HCP sponsorship debate dominates GMTCC2015

August 3, 2015

Conference opens by celebrating achievements

Eucomed Compliance Panel Chair John McLoughlin was the first recipient of a PwC Compliance Achievement Award, which was presented to him at the opening day cocktail reception in the Hilton’s Galaxy Restaurant & Bar. Joining McLoughlin in the limelight was Biomet compliance officer for the EMEA region Edoardo Lazzarini, who received the PwC Award for Leadership in the Advancement of Ethics in the Medical Device Industry.

The criteria listed for the Compliance Achievement Award included someone who demonstrates courage and opinions, turns vision into reality, is regarded as an innovator, and provides exceptional support and guidance to the compliance industry.

McLoughlin was deemed to be a leader who has gone above and beyond the call of duty, having brought the Eucomed Code of Ethical Business Practice from obscurity to being a recognised code across Europe. In accepting the award, McCloughlin humbly attributed his success to luck. ‘We’ve been lucky because we’re independent,’ he said. ‘This has allowed us to implement what you’ve all been thinking.’

The winner of the Award for Leadership in the Advancement of Ethics in the Medical Device Industry, meanwhile, had to be a role model who raises awareness about best practice, promotes ethics, and supports MedTech and its aims. Lazzarini was said to fit the bill because ‘his attitude not only helps the company, but patients as a whole’, with his colleagues describing him as ‘refreshingly honest’.

In accepting his award, Lazzarini revealed to the audience a phrase that motivates him when it comes to compliance and ethics: ‘Our actions of today will be judged by the eyes of tomorrow.’

Tone at the top ably demonstrated in roundtable discussion

‘Compliance is good business. When we get that right, we have a better business.’

These supportive comments were delivered by Edwards Lifesciences chairman and CEO Mike Mussallem during the CEO roundtable discussion on global compliance. Moderated by Ernst & Young’s America’s Leader for Life Sciences, Fraud Investigation and Dispute Services Kathleen Meriwether, the session afforded three business leaders the perfect platform in which to comment on what the industry is going through right now in the field of ethics and compliance.

In addition to Meriwether, Siemens Healthcare Diagnostics’ HHS Business Unit CEO Stefan Wolf and SI-BONE President and CEO Jeff Dunn joined Mussallem on stage. All three leaders confirmed their support for the critical role played by compliance in their respective organisations, with each interacting with their compliance officers almost daily.

Among the many questions posed to the speakers by delegates was one on the expanding nature of the compliance officer role to include areas such as privacy, antitrust and child labour. ‘It is expanding and companies are asking where these issues should reside: should they be in compliance or legal,’ said Mussallem. ‘A lot of it comes back to how well the compliance team functions and leads. Management is then likely to be more supportive.’

Speakers were asked about indirect sponsorship and the funding of medical organisations. ‘As long as it’s done in a process-orientated, clear way then that’s fine,’ said Dunn. ‘Take the grants process, for example. There is a need for more education around what is a grant, what is a donation etc. You have to make sure that the organisation understands the differences between these things.’

Wolf said that he prefers to refer to indirect sponsorship as indirect participation. ‘If the diagnostics community stops supporting those that do science and innovation then science and innovation will stop,’ he said. ‘And then how do we drive better outcomes for patients?’

Delegates also sought the speakers’ views on why the medical profession is the only industry that receives financial support from the very organisations whose products they [as doctors] are recommending. ‘It’s mostly a failure of government entities,’ said Dunn. ‘In the spine business, for example, there is no government money for clinical studies, so the industry has to generate it all. The financing of physicians going through medical school – at least in the United States – is completely out of control. Government needs to find a way to better finance this. If we don’t do the clinical studies then nobody will.’

Wolf agreed: ‘Physicians often need to collect educational credits and in some countries there are not enough sessions to accrue the necessary educational points. So we have to fill the gap.’

However, Mussallem thought it was slightly naïve to suggest that the industry was not doing a good enough job in lobbying government. ‘Who are you going to tell?’ he asked. ‘It’s not a simple conversation. The medical industry is different because of the role of public funding. Therefore finding ways with indirect sponsorship is helpful.’

Compliance should focus on integration as industry consolidates

With the MedTech industry consolidating at an unprecedented speed, compliance professionals have been urged to focus on integration activities – something that is often overlooked during a merger or acquisition but is as critical to the success of a deal as due diligence activities. ‘Acquisition due diligence is certainly key to success, but it’s also a combination of other factors, such as compliance being fully integrated with legal and the deal teams,’ said Boston Scientific Senior Director and EMEA General Counsel Suzanne Durdevic.

Durdevic was speaking at one of the parallel sessions titled ‘Industry consolidation: What does it mean for compliance?’ that discussed, among other things, which deal-making pitfalls should be avoided.

Wes Porter, Senior Vice President and Chief Compliance Officer at Wright Medical Technology, said, ‘Integration is just as important as due diligence. You prepare for integration with the knowledge that you’ve got more time to do due diligence during the integration phase. You must integrate the target’s management into the post-deal compliance committee.’

Memphis-based bone implant maker Wright Medical Technology is in the process of merging with Dutch company Tornier NV to create an organisation valued at US$3.3 billion.

