Biography: Glaser is a health care attorney at Fredrikson & Byron, P.A.
August 29, 2019
3 min read

BLOG: Relationships with vendors: Embrace them, but with caution

Biography: Glaser is a health care attorney at Fredrikson & Byron, P.A.
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A device company wants you to give speeches explaining how you use their product or asks you to offer suggestions for improving it in exchange for royalties. Can you do it? Should you do it?

Relationships with drug and device companies have the potential to be financially rewarding but when done incorrectly, they also can send you to jail and cost you hundreds of thousands, if not millions, in legal fees and penalties. The good news is the laws governing these relationships are not terribly complicated. If you consult with legal counsel who work in this area, in most cases, you should be able to get a good sense of the legal risk for just a few thousand dollars.

The federal laws most likely to affect these relationships are the federal anti-kickback and civil monetary penalty provisions. The two laws prohibit similar conduct: payments that are intended to influence referrals under federal health care programs. The biggest difference in the laws is that violating the anti-kickback statute is a felony, with the potential for jail time. In addition, the Stark law can apply to some relationships but generally only if a medical organization, such as a hospital, is also involved in the relationship or if the drug/device company bills government payors directly for its product. Direct relationships between a physician and a device or drug company generally won’t implicate Stark if the drug or device company only sells its products to health care organizations.

The main focus of the anti-kickback statute is the motivation behind a payment. Courts have applied the “one purpose test,” concluding that if there are many reasons for a payment, but one of the reasons is to encourage referrals, then the payment is illegal. This makes it important to consider the company’s rationale for entering into the relationship with you.

If one of the reasons that the company is compensating you is that it wants to encourage you to be a customer, there is reason for worry. On the other hand, if the company is simply compensating you for expertise and your work, the payment is legal under the statute.

One important piece of evidence in that analysis is whether the compensation paid by the company is consistent with the fair market value of your work. A payment at fair market value is not a 100% guarantee that the transaction is legal, but it strongly suggests that the motivation for the payment is proper. If, in the words of Dire Straits, you are getting “money for nothing,” that should alarm you. In many situations in life, getting “overpaid” for you work is a wonderful perk. In the case of relationships with drug and device companies, it is a huge risk.

Whenever you enter into a relationship with a vendor, take some time to consider its terms. Could an outsider feel like the compensation you are receiving is excessive? Are the terms of the deal more beneficial to you than they need to be? For example, consider two different offers from a device manufacturer. Both seek your opinion on possible improvements to the device. Both are asking you to spend 9 hours meeting with them to share your thoughts and for that time, they will pay you a rate comparable to what you would have earned had you spent the day seeing patients. The first company will send their representative to the office and spend the day asking you questions. The second company will fly you to San Francisco, spreading the meetings for 3 days. They will put you up in the Ritz Carlton for each night. You are free to enjoy San Francisco after the 3-hour morning sessions. The company arranges a complimentary tour of Napa Valley on one of the afternoons. Another afternoon, they take you to Alcatraz. They buy you dinner each night in a fine restaurant.

The visit to Alcatraz borders on the ironic, because this second deal is far more troubling than the first. It will be easy for a regulator to assert that the company could have gotten the same information from you at far lower cost, as the first company did. The government will suggest that the company incurred the extra sum to curry your favor. A reasonable observer might very well agree.

It is also important to remember that state law may impose additional limitations on the relationship, possibly including a duty to disclose the payment to patients. Whether or not you have a legal duty to notify patients, such transparency can be helpful in defending the relationship. It is more difficult to convince a jury that a relationship is improper when everyone is completely open about it.

Providing assistance to drug and device manufacturers can be a valuable contribution to the quality of medical care, and it is entirely appropriate for you to be compensated for you time and effort. However, making sure the compensation remains reasonable is the best way to make sure that your relationship doesn’t result in the stress and cost of a government inquiry.