Mitigating Risks with Drug and Device Companies

Relationships with drug and device companies come with risk. Fortunately, the risk is manageable by using common sense to structure payments.

Imagine you’re in a clinic or hospital and a medical device company representative approaches you and says, “we think you’re doing wonderful work. We’d love to use you to showcase our fancy device.” 

Perhaps they want to bring people in on tours to see a new scanner or have your physicians teach others how to perform the latest and greatest procedure using their device. They offer to compensate you for your time. In fact, they’ll give you $5,000 for every day they have someone on site. It sounds like a great deal, right? It’s manna from heaven. 

In actuality, this sort of arrangement can get you into dire straits. I am not suggesting that it’s improper to get paid for providing assistance to a drug or device company. As long as the compensation is fair-market value for work actually provided, the arrangement can be both legal and advantageous. However, it is important to be certain that the payment really is reasonable for the work being done. For example, if the company asks you to allow someone to shadow one of your professionals for the day, it is quite possible that the shadowing will slow your professional down. Compensation for the lost time is entirely appropriate. In addition, it is likely reasonable to receive payment for the fact that your efforts are adding value to the device company.

But if the payment from the company has the effect of doubling your professional’s compensation for the day, whereas the amount of work provided increases by 10 percent, it is quite easy for someone to argue that one purpose of the payment is to influence referral decisions. For example, I’ve seen arrangements through which a physician was paid $5,000 to allow a sales representative to shadow them for a day. If you think about it, that is an annualized payment of nearly $1 million to let someone stand over your shoulder. That could prove difficult to defend. By contrast, if someone is expected to travel out of town for a day and give a speech, $5,000 might not be sufficient to compensate the organization for lost revenue. It is definitely possible to design compliant relationships with drug and device companies. But it is important to be transparent and thoughtful. 

I once represented a physician group located in a property where a device company wanted to rent space. The group sent the company a lease. The device company insisted, quite bizarrely, that leases were potentially problematic under the federal anti-kickback law, and that it would be better to refer to the arrangement as a “grant.” Unfortunately, the group relented and accepted a $30,000 “grant” from the device company for space and equipment to operate a dry demonstration lab. 

Years later, I found myself trying to explain to a U.S. Attorney why the space lease was labelled a grant, which made it sound like a gift from a company. The problem was compounded by the fact that despite the clinic’s hopes that it would become a teaching haven, the space was not utilized. The conversation with the government would have been much easier if the agreements had been labelled properly. 

I will add that I have never understood why people include in their contracts “this agreement does not violate the anti-kickback statute.” While nearly every contract says it, just because everyone does something doesn’t mean it is wise. If you were on the jury, would you believe the assertion written in the contract, or would it prompt you to wonder if they “doth protest too much?” After all, why would someone put so much effort into claiming they were not breaking the law unless there was at least a question about this fact?

Relationships with drug and device companies can be great, but they come with risk.  Fortunately, the risk is manageable by using common sense to structure the payments. 


David M. Glaser, Esq.

David M. Glaser is a shareholder in Fredrikson & Byron's Health Law Group. David assists clinics, hospitals, and other health care entities negotiate the maze of healthcare regulations, providing advice about risk management, reimbursement, and business planning issues. He has considerable experience in healthcare regulation and litigation, including compliance, criminal and civil fraud investigations, and reimbursement disputes. David's goal is to explain the government's enforcement position, and to analyze whether this position is supported by the law or represents government overreaching. David is a member of the RACmonitor editorial board and is a popular guest on Monitor Mondays.

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