contained in the recently reintroduced Physician Payments Sunshine Act by Sen. Charles Grassley (R-Iowa), which would require drug and device companies to disclose financial relationships with health care professionals. If the Grassley bill’s preemption language were further expanded to override all state reporting requirements—not simply those state reporting provisions that are identical to those contained in the Grassley bill—this could serve to create a uniform, national approach to both tracking and reporting these payments.  

Regardless, companies should begin to take steps to ensure compliance with the final Massachusetts regulations by July 1, 2009.

Please click here to view Summary of the Massachusetts Marketing Code