Parties to a merger or acquisition often have different levels of compliance, with the resulting union frequently adopting the programme of the more sophisticated party. This is certainly the case with the Wright Medical–Tornier union, with the former housing a very centralised compliance programme with 16 dedicated professionals operating under a corporate integrity agreement (CIA), while the latter does not operate under a CIA.

‘Tornier had never completed a needs assessment process,’ said Porter. ‘We made them do that before closing our deal. They do think it’s extreme but they do know where we’re coming from. The key for us with Tornier is their tone from the top, which has been critical.’

CIA obligations and responsibilities typically include areas such as monitoring, training, and the screening of employees. Fellow panellist Thomas Schumacher, Vice President and Chief Ethics and Compliance Officer at Medtronic, said, ‘If you don’t have a CIA then you’ve got to really understand the business of your target as the two parties will likely have very different risk profiles. You need to look at the core elements of the compliance programme.’

And this is where an integration plan is so important, he noted: ‘It really depends on the target. If it’s a well-established MNC, then the quality of due diligence is probably pretty high. When it’s a small, local start-up however, that’s when the compliance function needs to be more active. You should be asking, “What is it that I really need? What’s material? How aggressive do I need to be?” That’s where compliance has a bigger role.’

One audience member asked the panel if there was ever a scenario where a target might challenge the acquirer’s compliance programme. ‘Of course,’ said Durdevic. ‘You take elements from both programmes. You’re not just imposing the acquirer’s compliance programme on the target.’

‘You try to replicate the most effective elements of both programmes,’ Porter added.

Audience members were given a number of takeaways as they left the session, with the most important being that integration and due diligence activities should be tailored to each transaction, with cookie-cutter approaches not as effective.

Compliance industry moves towards ethical obligations

The compliance industry is likely to move away from focusing on complying with laws over the next decade and more towards creating ethical business models. Johnson & Johnson Vice President for Healthcare Compliance for EMEA and Canada Roeland Van Aelst said that he was concerned by the imposition of large financial penalties and questioned whether they were effective. He argued that the compliance industry needs to measure success differently in order to ensure that companies are putting ethics on the table and deciding to do the right thing, rather than just attempting to avoid large fines.

Fellow panellist Kathleen Boozang, Associate Dean for Academic Advancement and Professor of Law at Seton Hall University, confirmed that industry commentators have predicted that the profession will likely go in one of two directions over the next ten years.

Firstly, compliance professionals could feel totally besieged as a result of repeated offences and financial penalties. This could mean that companies would no longer be able to conduct business with government, or that profits from corrupt conduct would be completely confiscated as a means of grabbing the attention of companies.

Alternatively, compliance with the law could be achieved in the next decade with companies fully focused on ethical behaviour. ‘The aim will be making products that are affordable for third-world countries or creating a fix for problems such as Ebola before they even happen,’ said Boozang. ‘I hope that in ten years we’re talking about the cool ethical things we’re doing that aren’t profit centres but are the right things to do as world citizens.’

Panellist Nicole Schumacher, Attorney at Law at F Hoffmann-La Roche, told the audience that everyone should be aware that policies are just the starting point and companies should ‘have a culture of integrity so everyone is responsible for compliance, not just the compliance officer’.

Van Aelst noted that over the coming years compliance professionals will adopt a more advisory role. And, as an increasingly large number of parties become stakeholders, those with an interest in the business will likely approach the compliance function earlier in a project’s timeline and ask for advice about how to achieve the optimal outcome. Furthermore, as more topics fall under the remit of the compliance function, such as human trafficking, professionals will be required to become more specialised.

Patient interest should be central to sponsorship debate

Among the many interconnected issues that are being discussed as part of the wider direct–indirect sponsorship debate, one that is currently being neglected is what is ultimately in the best interests of patients. ‘The debate has been focused on compliance, but we need to focus on how to best serve the patients in a compliant way,’ said Medtronic’s Vice President of Legal and Compliance for EMEA and Canada Anthony McQuillan.

Speaking on a plenary session called ‘Exchange of best practices: meeting the challenges of the transition towards an “indirect-only-sponsorship” model’, McQuillan said that Medtronic had decided that ‘paying for doctors to fly across the world – paying for their meals, hotels and the entertainment that comes with it – is just not efficient’.

He told delegates that the industry was asking the wrong question. ‘The debate isn’t whether we should pay for this, or if we should spend money on booze; the question is, “What is in the patient’s interest?”’

GlaxoSmithKline (GSK) Vice President and Head of Global Medical Affairs, Rare Diseases and Gene Therapy Hugo Gomes da Silva spoke about the steps his company is taking to phase out direct sponsorship. ‘The biggest change is that healthcare professionals will not be paid to speak at our own events,’ he said. ‘They will speak for free or we’ll have a GSK professional speak.’

Da Silva told delegates it was important to ensure that healthcare professionals (HCPs) receive education and that, without direct sponsorship, the industry needs to find alternatives. ‘We will not be paying travel, so how do we still make training accessible to HCPs? We find different channels of communications,’ he said. ‘Traditionally, there is face to face, but now we’ll use portals and utilise emails. We are building platforms from scratch to communicate with HCPs.’

