The NIH’s Amended Conflict of Interest Regulations: A New, Weaker Approach to Intellectual Property Interests?

Yesterday, at long last, the National Institutes of Health released the final revisions to its regulations governing financial conflicts of interest on the part of applicants for federal research funds.  And there is good news.  The rule’s sunshine provisions have not, as was feared, been “gutted.”  Grant recipients will have to make their investigators’ financial conflicts of interest publicly accessible.  While an institution will not have to post the details of each conflict on its website, as was provided in the proposed regulations, if it does not it will instead have to provide the information in writing to anyone who asks for it.  Academics, advocates, federal and state prosecutors, other regulators, and members of the news media will have the access they need.  For sure, prospective patients or research participants will be less likely to come across information about investigator conflicts, but, as Kathleen Boozang explains here, it is far from clear that they would find such information helpful.

Of potentially more significance than the weakened sunshine provisions, the final regulations diverge from the proposed regulations with regard to the treatment of intellectual property.  Under the prior regulations, investigators were required to inform their institutions about relevant intellectual property rights, including copyrights, patents, and royalties in excess of $10,000.  The proposed regulations modified the definition to require disclosure of copyrights, patents, and royalties (and agreements to share in royalties) regardless of amount.  Under the final regulations, investigators do not need to tell their institutions about their intellectual property rights and interests unless and until they are in “receipt of income related to such rights and interests.”

The preamble to the final regulations is somewhat confusing.  For example, while the final regulations define significant financial interest to exclude intellectual property rights and interests that do not produce income, the agency states in the preamble that it “would expect institutional policies to require disclosure upon the filing of a patent application or the receipt of income related to the intellectual property interest, whichever is earlier.”  The preamble also contradicts itself with regard to the applicability of the rule’s $5,000 threshold, stating at one point that the threshold “applies to licensed intellectual property rights (e.g., patents, copyrights), royalties from such rights, and agreements to share in royalties related to licensed intellectual property rights,” while explaining (correctly, I think) at another point that “the $5,000 threshold would apply to equity interests and ‘payment for services,’ which would include salary but not royalties.”

The NIH’s explanation of its addition of the “receipt of income related to such rights and interests” qualifier to the definition of a significant intellectual property right or interest is especially confusing.  The agency writes that its intent was to exclude from the definition

“the rare cases when unlicensed intellectual property is held by the Investigator instead of flowing through the Institution,” because “it is difficult to determine the value of such interests.”  The agency’s point about valuation may be true, but that is an argument in favor of disclosure not against it.  With regard to equity interests, the final regulation requires investigators to disclose any equity interest in a non-publicly traded entity; the Food and Drug Administration similarly requires disclosure of equity interests “whose value cannot be readily determined through reference to public prices[.]“  The FDA also requires disclosure of any “[p]roprietary interest in the tested product,” without regard to value.

When an investigator has a proprietary interest in a product under study the potential exists for a serious conflict regardless of the interest’s current value or whether it is currently income-generating.  Seton Hall Law’s Center for Health & Pharmaceutical Law & Policy and others have recommended a near-total ban on serving as an investigator in that case.  Such a ban cannot, of course, be implemented unless investigators are required to tell their institutions about their proprietary interests.

The Changing Landscape of Health Information Regulation

There is an impressive new issue of the American Journal of Law & Medicine out, with top names in the field participating in a symposium entitled “Marketing Health: The Growing Role of Commercial Speech Doctrine in FDA Regulation.”  I also wanted to recommend a piece from Simon Stern and Trudo Lemmens on pharma ghostwriting, which is getting a lot of play in Canada.  Titled “Legal Remedies for Medical Ghostwriting: Imposing Fraud Liability on Guest Authors of Ghostwritten Articles,” the piece could lead to some interesting litigation opportunities.  Here is the abstract:

Ghostwriting and guest authorship of medical journal articles raise serious ethical and legal concerns, bearing on the integrity of medical research and evidence used in legal disputes. Ghostwriting involves undisclosed authorship, usually by medical communications agencies or a pharmaceutical sponsor of the published research; guest authorship involves taking authorial credit for the published work without making a substantial contribution to it. Commentators have objected to these practices because of concerns involving bias in ghostwritten clinical trial reports and review articles. We also note the effects of ghostwritten articles on questions involving the legal admissibility of scientific evidence. Efforts to curb ghostwriting practices, undertaken by medical journals, academic institutions, and professional disciplinary bodies, have thus far had little success and show little promise.These organizations have had difficulty adopting and enforcing effective sanctions, for specific reasons relating to the interests and competencies of each kind of organization.

