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Are State Aggregate Spend Laws Here To Stay?



State sunshine laws in a post-federal sunshine law world



By D. Kyle Sampson, J.D.



Published March 7, 2011

The recently enacted Patient Protection and Affordable Care Act's marketing disclosure provisions, which are commonly referred to as the "Physician Payments Sunshine Act," have caused drug companies to examine the way they collect, aggregate, and report their spending on doctors. Currently, a handful of states have similar "sunshine" or "marketing disclosure" or "aggregate spend" laws. The new federal marketing disclosure law, which goes into effect on January 1, 2012, applies nationwide and, like the various state laws, has its own unique requirements.


Unfortunately for drug companies, the new federal law will not preempt the existing patchwork of state laws. Instead, the new federal law will only "preempt any state or regulation of a State" that requires companies to "disclose or report" the same "type of information" required by the federal law. If the information required by state law is different than information required by federal law, then the state law is not preempted and the company must submit both a federal disclosure and a state disclosure. Subsequent to the federal law's enactment, some states have even added new information requirements to their laws to insulate them from federal preemption. State aggregate spend laws are here to stay.


The Current Legal Regime


State sunshine laws, for the most part, have arisen in waves. In the early 1990s, Minnesota adopted the nation's first aggregate spend law when it required that certain payments to doctors be disclosed. As part of its law, Minnesota also banned drug companies from making certain payments (what the statute calls "gifts") to doctors. The next wave arrived in the early 2000s, with Maine, the District of Columbia, Vermont, and California enacting laws. In the late 2000s, the third wave hit Colorado, Connecticut, Nevada, Massachusetts, and West Virginia. In 2009, and again in 2011, Vermont significantly amended its law. These state laws can be grouped into three general categories:


-Certification States


-Disclosure States


-Gift Ban + Disclosure States


Certification States - California, Connecticut, and Nevada - do not require drug companies to publicly disclose payments to doctors and they do not ban any type of payments. Instead, companies are required to certify they have adopted compliance programs in accordance with federal guidance and industry codes. The evidence that is required to show that a company has actually done so varies among these states. California requires companies to adopt a compliance code and then post it on the company's website. In Connecticut, by contrast, companies are not required to certify that they have adopted a compliance code, but can be audited by the state if, by whatever means, the state learns that the company's code is inadequate.


Disclosure States - D.C., Maine, and West Virginia - require manufactures to submit annually a list of certain payments to doctors, as well as the cost of certain direct-to-consumer (DTC) advertising campaigns. The types of payments that must be disclosed and the prescribed formula for calculating DTC advertising in the jurisdictions, however, varies greatly.


Gift Ban + Disclosure States - Massachusetts, Minnesota, and Vermont - require companies to publicly disclose certain types of payments to doctors. They also ban certain payments that are permissible in other states (and under the federal law).


In general, Disclosure States and Gift Ban + Disclosure States require that for each payment - e.g., meal, compensation for providing bona fide consulting services, educational materials - the following information must be disclosed:


-The name of the doctor receiving the payment,


-The amount of the payment, and


-The date of the payment.


Although this list of required information appears small, the process that must be employed by drug companies to collect and aggregate this information is complicated and challenging. When applied to real-life business transactions, the requirements of these state laws raise many questions.


For example, suppose a drug company sales representative hosts a lunchtime meal for a doctor and her staff at a doctor's office in conjunction with an informational presentation about the company's drug product. To comply with most state marketing disclosure laws, the drug company must


-identify the doctor and each of her employees who ate the food provided by the sales representative,


-determine the cost of the food that was provided, and


-calculate the portion of the cost that should be allocated to the doctor (according to formulas that vary from state to state).


Expense reporting systems can be developed to account for the complexities of the different state laws, but the administrative burden on sales representatives and corporate employees charged with preparing disclosures is significant. The difficulty of collecting, aggregating and disclosing payment information is compounded when business operations are large in scale, such as when a company provides occasional educational items to all of its doctor customers.


