Foreign Affairs: Marketing Medical Devices Overseas
21 October 2010 Thomas C Novelli
Medical device companies marketing their products in overseas markets face many challenges. Companies should be aware of the new attitude of regulators to actively pursue violators and take steps to ensure good compliance with all aspects of the Foreign Corrupt Practices Act, writes Thomas Novelli, Medical Device Manufacturers Association.
One of the greatest challenges for any medical device company is to gain access into new markets. Such challenges are not limited to just small companies with new, innovative and often disruptive technologies. Rather, companies across the spectrum endure difficulty in breaking into the hospital marketplace.
For medical device manufacturers worldwide there is a delicate balance that must be reached between ensuring the proper compliance with the regulations and laws in respective countries and ensuring an appropriate level of collaboration and education of physicians, surgeons and opinion leaders.
For device companies based in the US, there is a growing trend in commercialising their products outside the country. In particular, many US-based companies are targeting new markets in the EU, China and, increasingly, India. While the trend is dominated by US companies many EU-based device companies are also commercialising in China and India.
The process for approval or clearance of devices varies from regulatory body to regulatory body. In some cases, products achieve regulatory approval in an efficient and timely manner. In others, including the US FDA, companies may face a protracted and delayed approval process.
These regulatory hurdles, while time-consuming, tend to be more efficient than being able to access a hospital or health system and ultimately sell a product. Furthermore, recent scrutiny by US regulators and legal authorities is making it more uncertain for companies attempting to gain market access in foreign countries. At the centre of the increased scrutiny is the Foreign Corrupt Practices Act (FCPA).
Foreign Corrupt Practices Act
In the 1970s the US Securities and Exchange Commission (SEC) carried out a series of investigations of publicly traded companies that conducted significant business operations abroad. Based on initial research, whistleblower complaints, and investigations, the SEC concluded that numerous US-based corporations were engaged in illicit activities with foreign government officials.
Specifically, several domestic corporations were accused of providing financial and other remunerations to foreign government officials in order to secure contracts, placements or other business agreements.
In addition, some of these relationships created a highly monopolistic environment, limited competition and raised antitrust concerns by the Department of Justice, in addition to the SEC.
Another interesting aspect in this context was the impact on diplomacy, specifically that the high number of US firms engaged in illicit conduct with foreign officials was tarnishing foreign perceptions of the US and adversely impacting US foreign relations with leading trade partners.
Moving swiftly to respond to the investigations conducted by the SEC, Congress began to craft legislation that would discourage and penalise US corporations from engaging in potential malfeasance. In 1977, Congress passed the FCPA. The goals of the legislation were three-fold. First, it aimed to keep better track of financial transactions of US multinational corporations. Specifically, the law required that US multinationals register all of their securities with the SEC with the goal of keeping detailed records, accounts and books to track transactions with foreign nationals.
Second, multinational companies registered with the SEC were required to institute and maintain an internal accounting control system to assure management's control, authority and responsibility over the firm's assets.
Finally, the law prohibited both publicly traded and non-publicly traded US multinational corporations from engaging in bribery practices. Specifically, companies were strictly prohibited from bribing any foreign official, foreign political party, party official or other candidates for the purpose of inducing business.
This provision became the primary foundation for the FCPA today. More importantly, the law officially acknowledged what many in businesses already knew: extensive corrupt practices prevailed in many foreign nations, in particular, developing countries.
The new bribery law had a few exceptions. The FCPA specifically stated that it was not intended to cover ‘grease payments' to foreign officials. This was explained as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits or obtaining adequate police protection, transactions that may involve even the proper performance of duties.
In making this specific exemption, legislators indiscreetly acknowledged that there was often a ‘cost of doing business' in foreign nations. However, these types of payments did not qualify for the established threshold of bribery created in the FCPA.
In 1988, Congress modified the FCPA to further enhance the vigour of the law. The enhancement to the FCPA expanded the scope of coverage to include some foreign people and extended jurisdiction beyond the borders of the US.
FCPA and medical device manufacturers
With the foundation of the FCPA in place since 1977, and with further amendments and enhancements shortly after, there has been little focus on the medical device industry in terms of enforcement until recently. The original passage of the law targeted companies across a relatively diverse spectrum. For example, financial firms, textile and some electronics manufacturers were captured as part of the original SEC investigations. The focus on these sectors continued into the 1990s.
