Pharmaceutical companies around the world are struggling to keep up with the rapid evolution of ethical frameworks around bribery and corruption in their industry.
For example, in January 2017, GlaxoSmithKline (GSK) announced it will cease to pay medical professionals globally to make presentations on its behalf at medical seminars – the first large pharmaceutical company to do so. GSK believes that other pharmaceutical companies will soon follow suit.
Over the past decade, longstanding marketing practices by pharmaceutical companies, targeted at health care professionals, have become a focus for regulators. Speakers’ fees – for which health care professionals present the clinical uses for a particular product at a medical industry or pharmaceutical event – had been standard practice for generations. Either pharmaceutical companies have paid these, or else local distributors or partners.
Speakers fees to health care professionals for presentations at events can be legitimate. Cases prosecuted have centered around instances of irregularities – for example, where those being paid had no medical qualifications; where no meeting was held or no presentation made; or where the fee was out of proportion to the work involved. While pharmaceutical companies may have the right rules about appropriate speaker fee payment in place, ensuring employees abide by those rules can be more difficult.
GSK faced this challenge. The move to stop speakers fees was in part a reaction to an enormous corruption scandal in China, which saw GSK pay $3 billion to US regulators in 2012 to settle allegations that it engaged in illegal marketing practices in that country. In 2014, GSK paid an additional $488 million fine to Chinese authorities for bribing doctors. Paying doctors speakers fees was one of the practices that came under scrutiny.
The trend has not stopped, in December 2016, DOJ and SEC announced one of the largest-ever FCPA settlements with Teva Pharmaceutical Industries, Ltd. Teva paid bribes to foreign officials in Russia, Ukraine, and Mexico in the form of consulting and travel fees. In addition to the settlement, Teva must to retain an independent compliance monitor for three years.
The marketing of medicines constitutes a large part of pharmaceutical company expenditure, according to the Transparency International report, Corruption in the Pharmaceutical Sector, published in June 2016. Nine out of the ten largest pharmaceutical companies spent more on marketing than on R&D in 2013. In the United States alone the pharmaceutical industry spends an estimated US$42 billion on promotional activities that target doctors annually, which is equal to US$61,000 per doctor on average.
With all this money circulating, it’s little wonder that regulators are focusing their scrutiny in this area. But it’s not just the regulators that are exposing concerns, so too are NGOs. Over the two-year period of study, and across 20 pharmaceutical companies, the 2016 Access to Medicine Index report (published by the Access to Medicine Foundation) found that only four companies had not been found by a court or regulator to have breached criminal or civil laws or codes of conduct related to corruption or unethical marketing. The rest of the study group had racked up 51 violations.
For the first time, the Access to Medicine Index had also analyzed companies’ compliance performance alongside their systems of strategies for improving access to medicine. The study group earned only 2.1 points for their compliance practices – a score impacted by the large number of violations – compared with 3.4 points for their approach to management. Not surprisingly, the report concludes misconduct and weak enforcement can limit access to medicine in some jurisdictions.
It’s highly likely that more pressure will be brought to bear on pharmaceutical companies during the remainder of the decade. Since 2013, all payments from pharmaceutical companies to doctors have to be disclosed annually – including marketing (i.e. speakers’ fees) as well as research and development payments in the US.
In the UK, the Association of the British Pharmaceutical Industry has set up the Disclosure UK website, which it launched in June 2016 – ahead of UK legislation in this area. This website has a database, accessible to anyone, that contains recipients of non-research payments and benefits in kind from drug companies. Around the world, jurisdictions are either putting similar voluntary industry frameworks in place, or are considering a formal legal framework for similar disclosure.
Even with all this focus, new cases of misconduct are emerging with concerning regularity. Novartis is another company to recently hit the headlines, with allegations in Greece that it bribed more than 4000 doctors to promote its products and boost prescriptions – the scandal erupted in January of this year, and the investigation is ongoing. In December, Forest Laboratories and Forest Pharmaceuticals were forced to pay $38 million to resolve kickback allegations to the US Department of Justice – allegations that included speakers fee improprieties.
It’s important for pharmaceutical companies to have robust management of their promotional budgets in place, and to ensure that all payments to health care professionals are transparent, legitimate and are accounted for.
For large organizations, marketing and selling thousands of drugs in dozens of different countries, having transparent and compliant approaches to speaker fee practices and other promotional spend can present a significant challenge. The risk that things could go wrong in a single jurisdiction can be high. When this risk is then multiplied across local distributors and other partners, many pharmaceutical organizations are faced with a seemingly insurmountable governance undertaking.
Aravo helps large, complex Fortune 500 pharmaceutical companies manage these types of challenges at scale. Leading pharmaceutical firms use Aravo to manage the full life cycle of third-party relationships, and the risks associated with their supply of both promotional and non-promotional activities.
For instance, an approach that one multinational pharmaceutical client takes, is to leverage Aravo’s bribery and corruption solution for its governance over seven types of compliance requests:
Questions on the request forms display conditionally depending on the responses in prior questions, and in turn trigger the appropriate workflow and business rules, including due diligence and approval processes. The entire audit trail is captured and easily accessible on-demand.
Because the system is fully integrated with ERP and payment systems, no payment can be authorized or actioned, without the full compliance process undertaken in advance. Full reporting and analytics associated with the requests, or types of requests are readily available.
By working with Aravo the company is better able to manage the risks associated with promotional and sponsored activity, helping to ensure regulatory compliance across all of the 40 countries (and 15 languages) it operates within around the world.
While it remains to be seen how the role of speakers fees in pharmaceutical marketing budgets will evolve over time, it’s clear that companies are faced with a significant challenge today. Having the right governance structure in place – with a robust solution to help ensure its implementation – can help reduce a range of risks, including regulatory, compliance, and reputational risk.
For a comprehensive examination into reducing FCPA risk and achieving compliance for pharmaceutical companies, read out white paper Reducing FCPA Risks and Achieving Third-Party Compliance in the Pharmaceuticals Industry.
For more information about the Aravo solution for Anti-Bribery & Anti-Corruption, please contact us.
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