Vermont Passes Sweeping Law that Prohibits, Requires Disclosure of Gifts from Drug, Device, and Biologics Makers to Physicians

By Jamie K. Wolszon & Jeffrey N. Wasserstein –

The Vermont legislature recently passed S. 48, a bill that would prohibit manufacturers of prescription drug, device, and biologics products from providing certain kinds of gifts or payments to physicians and other health care providers, and would require disclosure to the state of most other kinds of gifts or payments, regardless of amount.  We were told by the Vermont Governor's office that the bill is expected to be signed into law in the next week or so.  Vermont’s previous gift disclosure law required disclosure of gifts or payments of $25.00 or more to physicians and other health care providers in Vermont in connection with detailing or other promotional activities. This latest effort to limit pharmaceutical marketing further adds to the confusing patchwork quilt of state regulation, resulting in additional difficulty in complying with potentially 50 different sets of marketing requirements. While Justice Brandeis famously applauded states acting as laboratories and engaging in social and economic experiments, query whether he would view this level of experimentation to be the work of mad scientists. New State Ice Co. v. Liebmann, 285 U.S. 262, 52 S.Ct. 371, 76 L.Ed. 747 (1932) (Brandeis, J. dissenting).

The recently enacted law is far more sweeping than comparable gift disclosure laws in other states, particularly as it prohibits almost all gifts and requires disclosure regardless of amount. In comparison, the Minnesota law only prohibits the provision of certain gifts with an aggregate value of $50 per practitioner. The Minnesota law requires disclosure of certain types of gifts only if the value exceeds $100 in aggregate per practitioner per year.  Maine and Washington D.C. only require disclosure of gifts or payments of more than $25. West Virginia only requires disclosure of payments of more than $100 per year for a single health care practitioner (here and here). The Massachusetts law requires disclosure of the payment or gift of more than $50 made to a healthcare professional. We previously reported on the Massachusetts law (here and here).

The new Vermont law also is more encompassing than proposed federal legislation, the Physician Payments Sunshine Act, introduced by Senators Charles Grassley (R-IA) and Herb Kohl (D-WI). The proposed federal legislation only requires disclosure for transfers of value or payments of $100 or more per year per covered recipient. We previously reported on the proposed federal legislation.

Provision of Item of Value Prohibited Unless Allowable Expenditure or Specified Exempted Gift: The law bans any manufacturer of prescription drugs, devices or biologics, any wholesale distributor of medical devices, or their agents from giving gifts except for several categories of specified gifts. The law defines a manufacturer to include “any other person who is engaged in the production, preparation, propagation, compounding, processing, packaging, repacking, distributing, or labeling of prescribed products,” although it excludes a wholesale distributor of biological products or a licensed pharmacist.

The law’s definition of gift includes “anything of value provided to a health care provider for free” and “any payment, food, entertainment, travel, subscription, advance, service, or anything else of value provided to the heath care provider” that are not “allowable expenditures” or reimbursed by the health care professional at fair market value.

Items of value that do not fall within the definition of a gift because they are an allowable expenditure include:

• Payment to the sponsor of a significant educational, medical, scientific, or policy-making conference or seminar for bona fide educational purposes that do not discuss specific products, are objective and do not have industry control;
• Honoraria and payment of the expenses of a health care professional who serves on the faculty of a bona fide significant educational, medical scientific, or policy-making conference or seminar that meet certain criteria;
• Specified compensation, salary support and expenses related to a bona fide clinical trial or specified research projects;
• Reasonable expenses necessary for technical training of a health care professional on the use of a medical device if a written agreement between the health care provider and the manufacturer documents the amounts or categories of expenses;
• Certain royalties and licensing fees; and
• “Other reasonable fees, payments, subsidies, or other economic benefits provided by a manufacturer of prescribed products at fair market value.”

Items of value that are gifts under the law but are exempt from the prohibition include:

• Samples to be distributed for free to patients;
• Rebates and discounts provided in the normal course of business;
• Devices loaned for a period of less than 90 days to allow a health care provider or patient to evaluate the device;
• Reasonable quantities of demonstration or evaluation units of a device;
• Provision, distribution, dissemination or receipt of peer-reviewed academic, scientific, or clinical articles or journals and “other items that serve a genuine educational function provided to a health care provider for the benefit of patients”;
• Provision of FDA-approved labels; and
• Scholarship or other support for medical students, residents, and fellows to attend a significant educational, scientific or policy-making conference of a medical or professional association if the association selects the recipient.

Disclosure: Even if a device, drug or biologics maker can provide an item of value to a physician, the manufacturer must disclose information about the value, nature and recipient for those permitted items regardless of how little the manufacturer spent. The disclosure requirement applies to both allowable expenditures and to exempted gifts, however, the manufacturer does not have to provide information for royalties or licensing agreements, and rebates and discounts provided in the normal course of business.

The manufacturer also does not have to provide the information about the value, nature and recipient for samples. However, the law directs the attorney general’s office, in consultation with the commission on health care reform, to review whether to require disclosure of samples in the future. To that end, the law requires the attorney general’s office to provide a report to the relevant House and Senate committees no later than December 15, 2009.

The new Vermont law includes a provision that would delay the reporting requirement for permitted payments related to clinical trials: Manufacturers do not have to report until the earlier of: the date of the product approval or clearance or two years after the payment.  The proposed federal legislation also contains this reporting delay. Under the Vermont law, the manufacturer would have to identify the clinical trial, the start date of the trial, and the web link to the clinical trial registration on the national clinical trials registry.

The manufacturer must report specified information about the value, nature and recipient for those permitted items on October 1 each year for the fiscal year ending the previous June 30. On July 1 of each year, the manufacturer must provide the name of the person in charge of ensuring compliance with the law.

Civil Monetary Penalties: The Vermont attorney general may impose civil monetary penalties of up to $10,000 per unlawful gift or $10,000 per failure to report.

Effective Date: The law generally takes effect July 1, 2009, with a phase-in of the disclosure requirements. Pharmaceutical manufacturers must file by November 1, 2009, disclosures for the time period of July 1, 2008 to June 30, 2009 based on the previous version of the Vermont gift disclosure law. Device and biologics manufacturers must file by October 1, 2010 their disclosures, under the provisions of the new law, for the time period of January 1-June 30, 2010.

Open Questions: The law leaves open several questions. For instance, it is unclear whether the law would permit the dissemination of promotional materials (other than FDA-approved labels), or Risk Evaluation and Mitigation Strategies (REMS)-type educational materials as “other items that serve a genuine educational function provided to a health care provider for the benefit of patients"? Or is this “other items” language limited to educational materials such as textbooks or anatomical models?

Moreover, how does one determine the value of items that are not easily assessed such as loaner devices, articles and FDA-approved labels?