California Compliance

A new state law says pharma companies must establish internal compliance programs
Jan 01, 2005

Jesse Witten
In September 2004, California Gov. Arnold Schwarzenegger signed a law that requires pharmaceutical and medical device companies doing business in the state to implement corporate compliance programs governing their interactions with physicians and other healthcare professionals. The statute covers companies that manufacture, label, distribute, or market drugs or devices that require a prescription. They have until July 1, 2005 to comply.

The required "Comprehensive Compliance Programs" (CCPs) must, among other things, adopt standards set forth in two sets of guidelines for voluntary industry compliance programs:

(1) "Compliance Program Guidance for Pharmaceutical Manufacturers," issued by the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS), April 2003, available at

(2) "Code on Interactions with Healthcare Professionals," issued by the Pharmaceutical Research and Manufacturers of America (PhRMA), July 2003, available at

Toni-Ann Citera
California lawmakers imported the provisions of these two voluntary guidance documents into law and added certain requirements to them. Although the statute applies to companies that do business in California, many of its requirements apply to central business functions. For companies with a headquarters and principal place of business outside California, the statute may purport to regulate conduct that lacks a nexus with California or in which California has only a tenuous interest.

There are constitutional limitations, however, to a state's ability to regulate business operations that do not affect citizens of that state. The statute does not state the degree to which it was intended to reach operations outside California.

Between now and July 1, pharma and device companies should assess their current operations to identify whether any additional internal controls are needed to comply with the new California statute. Companies that do not have extensive California operations may also wish to review the degree to which the statute governs their conduct.

Statute Summarized The California law requires that CCPs satisfy the following requirements:

HHS-OIG guidance. The program must be "in accordance" with the OIG's Compliance Program Guidance for Manufacturers, which sets out seven elements for a corporate compliance program. If OIG changes its guidance document, companies must make conforming changes to their compliance programs within six months.

PhRMA guidance. CCPs must include "policies for compliance" with the PhRMA Code on Interactions with Healthcare Professionals. If PhRMA changes its document, companies must make conforming changes to programs within six months.

Limits on gifts and incentives. CCPs must "establish explicitly" a "specific annual dollar limit" on any gifts, promotional materials, or items or activities that the company may provide to a physician or other professional. Certain items are exempt from the dollar limit, however, including drug samples given to physicians that are intended for free distribution to patients, financial support for continuing medical education forums, and financial support for health education scholarships—assuming that such support conforms to OIG and PhRMA guidance documents.

Furthermore, payments by pharma or device companies to physicians and other professionals for legitimate professional services (bona fide consulting agreements) are also exempt from the annual dollar limit, as long as such payments do not exceed the fair market value of the services rendered and the payments conform to OIG and PhRMA guidance documents.

Written certifications of compliance. Each pharmaceutical and device company must annually declare, in writing, that it is in compliance with both its CCP and the new California statute.

lorem ipsum