Siemens Healthcare Global Chief Compliance Officer Thomas K Hauser agreed that the industry was currently required to make training accessible as there were few alternatives. ‘We have an obligation to get education to doctors who can’t afford it, such as those in Mongolia for example. As good citizens, we are obliged.’

Meanwhile, Compliance Officer for WL Gore & Associates’ EMEA Medical Products Division Linda Sneddon explained that her company was in the process of ceasing direct sponsorship in some pilot regions, and that this had actually boosted sales. ‘Everyone thinks that doctors buy products when you send them to third-party congresses,’ she said. ‘That’s a misconception. Salespeople now have more time to spend with clients rather than organising flights or booking restaurants.’

Ongoing monitoring needed for increasingly sophisticated distributors

Management needs to step up when it comes to distributor due diligence as the nature of the potential risks has changed. Although medical device and diagnostics companies often have to engage third parties to assist with the distribution of advanced medical technology overseas, some are failing to adequately monitor their distributors on an ongoing basis.

The Red Flag Group’s Chairman Scott Lane moderated a parallel session titled ‘Best practices in distributor due diligence’.

‘There’s no longer a spike in work, but instead there is the need for a consistent wave of ongoing monitoring,’ Lane said. ‘As a result, internal budgeting is changing.’

Joining Lane on the panel discussion was Johnson & Johnson’s Senior Director of Business Practices and Compliance EMEA and Canada Karl Boonen, R-Squared’s Vice President of Consulting Services Carolyn Bruguera, Sorin’s International Compliance Manager Jamie Leitner, and Ernst &Young Fraud Investigation and Dispute Services Partner Mariusz Witalis.

‘Our key risk areas are not where we thought they were, so one key trend we’re seeing is management needing to better manage their programme,’ said Leitner.

With due diligence no longer a new thing for small companies, ‘the issues used to be pretty obvious but now you really have to look for the risks as distributors are more sophisticated’, Bruguera said.

Agreeing that managing a third-party sales and marketing intermediary (SMI) management compliance programme is more of an issue these days, Mariusz added that companies now need to ensure their programmes are auditable. ‘Distributors are getting smarter and smarter and they better understand about compliance,’ he said. ‘Being vetted is now a competitive advantage.’

Among the many topics covered during the session was a discussion on the review process with due diligence reports, with each panellist relaying their own experiences.

‘It starts with me. I look at every report,’ said Leitner. ‘If there are concerns, such as yellow or red flags, we do deeper dives. We ask whether it is truly a risk for our business rather than just an issue for that SMI. It then goes to our ethics committee. This includes sales and marketing, as they want to know, and it’s important that they have some skin in the game.’

One mistake many companies make when it comes to reviewing due diligence reports is that they fail to clearly define who is doing the review and follow-up. Bruguera said, ‘With yellow flags, you very often go to the folks on the ground. But they tell you that “this is how it is done here” – so when do you go outside of your sales team?’

When conducting deep dives on yellow and red flags, Lane said that tax issues can be important. ‘In my view they’re a good thing because it means a company is doing business in a jurisdiction and is at least paying some tax. It’s more concerning if there are no tax issues because then I worry about who they’re paying off to avoid their tax obligations.’

The next challenge for those companies that are clear on who is to conduct the review and follow up is actually being able to correctly interpret the due diligence.

‘It’s challenging when we don’t have a lot of information on a company, even if it’s negative information,’ said Bruguera. ‘Then the question is, “If you’re in a high-risk jurisdiction, does no news mean good news?”’

Leitner relayed to GMTCC delegates a couple of recent cases where Sorin had used new distributors in high-risk countries. ‘Our report a year later confirmed that, yes, they were in existence, but there was no reference on their ability to do their job. So although there was no risk officially, it just didn’t feel right as even their phone numbers and emails didn’t work,’ she said. ‘This was a huge priority for our leadership team because it was embarrassing for them, and it ultimately led to more training for our sales staff on the need to be more careful with their choice of business partners.’

Sorin frequently turns to The Red Flag Group to help it steer the business into making the right decisions with distributor due diligence. Lane said, ‘I encourage Jaime, for example, to get the business leadership team to first say, “No we don’t want to go ahead with this”, before having her tell them not to go ahead with a distributor with red flags. Of course, there might be no question of us allowing them to proceed with such a distributor, but the slight shift in language empowers them to make the decision.’

The panellists touched on the subject of remedial actions post due diligence (for example, the use of onsite audits, and internal controls such as financial and training controls).
‘We impose our code of conduct on those distributors that do not have their own,’ said Leitner. ‘Our regional managers do the monitoring and we have quarterly calls with the distributors.’

Johnson & Johnson, meanwhile, conducts distributor audits proactively and reactively. ‘Of course, you always wish you could do more,’ said Boonen.

The panellists concluded that the key to successfully navigating distributor risk was to ensure that management was heavily invested. ‘Do not let “perfect” be the enemy of “good” with distributor due diligence,’ said Bruguera. ‘Think about what you can do.’




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