Sales Management: Gifting Laws Cause Regulatory Woe

New legislation forces drug companies to rethink marketing and sales initiatives.
Jun 01, 2006


Ron Buzzeo
The regulatory environment for the pharmaceutical industry never has been more burdensome than it is today. Recently, the federal government increased the number of penalties it issues against pharma companies; FDA announced sample inspections for this year; and the Drug Enforcement Administration has increased monetary penalties against the industry.

Drug makers—already working in one of the most highly regulated industries—are now facing a new challenge and the prospect of an avalanche of complicated compliance initiatives and regulatory red tape. This time, however, the crackdown isn't only coming from the federal government, but also from individual states. And that could mean bigger headaches, more monetary penalties, and increased complications for the industry.

States Take Aim

In an effort to pressure pharma companies into decreasing prescription drug costs, states have latched onto the idea that reducing companies' marketing and promotional spend would result in lower drug prices. As a result, states have rushed to pass legislation that regulates gift giving, promotional activities, and direct marketing to doctors by pharma sales representatives. While many question the effectiveness of this approach, the reality is that pharma companies are facing a nightmare scenario that could lead to 50 new and disparate compliance reporting systems instituted by 50 different government bodies.

This myriad of legislation is not only forcing the industry to rethink its selling and marketing techniques, but also to evaluate how to handle the prospect of mountains of additional paperwork that it would need to complete in order to remain compliant.

Vermont, Maine, West Virginia, Minnesota, and the District of Columbia already have passed gift-disclosure laws that require pharma companies to provide detailed reports on gifts, promotion and marketing costs, drug samples, food and entertainment, and travel expenditures. Failure to report these activities to the state can result in fines to pharma companies of nearly $10,000 per violation and—even worse for an industry already under the media's scrutiny—public disclosure of the violations.

And it looks like the scope and impact of the legislation is growing.

California recently passed regulations calling for self-reporting from pharma companies, and a piece of legislation entitled "Drug Company Gift Disclosure Act" has been submitted to Congress.

Minnesota has pending legislation that would increase the monetary penalty of violations to approximately $25,000.

The Domino Effect

Back in December 2005, 13 states were considering gift-disclosure bills. There now are 21 other states, including New York, Illinois, Pennsylvania, and New Jersey, with disclosure legislation pending—and there's no telling how many additional states will be joining them.

Unfortunately for pharma companies, most of the pending legislation is based on Vermont's policy, which may be the most rigid in the nation. New York is even considering publishing a guide that would show how much money in gifts and promotions each doctor receives from individual pharma companies.

This rapid move by the states to legislate is unprecedented and moving so fast that it's difficult for pharma companies to keep track of all of the different bills. The level of variation in the legislation varies from state by state—making the devil in the details.

In particular, states take a varying view on what counts as a gift. For example, in Vermont, West Virginia, Maine, and the District of Columbia, advertising costs—including marketing and direct promotion costs, such as radio and newspaper advertisements—are counted as gifts to doctors. On the other hand, in Minnesota and California, advertising as a gift is exempt from the disclosure/reporting requirements.

Most of the pending legislation exempts samples as a gift. But the District of Columbia considers samples gifts, and, therefore, companies must report them as such. It remains to be seen how other states with pending legislation will define sampling programs.

Finding Answers for Pharma