While most companies came under the spectre of review, healthcare firms became a greater part of the focus in the early to mid-1990s. More specifically, the Department of Justice (DoJ) and SEC began to set their sights on pharmaceutical manufacturers and their interactions with physicians, key opinion leaders and other officials, especially in Europe. During this time, medical device manufacturers were out of focus from federal regulators. This would eventually change.
US medical device companies marketing their products in foreign countries interact with physicians and officials in a similar manner as they do domestically. Because many health officials are also government officials, the chances that device manufactures may invoke the FCPA are greatly increased.
Studies have indicated growing trends in the marketing and commercialisation of medical technologies by US manufacturers in the EU and elsewhere. Consequently, there has been a corresponding trend in the number of companies receiving FCPA citations.
Looking at the trend in medical device and pharmaceutical companies, the Department of Justice indicated that it will be actively pursuing companies in these industries for FCPA violations. In late 2009, the DoJ announced that it will be targeting medical device companies.
Citing the unique nature of foreign healthcare markets and their interconnections with government, the DoJ picked out several prominent recent cases of highly publicised and illicit violations of major companies. In addition, the DoJ highlighted the very competitive nature of foreign health markets and the greater risk that companies could engage in behaviour that would violate the FCPA.
In February, 2010, the DoJ further increased its activity in the regulation of FCPA. At that time, the DoJ announced 56 agreements with the EU to seek mutual legal aid and extradition for companies engaged in FCPA violations. The goal of the new agreements, which came into effect on 1 February 2010, is to enhance the ability of US and EU enforcement authorities to investigate and prosecute violations of anti-bribery and anti-fraud statutes, including the FCPA. This will be achieved by coordinating the extradition of individuals charged with international bribery and fraud crimes.
In addition, the agreements will also help to streamline information gathering for prosecuting accused individuals. The agreements and increased attention in the healthcare industry make it necessary for medical device companies in particular to focus on potential new risks of prosecution for their international activities.
Sound legal advice
Medical device companies should be actively evaluating their risk profiles and their marketing practices overseas to ensure the strictest compliance with the relevant laws, especially the FCPA. Many companies may already have compliance programmes in place as well as guidelines for interactions with physicians within the US and their countries of origin.
For example, in the US, medical device manufacturers in several states have limitations and disclosure requirements on sales and marketing personnel interactions with physicians, surgeons and other healthcare practitioners. In addition, the leading trade associations, including the MDMA, provide a code of conduct for their members that govern company interactions with healthcare providers.
Companies should consider using similarly-structured guidelines to craft their interactions with foreign health and government officials. For example, many industry-based guidelines limit the amount that a medical device company may spend on dining with a healthcare official. Some guidelines may also require that companies publicly post the amount of financial remunerations made to healthcare providers.
An additional step medical device companies can take to ensure good compliance with the FCPA is to invest in a monitoring system to track interactions with foreign government and health officials. Many US companies may use software or other tracking mechanisms to follow the many payments and other remunerations that take place domestically between the company and healthcare providers for the purposes of education, consulting and royalties.
Implementing a similar system to track all interactions with foreign government and health officials could prove invaluable. To this end, knowing exactly when meetings between marketing staff and foreign officials have taken place will likely make it easier to detect potential wrongdoing, should an issue arise.
Medical device companies would also be wise to ensure that a full-time compliance officer is stationed wherever the firm has a significant presence in terms of marketing practices. Some of the largest medical device companies have, for example, a significant presence in Western European countries and accordingly have at least one compliance officer on the ground.
This official should be responsible for ensuring that all interactions taking place with foreign government and health officials are within the guidelines of the FCPA, and should also be charged with ensuring that the appropriate tracking and monitoring systems are in place to enable good compliance. The cost of investment in these employees will be far outweighed by any penalties for non-compliance.
Ensure good compliance
Medical device companies commercialised and marketing in Europe should be aware of the new landscape that they are facing in the course of their business. US regulators have publicly indicated a greater willingness to actively pursue the healthcare industry and medical device companies, in particular on grounds of violating the Foreign Corrupt Practices Act.
While the FCPA is well-known and has existed for years, the unique nature of the medical device industry has made it a focus for criticism. Companies should be aware of the new attitude and willingness of regulators to actively pursue violators.
Moreover, companies should take the appropriate steps to ensure good compliance with all aspects of the FCPA and make the necessary investments to ensure such compliance. While it may seem tempting to risk skirting the rules, not appropriately investing in such programmes of compliance may be more costly in the long run.