Because of those shortcomings, a useful deterrent in curbing the practice may be achieved through the imposition of legal liability on the ‘guest authors’ who lend their names to ghostwritten articles. We explore the doctrinal grounds on which such articles might be characterized as fraudulent. A guest author’s claim for credit of an article written by someone else constitutes legal fraud, and may give rise to claims that could be pursued in a class action based on the Racketeer Influenced and Corrupt Organizations Act (RICO). The same fraud could support claims of “fraud on the court” against a pharmaceutical company that has used ghostwritten articles in litigation. This doctrine has been used by the U.S. Supreme Court to impose sanctions on the authors and corporate sponsors of a ghostwritten article. We discuss the potential penalties associated with each of these varieties of fraud.

This promises to inspire some difficult legal challenges to industry practices that have long been considered undesirable as a policy matter.

Shine On: Lessons for Disclosure of Industry Payments to Physicians from New Empirical Research on Sarbanes-Oxley’s Conflict of Interest Disclosure Requirement

Woodcut, 16th or 17th Century

In Placebo Ethics: A Study in Securities Disclosure Arbitrage, an interesting (and very readable) article published earlier this year in the Virginia Law Review, Usha Rodrigues and Mike Stegemoller present the results of their empirical research into Section 406 of the Sarbanes-Oxley Act of 2002, which “requires companies to disclose their codes of ethics (or explain why they do not have them), and then to disclose any waivers from that code granted to top corporate officers.”  Briefly, Rodrigues and Stegemoller found that “at least for related-party transactions, firms regularly engage in a kind of ‘disclosure arbitrage,’ neglecting to disclose ethics waivers at the time when transactions occur (in violation of Section 406 of Sarbanes-Oxley),” but complying with a regulation requiring disclosure of such transactions in their year-end proxy statements.  Rodrigues and Stegemoller’s observations about Section 406 have relevance beyond securities law including (and of particular interest to readers of this blog) to recent efforts to regulate conflicts of interest in medicine through disclosure of relationships between physicians and the pharmaceutical and medical device industries.

For several years, a small number of states have required drug and device companies to report their relationships with physicians practicing in those states.  Section 6002 of the Patient Protection and Affordable Care Act takes it to the next level, requiring “drug, device, biological, or medical supply” companies to report all of the payments they make to physicians and teaching hospitals in all of the 50 states.  The Secretary of Health and Human Services is required to make the payment information public “through an Internet website,” in a form that is clear, understandable, and searchable, and in a format that is easily aggregated and downloaded.  While drug and device companies do not need to submit their first reports under PPACA until March 31, 2013, those reports are to include all payments made to physicians and teaching hospitals in 2012.  As a result, drug and device companies are hard at work right now putting systems in place to accomplish the information gathering and organizing that nationwide reporting will require.

In a number of important ways, the disclosure regime established by PPACA comports with Rodrigues and Stegemoller’s findings and recommendations.  First, having found that disclosure via company websites (as is allowed under Section 406 of Sarbanes-Oxley) has a number of downsides, they recommend that disclosure be made through EDGAR, the SEC’s consolidated, easy-to-use, indefinitely accessible database.  As Duff Wilson reports here, several companies have begun disclosing the payments they make to physicians on their own websites and downsides similar to those pointed out by Rodrigues and Stegemoller have been noted.  For one, a patient interested in learning more about a given doctor’s relationships with industry would have to search each company’s website individually and then compile the results.  The companies have not made this easy to do; most use formats that make it very difficult to aggregate or analyze the data they report.  PPACA’s HHS-run website will solve these problems.

