"New California Law Mandates Compliance with OIG Guidance and PhRMA Code"

3 min

California Governor Arnold Schwarzenegger has signed a new law that requires generic and branded pharmaceutical companies, as well as wholesalers and distributors and other players in the distribution chain, to adopt “Comprehensive Compliance Programs” that are in accordance with the HHS Office of Inspector General (OIG) Compliance Guidance for Pharmaceutical Manufacturers, issued in April 2003 by then-Inspector General Janet Rehnquist. The Comprehensive Compliance Programs must also comply with the PhRMA Code on Interaction with Health Care Professionals. A copy of the new law, which takes effect July 1, 2005, can be found by clicking on the PDF attached below.

Under the new law, S.B. 1765, a pharmaceutical company must certify annually that it adheres to its Comprehensive Compliance Program and that its Program follows the OIG Guidance and PhRMA Code. A company must make its declaration of compliance available on its website and provide a toll-free number where copies of compliance documents can be requested. A company must also make conforming changes to its compliance program within six months of any revisions or updates of the OIG Guidance or the PhRMA Code.

Both the OIG Compliance Guidance and the PhRMA Code were designed as “best practices” and a statement of principles to encourage voluntary compliance. California has taken compliance to a new level by codifying federal guidelines and internal industry standards that were not subjected to the processes involved in passing regulations or statutes. There are no penalty provisions or enforcement mechanisms on the face of the statute, although other parts of the California code contain both. Under the new law, Comprehensive Compliance Programs must include:

  • Limits on gifts or incentives to healthcare professionals;

  • Explicit annual dollar limit on gifts, promotional materials, or items or activities that a company may give to individual medical or healthcare professionals.

 Activities exempt from limits (but which still must comply with the OIG Guidance and the PhRMA Code):

  • Drug samples;

  • Financial support for CME;

  • Financial support for health education scholarships;

  • Payment for legitimate professional services provided by healthcare or medical professionals, not to exceed fair market value.

“Pharmaceutical company” is broadly defined to include entities involved in the production, preparation, processing, packaging (or repackaging), labeling (or re-labeling), and distribution of “dangerous drugs.” The term “dangerous drug” is defined to include both prescription drugs and prescription devices, even though the OIG Guidance and PhRMA Code are directed toward pharmaceuticals. “Pharmaceutical company” also includes a person who engages in pharmaceutical detailing, promotional activities, or other marketing of “dangerous drugs” on behalf of a pharmaceutical company. The definition excludes a licensed pharmacist, but the distribution efforts of most pharmacy chains might bring them within the reach of the act.

The new law is ambiguous and raises significant questions about interpretation and enforcement. Affected companies should begin to assess their options, including a review of their compliance programs to create an action plan to determine what steps they need to implement over the next several months to be sure that their Comprehensive Compliance Program adheres to the OIG Compliance Guidance and the PhRMA Code.