When Corporate Integrity Agreements Multiply, Firms Know What To Expect
From the June 25, 2007, issue of "The Gray Sheet"
Orthopedic companies will likely be among the next device firms subject to corporate integrity agreements with the HHS Office of Inspector General, and stakeholders say there are clues as to what they should expect.
Several large hip and knee implant manufacturers reportedly could reach a settlement with the U.S. Department of Justice related to anti-kickback violations as early as this summer.
Biomet, Johnson & Johnson/DePuy, Smith & Nephew, Stryker and Zimmer received subpoenas from DoJ in 2005 as part of a major investigation into the industry's financial relationships with physicians.
Corporate integrity agreements with OIG mandate close and regular government oversight of specified compliance obligations. While in recent years these agreements have become more common among large pharmaceutical manufacturers, device firms are just starting to feel their pressure, explained Thomas Gregory, a partner in Fraud Investigation & Dispute Services at Ernst & Young.
Medtronic's recent experience with its Sofamor Danek spinal division is a useful template for anticipated enforcement action, he said June 19 at the Medical Device and Diagnostics Marketing Compliance Congress in Arlington, Va.
Last July, Medtronic agreed to pay $40 million and enter a five-year corporate integrity agreement with OIG.
Provisions requiring companies to institute a rigorous compliance program, code of conduct and employee training are common in integrity agreements, but two novel elements of Medtronic's agreement are particularly instructive of what other device firms under investigation might face.
Under the integrity agreement, Sofamor Danek must create and monitor an electronic database to document all the firm's arrangements and interactions with physicians and other potential sources of business or referrals.
According to consultant Michael Bell, "You can rest assured that every one of these settlements that come out of the [ongoing] implant and hip and knee investigations will have this identical provision." Bell works for R2 Solutions & Services and spoke last month at the Medical Device Manufacturers Association annual meeting in Washington, D.C.
In addition, OIG set precedent by extending the reach of Medtronic Sofamor Danek's integrity agreement to independent distributors of its products, Gregory points out.
Medtronic must make "best efforts" to ensure its distributors abide by the same compliance policies required under the agreement as Medtronic, or that they have substantially equivalent policies of their own.
Gregory said this requirement is likely to appear in other integrity agreements, and distributors, like manufacturers, should expect to invest in compliance programs as part of their cost of doing business.
Firms Have Some Influence Over OIG Agreements
Certain aspects of corporate integrity agreements may be open to negotiation with OIG, Gregory said.
Firms generally attempt to define the scope of the alleged violation and agreement as narrowly as possible in terms of geographic location, business unit or business process. This is an especially important consideration for large, international firms.
By limiting the scope of the conduct in question, firms have also been able to limit which employees must undergo the most extensive level of compliance training under the agreement, he said.
For those with robust existing compliance programs, OIG has sometimes allowed firms to internally monitor their adherence to integrity agreements with a third party occasionally reviewing the firm's own audit process, rather than require them to hire an independent review organization for all oversight.
This approach is more cost-effective for companies, Gregory explained, noting he has heard of firms spending up to $10 million to implement corporate integrity agreements.
- Chloe Taft
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