Relatedly, Rodrigues and Stegemoller found that, given the chance, companies will choose to bury “unsavory related-party transactions” “in the rubble of sundry disclosures.”  This pitfall, too, should be avoided under PPACA’s disclosure regime.  (If anything, the statute is too lean-and-mean, providing that payments be labeled with bare descriptors like “consulting fees” and “gift.”)

Finally, Rodrigues and Stegemoller suggest that one of the problems with Section 406 of Sarbanes-Oxley is that it sets forth a “soft” disclosure requirement; a company is permitted to determine for itself what its code of ethics permits or does not permit and, a fortiori, under what circumstances a (disclosable) waiver of that code will be required.  Predictably, this leads to “companies evad[ing] illegality by watering down their codes to such a degree that they no longer forbid the very Enron-style conflicts of interest that led to the adoption of Section 406.”     Section 6602 of PPACA, by contrast, sets forth a “hard” disclosure requirement.  Companies have to disclose all payments, not just those that they have determined create a conflict of interest.

There is one concern raised by Rodrigues and Stegemoller with regard to Section 406 of Sarbanes-Oxley that may apply to Section 6602 of PPACA — the problem of enforcement (or lack thereof).  They note that “the basic consequence of underenforcement is the imposition of disclosure requirements on paper that are ignored in real life.”  Overlapping disclosure requirements (such as those that Rodrigues and Stegemoller exploited to conduct their research) are one way to determine whether required disclosures are made.  With regard to physician payments, a valuable cross check would be provided by the draft Public Health Service conflict regulations’ requirement that any significant financial interest that (1) is still held by a principal investigator or senior/key person, (2) is related to government-funded research, and (3) is a financial conflict of interest must be disclosed to the public via the world wide web; the disclosures that physician-investigators must make to medical journals will also serve this function.

Seton Hall Law School’s Center for Health & Pharmaceutical Law & Policy Issues White Paper Calling for Major Reforms in the Financing and Oversight of Clinical Research

Seton Hall University School of Law’s Center for Health & Pharmaceutical Law & Policy has called for major substantive reforms in the financing and oversight of clinical research. In a White Paper entitled “Conflicts of Interest in Clinical Trial Recruitment & Enrollment: A Call for Increased Oversight,” the Center proposes legal and policy changes to address conflicts of interest in the relationships between industry and doctors that can create unwarranted risks to trial participants and to the scientific integrity of research.

Kathleen Boozang, a dean who oversees the Law School’s Center, explains that “Some of the ways that drug and device trial sponsors pay the physicians who lead clinical trials can tempt them to recruit individuals for clinical trials who would be better off receiving conventional therapy. This is of particular concern if physicians encourage their own patients to enroll in trials that these same physicians are overseeing.”

Over 60% of testing of experimental drugs and medical devices now occurs in physicians’ private offices; unlike years past, industry funds a much higher percent of clinical trials than government, frequently paying researchers significantly more than government does.  For some physician practices, conducting clinical trials represents a significant portion of their income.

According to Carl Coleman, a Seton Hall Law professor who collaborated on the White Paper, “A different kind of problem arises if people are enrolled in trials who don’t meet the criteria for who should participate - these individuals’ health can be put at risk, and their participation can skew the results of the trial, which is bad for everyone.”

Federal regulations in this area have not kept up with the rapid changes in how research occurs, and even those regulations that exist are poorly enforced, according to recent government studies.  Understanding that the collaboration among industry, government, and medicine in the pursuit of clinical research is critical to driving scientific progress, particularly as industry increasingly replaces the government as the primary source of research funding, the Center’s recommendations include:

1) Establishing a norm of financial neutrality between treatment and research. Ensuring that physicians receive comparable compensation for treatment and research will help ensure that their decisions to conduct research, as well as to recommend that a particular individual participate in a clinical trial, are grounded in reasons unrelated to their personal financial interests. This will be best accomplished, in the first instance through regulations that ban certain kinds of research compensation, and provide examples of acceptable payment methodologies that industry can follow. Reform by prosecution signals what practices government dislikes, but does not provide a clear vision of ideal approaches to managing conflicts of interest related to the conduct of research.

