Device company directors should participate in sales ethics compliance efforts to avoid unwanted intrusion by federal regulators, according to Ross D'Emanuele, a partner with Dorsey & Whitney, LLP, Minneapolis.

"Doing nothing is not a credible option," D'Emanuele said June 9 at AdvaMed's Emerging Growth Company Conference at Medtronic's campus near Minneapolis.

D'Emanuele envisioned a case where "a regulator knocks on your door - investigating an anti-kickback violation or any other kind of fraud and abuse violation - and asks what you've done to make sure you're in compliance with the law dealing with referral sources."

If a firm responds: "'Well, nothing special, but we have very good people here who follow the law,'" then it "will instantly lose credibility with that regulator," he warned.

"When a prosecutor or regulator is investigating and assessing how they're going to deal with your company and your case, your credibility is the biggest asset that you have at that point," the attorney said.

According to D'Emanuele, the most important element of a successful ethics compliance strategy is for the firm's leadership, including the board of directors, to formally adopt the AdvaMed code of ethics or a "tailored version of it for the company."

AdvaMed adopted a voluntary code of ethics in January 2004 after the Pharmaceutical Research & Manufacturers of America issued a code for drug manufacturers (¹ Also see "Device Firms Await Decision On Pending California Sales Compliance Law" - Medtech Insight, 25 April, 2005., p. 3).

The most significant difference between device and drug sales is the extent of training and education that manufacturers provide physicians.

Federal regulators and attorneys who previously focused on kick-backs in the pharmaceutical industry are paying renewed attention to device makers, D'Emanuele said.

"U.S. attorneys and regulators realize that there may exist opportunities for them to get some lucrative settlements out of the medical device industry - maybe not as lucrative as the pharmaceutical industry, but still with large sums," he reported.

For example, D'Emanuele cited the Department of Justice's ongoing probe into consulting agreements between physicians and the five largest knee-and-hip replacement manufacturers (² Also see "DoJ Probe Into Orthopedic Industry Could Rattle Upward Pricing Trend" - Medtech Insight, 4 April, 2005., p. 3).

"High-profile U.S. attorneys and regulators have been very plainspoken and very straightforward that the medical device industry is part of their top priority in looking at healthcare fraud and abuse," he said.

Therefore, "the leadership of your organization must express its intent that the company follows the principles and guidelines in the [AdvaMed] code."

Simply endorsing the ethics code is not enough, he maintained. "If that's all you do, you're worse off than if you'd done nothing at all," he warned. "You must also carry out the leadership mandate and take steps to ensure that the code principles are integrated into all your business activities."

Companies should appoint an officer to be directly responsible to directors for assessing potential compliance violations and for taking corrective action. "If no one is tasked with correcting business practices as appropriate - or if the person who is so-tasked is so far down the organizational chart that they cannot effect business change - you will not have an effective program," D'Emanuele stressed.

The attorney advises companies to establish a single contact person to rapidly answer compliance questions.

"You need to set up a system either with internal sources or external counsel or other folks that get you the answers in a way that is at the speed of commerce, so that your folks out in the field and your folks dealing with physicians get answers right away," he argued. "If you don't do that, your program may work for a few weeks, but then quickly it will lose steam."

D'Emanuele also addressed a new California law requiring firms selling devices in the state to comply with PhRMA's code of ethics. He commented that firms complying with AdvaMed's code need not fear running afoul of the PhRMA code. "It's hard for me, as a practical matter, to foresee the regulators of California enforcing this against companies that follow the AdvaMed code," he observed (³ 'The Gray Sheet' June 13, 2005, In Brief).

AdvaMed Ethics Code Compliance Starts At The Top – Attorney D’Emanuele

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