Gift Ban + Disclosure States increase this degree of difficulty. For the most part, state gift bans prohibit practices most drug companies abandoned years ago, like providing doctors with lavish gifts, entertainment or recreational activities. State gift bans also generally prohibit drug companies from providing meals to doctors. Moreover, some of these gift bans do not stop at the state's border, but extend to wherever the state-licensed doctor is. Massachusetts, for example, bans the provision of meals to Massachusetts-licensed doctors (and their employees) that do not occur in the context of an informational exchange in the doctor's office, a hospital, or hospital-like settings. The ban applies to Massachusetts-licensed doctors, wherever they are located. For example, the ban applies to a California-licensed doctor practicing in California who also has a Massachusetts license. In a different fashion, Vermont's law prohibits drug companies from providing meals to Vermont-licensed doctors who "regularly practice" in Vermont. Thus, Vermont's ban - which does not include an "in-office" exception - would not apply to a Vermont-licensed doctor who does not regularly practice in Vermont.


The penalty for failing to comply with state marketing disclosure and gift ban laws is significant. Violations are subject to substantial fines, which may be multiplied by the number of improper transactions. Extensive training combined with clear policies that map out appropriate interactions with doctors is the most effective way for drug companies to protect themselves from this compliance risk.


Comparing Disclosures


State disclosure laws, even those that are similar, have different reporting requirements. As a result, a company's marketing disclosures in one state may not be comparable to its disclosures in another state and, depending on the state, disclosures may not reflect the company's actual expenditures. For example, the laws in the District of Columbia and Maine are nearly identical. After Maine enacted its law in 2003, D.C. adopted the law almost wholesale in 2004. Both laws state that food payments valued at $25 or less are exempt from disclosure. The regulations interpreting the laws, however, vary significantly. On the one hand, D.C. regulations provide that the exemption for food payments of $25 or less applies on a per doctor per day basis while, on the other hand, Maine regulations provide that the cost of food provided to a doctor and her staff should be aggregated and allocated to the doctor and then reviewed against the $25 reporting exclusion. This seemingly insignificant difference in the regulations dramatically alters the disclosure reports filed in each jurisdiction. Most occasional meals provided in conjunction with an informational exchange in D.C. are not reported (because the doctor's share costs less than $25), while most similar meals in Maine are reported (because the entire cost of the in-office meal is allocated to the doctor and thus costs more than $25).


Perhaps the greatest discrepancy between reported versus actual activity occurs under West Virginia's aggregate spend law. Three states (D.C., Maine, and West Virginia) require that, in addition to disclosing transactions between drug companies and doctors, companies must disclose DTC advertising, such as television, radio, and magazine advertising. Maine requires that DTC advertising only be reported if the advertising was directed at Maine residents, while D.C. requires that such advertising be disclosed only if its cost can be reasonably allocated to D.C. residents. By contrast, West Virginia requires companies that cannot allocate DTC advertising expenses to activities within the state to nevertheless allocate the cost by using a formula: add up the cost of all of the company's DTC advertising campaigns nationwide and then multiply that number by the percentage of West Virginia's population against the U.S. population. The resulting cost of DTC advertising in West Virginia represents, in most instances, an unrealistic overestimation of advertising dollars entering the state of West Virginia.


The Future


In the post-federal sunshine law universe, there are two overriding questions: Will there be a new wave of state sunshine laws and if so, what information will those new laws require drug companies to collect and disclose? Just this past summer, Colorado decided that instead of creating a separate state disclosure requirement, it would re-post the federal sunshine law disclosures on its state website. Vermont, during the last legislative session, amended its sunshine law to work in conjunction with the federal law, exempting the reporting of certain information if the federal government provides it to the state. Maryland, on the other hand, currently is considering a state sunshine law and gift ban, even though state legislators have specifically recognized the federal law's existence.


Ultimately, time will tell. For now, it appears that companies should focus on developing internal systems that can be adjusted, as required, to comply with new state and federal reporting requirements.


D. Kyle Sampson is a partner in the Washington, D.C. officeof Hunton & Williams LLP in the law firm's Food and Drug Practice. He can be reached by email at ksampson@hunton.com. Dennis Chase Gucciardo is an attorney in the Firm's Foodand Drug Practice.



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