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Lawyers say a trade group's new sales and marketing code of ethics for pharmaceutical companies that's designed to help companies avoid government investigations and prosecutions will trigger extensive corporate governance work on behalf of participating companies.

The Pharmaceutical Research and Manufacturers of America (PhRMA), a trade organization for drug makers and research companies, announced a massive overhaul of its ethics code governing companies' interactions with health care professionals, which will become effective in January 2009.

Lawyers say the new code significantly alters PhRMA's 2002 Code. Attorneys' key roles will involve crafting policies and training their clients' employees. They also anticipate that the policies will help companies avoid or lessen enforcement actions from the U.S. Department of Health and Human Services' Office of Inspector General (OIG).

The updated PhRMA Code, which was announced on July 10, features several marketing restrictions, including limiting meals provided to health care professionals; imposing stricter protocols for speaking and consulting arrangements with health care professionals; and banning giveaways of so-called "reminder" items with drug company logos such as pens and cups.

The PhRMA Code also requires companies to train sales representatives on laws, regulations and industry codes of practice related to interactions with health care professionals.

AKIN TO SARBANES-OXLEY

Most significantly for attorneys, it has a corporate governance component and a certification process akin to the Sarbanes-Oxley Act of 2002 that calls for chief executive officers and chief compliance officers to certify that the company's policies satisfy the code.

PhRMA also encourages companies that adopt its code to get "external verification" at least once every three years that the company's policies and procedures "foster compliance with the Code."

Linda A. Baumann, a health care regulatory and transactional lawyer and partner at Washington's Arent Fox is starting to help clients develop new compliance program polices and wrestle with implementation questions.

"Everyone is asking about it," Baumann said. "They take it really seriously when their top compliance officer and CEO are going to certify it."

Despite the code's voluntary status, the OIG's "emphatic endorsement" of the prior code means that most companies will adopt the new one, said Maria Currier, a Miami partner at Holland & Knight who chairs the firm's health law and life sciences team.

"The government views the code almost like a best practice standard," Currier said.

Currier's team is already fielding client requests about how they can integrate the code into their company's policies, she said.

'PRETTY SIGNIFICANT' IMPACT

Many of Reed Smith's clients are still digesting the revised code, but they'll need help to make the necessary revisions to their policies and practices, said Christie Bloomquist, a Washington partner who practices in the firm's life sciences health industry group.

"The impact is going to be pretty significant, more than pharmaceutical companies may initially anticipate," Bloomquist said. "There are fairly significant changes to standard sales and marketing practices."

As the January 2009 effective date edges closer, Bloomquist expects "a lot of updates to policies and procedures" and training of the sales representatives.

"They're going to bear the burden for complying with these requirements and it's going to entail making sure they're very clear what the boundaries are [for them]," Bloomquist said.

A compliance plan adopted by a company to address the PhRMA Code is not just a piece of paper; it implicates a whole host of business activities, said Andrew Gantt, a Washington partner in Latham & Watkins' health care practice group. Gantt also expects to be involved in crafting companies' training programs.

At least half a dozen pharmaceutical and medical device companies, including some household names, have already announced plans to implement the PhRMA Code in the coming months, such as Amgen Inc., Eli Lilly and Co., Johnson & Johnson and Sepracor Inc.

The companies did not return calls for comment, but Sepracor's president and chief executive officer, Adrian Adams, for example, announced that the company intends to update policies and procedures during the next six months, "to ensure compliance with not only the letter, but the spirit, of the standards set forth in the new PhRMA Code."

Eli Lilly announced that it would both change its procedures and institute periodic external verification.

COMPLIANCE CULTURE

Lawyers say the OIG Compliance Program Guidance for Pharmaceutical Manufacturers, which was issued in May 2003, is based on PhRMA's 2002 code, so companies that comply with the new code are less likely to face enforcement tangles.

Not adopting PhRMA's Code isn't illegal, but it can still flavor an enforcement action, Baumann said.

"I don't think someone is going to file a False Claims Act [case] because someone distributed reminder items; it will be indicative of the compliance culture," Baumann said. "If you don't have a [PhRMA Code] compliance program, [you] will be on the defensive [with the OIG] to say why you don't."

Corey Slavitt, an OIG spokeswoman, acknowledged that the OIG Pharmaceutical Manufacturers May 2003 guidance "discussed" PhRMA's 2002 code, but denied that it's "modeled" after it.

"It's original [guidance] but we do discuss the PhRMA Code," Slavitt said.

In one section, the OIG's guidance notes "although compliance with the PhRMA Code will not protect a manufacturer as a matter of law under the anti-kickback statute, it will substantially reduce the risk of fraud and abuse and help demonstrate a good faith effort to comply with the applicable federal health care program requirements."

The OIG guidance also counts familiarizing a company's sales force with "the minimum PhRMA Code standards and other relevant industry standards" as one of five ways a drug company can demonstrate commitment to "an effective fraud and abuse compliance program."

The original PhRMA Code became the baseline for acceptable activities in the pharmaceutical industry, and the organization's change to the industry standard may start to affect how the OIG perceives any individual company's actions, Bloomquist said

"Now that the code has changed, I don't think the OIG's position [towards PhRMA's position] is going to change," Bloomquist said.

"It will be logical to assume they'll apply the new standards in looking at arrangements," Bloomquist added.

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