The "Ad Hoc OIG Compliance Group" will advocate the "systems-based" auditing approach recommended by FDA when it meets with the HHS Inspector General to discuss a pharmaceutical industry compliance policy guidance.

The periodic process audits proposed by the 17 manufacturers represent a broader approach to monitoring than the "outcomes-based" audits described in previous IG compliance guides, the group explained.

The group plans to meet with IG during September as a follow-up to written comments submitted Aug. 9.

"There must be a commitment by the company to make a reasonable inquiry or undertake a root-cause analysis in the presence of any significant variation from the policies and procedures," the Rx firms said.

"If the deviation was caused by improper procedures, misunderstanding of rules, fraud or systemic problems...a broader evaluation, including perhaps a sampling protocol, may be warranted."

"Such a systems-based auditing approach is similar to those adopted by the FDA in that agency's Guide to Inspections of Quality Systems, as well as its Compliance Program Guidance Manual on Drug Manufacturing Inspections," the group pointed out.

The ad hoc group submitted comments in response to a June Federal Register notice announcing IG's plans to issue a compliance guide for the pharmaceutical industry (¹ Also see "VA Contracting Sets Precedent For Market Share Rebates, Rx Firms Tell IG" - Pink Sheet, 27 August, 2001.).

Arnold & Porter and PriceWaterhouseCoopers prepared the submission on behalf of Abbott, Alcon, Allergan, AstraZeneca, Aventis, Bayer, Boehringer Ingelheim, Bristol-Myers Squibb, GlaxoSmithKline, Immunex, Johnson & Johnson, Merck, Novartis, Pfizer, Pharmacia, Schering-Plough and Wyeth-Ayerst.

Although most of the large members of the Pharmaceutical Research & Manufacturers of America are participating in the ad hoc group, the trade association is not directly involved in the effort. Lilly, Roche and Amgen are the largest companies not represented by the ad hoc group (² Also see "Lilly Takes Separate Track On IG; Compliance Guide Is Not A PhRMA Issue" - Pink Sheet, 10 September, 2001.).

The ad hoc group is emphasizing the need for flexibility in IG's approach to compliance.

Companies should be allowed to select an auditing approach that they expect will be most useful, the firms said, especially since many companies already have processes designed to assure compliance with FDA regulations.

For example, companies should be afforded flexibility in creating the compliance officer position, the manufacturers said.

In past compliance guides, IG has encouraged the creation of a "free standing" compliance officer position, separate from the offices of the general counsel and the CFO. Instead, "all of the key factors that influence the compliance officer's effectiveness should be taken into account, and there may well be countervailing factors that counsel against a free-standing compliance officer position," the manufacturers maintained.

FDA may not be an ideal model for the ad hoc group on that point: the agency's recent enforcement actions in the good manufacturing practices area have included settlements that require a direct report from the head of compliance to the CEO.

The manufacturer group also wants to ensure that IG is flexible about the use of technology to aid in compliance programs.

Companies should be allowed to use electronic processes to verify that employees have received and understand a code of conduct, the ad hoc group said. IG currently recommends signed certifications.

"Rigid requirements for procedures that add unnecessary complexity (e.g., paper certification requirements extending to tens of thousands of employees in innumerable locations) could undermine the vitality and effectiveness of their compliance programs," the manufacturers said.

In addition to flexibility, the 17 firms will urge that IG provide additional clarity on companies' existing legal obligations to federal health programs, especially within the 10 "risk areas" outlined in the manufacturers' proposed guidance.

"For a pharmaceutical company, avoiding 'fraud and abuse' in connection with federal health care programs is largely a matter of complying with broadly-framed anti-kickback prohibitions and complex government rebate and pricing statutes that are often difficult to interpret and apply in relation to specific activities and business arrangements," the comments state.

Pharmaceutical companies need further guidance on what federal health care laws require of them, the group emphasized. For example, "the Medicaid rebate statute....still does not have implementing regulations to help companies comply with its requirements, although the statute was enacted in 1990."

Sidley Austin Brown & Wood submitted separate comments on the guidance on behalf of an unnamed manufacturer/supplier of prescription drugs and devices, which echo several points raised by the ad hoc compliance group. The comments were submitted by attorney Paul Kalb, who worked with Bayer on a corporate integrity agreement negotiated with the IG last fall (³ Also see "Bayer Drug Prices To Be Monitored By HHS Under Medicaid Fraud Settlement" - Pink Sheet, 25 September, 2000.).

The donation of free goods, an issue addressed by the ad hoc compliance group, is "especially important in the durable medical equipment component of the industry," the company said.

The comments urge IG to "take into account the fact that the practice of providing free and no-charge goods has become a common method of encouraging consumers to try new products and of resolving customer complaints while preserving customer goodwill."

A pending investigation of the Takeda-Abbott joint venture TAP includes allegations that the company used pharmaceutical samples as an inducement to prescribe its products (⁴ Also see "Rx Sampling In "Spotlight" Of Boston Grand Jury As Part Of TAP Investigation" - Pink Sheet, 23 April, 2001.).

Rx Industry IG Compliance Group Supports FDA Systems Model For Audits

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