Transparency and Its Implications for Pharmaceutical and Medical Device Manufacturers

By: Matt Hotz, CIS Compliance Specialist
matthotz@cis-partners.com

Transparency is a hot topic these days, not just in the pharmaceutical industry, but for all industries facing new regulations under the Obama administration. Due to the attention being paid to transparency legislation and its potential implications, we at the PCB have put together some articles to describe how these changes might affect you. I officially declare this week "Transparency Week!"

Regulations requiring disclosure of physician payments by pharmaceutical companies and medical device manufacturers have been developing for years. Several states have already passed their own versions of these so-called sunshine laws, and at the federal level, the first iteration of the Physician Payment Sunshine Act was introduced in the Senate in 2007. The 2009 incarnation of the Physician Payment Sunshine Act was released by Senators Herb Kohl (D-WI) and Charles Grassley (R-IA) two days after the inauguration of President Obama.

The concept motivating these laws is transparency, and in government, it applies to much more than payments made to physicians by pharmaceutical companies. But what does transparency mean in this broader context? In short, transparency means conducting government business openly; transparency involves making everything from government processes to legislative deliberations to financial data available to anyone who wants to see it. Transparency enables oversight of the workings of government, and this oversight, in theory, makes government less susceptible to corruption. A famous quote from Supreme Court Justice Louis Brandeis illustrates the idea behind open government so well that its inclusion in any discussion of transparency is all but mandatory:

Publicity is justly commended as a remedy for social and industrial diseases.
Sunlight is said to be the best of disinfectants; electric light the most
effective policeman.

President Obama has employed transparency as one of his recurring themes since his general election victory in November 2008. During his inaugural speech, in a passage about federal spending, the President stated that:

Those of us who manage the public's dollars will be held to account -- to spend
wisely, reform bad habits, and do our business in the light of day -- because
only then can we restore the vital trust between a people and their government.

The new administration’s commitment to transparency was formalized in a pair of memos issued on January 21, 2009. The first memo addresses the Freedom of Information Act and states that “all agencies should adopt a presumption in favor of disclosure” for all decisions involving the Freedom of Information Act (FOIA). The second memo is titled Transparency and Open Government, and it explicitly announces the Obama administration’s attitude towards government and its relationship with the public.

The prominence of transparency as a dominant theme of the nascent Obama presidency is a call to action for pharmaceutical and medical device manufacturers. As the concept gains traction, it will be applied more broadly. Sunshine laws addressing physician payments will likely become stronger, and legislation requiring disclosure far beyond the scope of physician payments will likely follow.

Clearly, companies looking to mitigate their audit risk should try to anticipate the types of regulations and standards likely to be implemented in the near future. Consequently, companies should develop compliance strategies for any potential regulations and standards which would necessitate investments of time, resources, or both. These steps, though, will no longer be sufficient. In an environment that values transparency, the attention of regulators, industry watchers, and the public will be drawn to companies that choose to disclose as little as necessary to maintain compliance. Companies should take steps now to foster an atmosphere of transparency across their entire corporate culture.