2) Establishing federal guidelines as to the principles or methodology by which to determine fair market value of physician time spent in clinical work. Federal regulations should be promulgated that establish a benchmark formula for determining fair market value of physicians’ time, effort and expenses for clinical research. Such regulations would promote the goal of financial neutrality between treatment and research. Physicians cannot be underpaid for research either - compensation for clinical trial work should therefore include reimbursement for any additional expenses that are unique to the research environment.

3) Banning payments with equity interests; disqualification of investigators who hold direct interests in the outcome of the research. Federal regulations should prohibit compensation for research in the form of an equity interest in the sponsor of a clinical trial. The law should preclude researchers who have investments that give them a direct interest in the outcome of the research from leading clinical trials.  Where absolutely necessary, such individuals might appropriately serve as consultants.

4) Banning payments of finder’s fees and bonuses for recruitment and retention of trial subjects. Certain forms of compensation create conflicts of interest that can incentivize investigators to enroll individuals in a clinical trial who are too healthy or too sick to participate, or to deemphasize information that might discourage individuals from consenting to trial enrollment. Federal law should ban such compensation methods, including finder’s fees and bonuses for meeting recruitment and retention goals.

5) Reforming federal regulations to compel and better guide the evaluation of relationships between industry and would-be physician investigators prior to the commencement of research.   The White Paper includes overlapping but sometimes distinctive recommendations for federal regulation to evaluate and oversee investigator or institutional conflicts of interest, both for research within and without academic medical centers.  Specific to research outside of academic medical centers, federal regulations should spell out clearly the obligation of community-based physicians acting as investigators or institutions acting on their behalf to report information about compensation for research and other financial interests to Institutional Review Boards.

Summarizing the importance of this White Paper, Boozang states, “The pharmaceutical and medical device industries save millions of lives each year with their innovations.  It is imperative that we maintain the integrity of research, and the public’s trust in the process.”

Seton Hall Law School’s Center for Health & Pharmaceutical Law & Policy. The Center is a think tank that fosters dialogue, scholarship, and policy solutions to critical issues in health and pharmaceutical law. As part of its mission, it convenes policymakers, consumer advocates, the medical profession, industry, and government in the search for concrete solutions to the ethical, legal, and social questions presented in the health and pharmaceutical arenas. The Center also runs a compliance training program covering the state and federal laws governing the development and marketing of drugs and medical devices. The White Paper, “Conflicts of Interest in Clinical Trial Recruitment & Enrollment: A Call for Increased Oversight,” may be found here.

Seton Hall University School of Law, New Jersey’s only private law school and a leading law school in the New York metropolitan area, is dedicated to preparing students for the practice of law through excellence in scholarship and teaching, with a strong focus on clinical education. The Law School’s health law program has been ranked as one of the top programs in the country. Founded in 1951, Seton Hall Law School is located in Newark and offers both day and evening degree programs. For more information visit law.shu.edu.

Alternative Revenue Stream for Private Practice Physicians – Research Investigator

Clinical research is the only way [for a physician in the managed care era] to make a boat payment, quips David Stark, M.D.

With increasing frequency, pharmaceutical and medical device companies are turning to physicians in private practice, rather than academic medical centers, to serve as investigators overseeing the 60,000-odd clinical trials each year, between 80 and 90% of which are funded by industry as opposed to, say, NIH. Academic medical centers are losing the “business,” having fallen from 63% to 26% as the site for clinical research between 1994 and 2004. While it might be argued that trials in the private practice setting produce superior results because they occur under circumstances that more closely resemble how the drug or device will actually be used if approved by the FDA, there are significant risks attendant to this phenomenon that have received too little attention.

The ultimate question is whether physicians can compartmentalize the competing incentives that exist in advising patients about whether to pursue conventional therapy or participate in a clinical trial. This is especially true if the physician is being handsomely compensated for each patient she recruits into a trial, and is exacerbated when the physician also has other financial relationships with the trial sponsor (the drug or device company) for, say, speaking and consulting gigs. Clinical Research in the Private Office Setting — Ethical Issues The recruitment process for clinical trials is the longest and most costly part of the process - prospective participants have to undergo testing to see if they qualify for the study, and federal law requires that they receive significant amounts of information and have ample opportunity to have their questions answered pre-enrollment. A per capita payment contingent upon successful enrollment of the patient will tempt a physician to fudge on this process and enroll unqualified subjects. This not only may put them at risk because they are too sick, but also skew the research results because they’re not sick enough. Bonuses for meeting enrollment goals only make it worse.

