Big Pharma's Newest Cost Center - Pharmaceutical Executive

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Big Pharma's Newest Cost Center


Pharmaceutical Executive


Surging costs of compliance

While it is difficult to estimate precisely the total costs incurred by multi-national corporations operating both in the United States and Europe in complying with these transparency initiatives, it is undeniable that these costs have skyrocketed in recent years. CMS predicted that the average labor costs for an applicable manufacturer in complying with the Sunshine Act would be $159,234 in the first year and $119,426 in the second year. CMS estimated that large manufacturers would spend $50,000 in the first year and $5,000 in the second year for infrastructure costs, while small manufacturers would spend significantly less, $4,000 in the first year and $400 in the second year. The threshold size for "small" pharmaceutical manufacturers is 750 employees. Thus, for a pharmaceutical manufacturer, the US government estimated that the cost of implementation would be roughly $200,000 in the first year.

Industry contacts have scoffed at this low estimate, noting the vast resources needed not only for actual tracking but often for purchasing databases. Fellow consultants and company personnel responsible for marshaling a company's resources have noted figures well above $1 million to comply with this US law in the first year. Based on initial estimates from the industry, the EFPIA Disclosure Code compliance costs are expected to be in the same range.

There are also costs that are difficult to capture, including the loss of opportunity to collaborate with leading physicians or institutions who have instituted a no-industry payment policy, and the financial consequences for noncompliance as a result of enforcement actions. In Europe, new data protection regulations could also affect compliance costs around promotion.

Reducing cost of compliance

The increase in public scrutiny through both voluntary and legally mandated disclosures is designed by both organizations to bolster public confidence in the pharmaceutical industry. Here are a number of recommendations for reducing overall cost while not short-changing the legal obligations around compliance efforts:

Designate personnel with compliance responsibility as early as possible and shop around for experienced outside firms.

  • Tracking and reporting accurately is important not only because of the legal fines that can be imposed, but the risk of investigations by the US Department of Justice for Anti-Kickback allegations or potential False Claims Act suits that could arise after publication.

Determine whether any exceptions apply.

  • Does the 10 percent of annual revenues limit apply under the Sunshine Act?
  • Can any of your separate divisions be considered exempt from US reporting obligations because it only manufactures non-covered products?
  • Does the transfer of value relate to over-the-counter medicines, items of medical utility, meals and drinks, or medical samples which are excluded from EFPIA's Disclosure Code?

Anticipate strategic growth areas and analyze whether transparency rules will apply to those business sectors. If so, plan compliance efforts early.

There are many additional legislative transparency mandates, spanning countries as diverse as France and Slovakia that companies must monitor. Countries in Asia, such as Japan, have their own transparency initiatives. Pressures and interest to do the same is growing in key emerging country markets like China. We believe this global trend of seeking transparency between manufacturers and providers will require sustained focus on managing these rising compliance costs, in much the same way that companies have tackled the cost burden in product registration and approvals.








Hae-Won Min Liao is Partner at Sidley Austin LLP. She can be reached at
. Michele Tagliaferri is Counsel at Sidley Austin LLP. He can be reached at
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