Without impugning physician integrity, how realistic it is for physicians to serve in the dual capacity of treating physician and researcher? Studies have repeatedly confirmed “therapeutic misconception” whereby study participants believe, no matter how clearly told to the contrary, that they are “patients” receiving treatment, rather than “subjects” of research who may be receiving a placebo or an experimental drug. This phenomenon is certainly exacerbated when the patient’s treating physician is doubling as the investigator of the clinical trial. Most patients continue to believe that their own personal physician would be driven solely by their best interests. Ironically, some people have more faith in an experimental intervention when they learn that the investigator has a “piece of the action.”

Obviously, significant policy and legal questions arise from this practice, and a more holistic approach to the question of the best way to encourage clinical trials while safeguarding the interests of trial subjects is beyond what I can attempt here. But one possible approach could be drawn from informed consent law — whether statutory or common law, which should require physician disclosure of conflicts of interest to patients. Imagine the beginning of a conversation between doctor and patient/potential research subject:

Doctor: “Just so you know, if you agree to participate in this clinical trial, I get paid $1000 by the manufacturer of the product being tested, but if you don’t, and you just want regular treatment, I’ll only get paid $60 by your insurance company. But, in fairness, that’s because a clinical trial is a lot more work for me….”

But to be honest, I don’t really believe in this solution either. Most recipients of this information either don’t understand it, or have no idea what to do with it, or both. Some fear that too much confusing information might kill trials altogether, which would be a terrible outcome. And there are certainly reasons to fear that such trials are becoming harder to run, to the point where they’re not worth the money. Ultimately, I guess, I want to control how physicians get paid to serve as investigators — the Goldilocks Solution — not too much, and not too little. I want them to be paid just right, so that they are willing to conduct clinical trials, but aren’t tempted to act other than in the patient’s best interest. Of course, what is just right and how to enforce it poses its own problems.

Seton Hall Law School, the author’s employer, is the recipient of grants, donations and endowments from the pharmaceutical industry. No part of the author’s compensation is funded by these gifts.

x-posted at Concurring Opinions

Clinical Research: When the Compensation Begs the Answer

photo by A.M. Kuchling via Flickr

The New York Times reports that New Jersey Attorney General Anne Milgram announced a settlement agreement with medical device maker, Synthes, for failing to disclose the financial conflicts of interest of doctors researching its products. Synthes is the maker of the ProDisc, an artificial spinal disk.

The settlement agreement with Synthes was described in the AG’s press release, which quoted Ms. Milgram, as “the first of its kind because of its disclosure provisions, as well as its ban on compensating clinical researchers with company stock. She said the latter provision runs counter to widespread industry practice — a practice she called unacceptable.” Notably, the state pursued the case as a matter of consumer fraud. The premise being that the failure to fully disclose such conflicts constituted such for both human trial subjects and the purchasing public.

In a letter to the FDA, critical of the FDA and cc’d to key members of Congress, Ms. Milgram described the results of the AG’s investigation into the business and research practices of Synthes. The letter states:

The investigation revealed that a majority of the physicians who participated in these clinical trials had significant investments in the products -investments that would have been worthless had the product failed to obtain regulatory approval from the FDA. And, the investigation revealed that Synthes, which acquired ProDisc while the clinical trials were underway, failed to disclose these financial conflicts of interest to the FDA.

Yet, despite the fact that Synthes’ failure to adequately disclose these interests should have been obvious from even a cursory review of its FDA submissions, the FDA did nothing to regulate these conflicts. A number of the disclosure forms were signed and dated, but were otherwise left blank. Others indicated that the clinical investigator had a significant equity interest in the product, but did not attach the requisite details. But the FDA approved Synthes’ applications for premarket approval without any delay or further inquiry into this issue.

Leaving aside for the moment the criticism of the FDA (the State of New Jersey joins a long list of increasingly vocal complainants, including the Program on Government Oversight (citing “dramatically reduced inspections of ‘good laboratory practices’ at facilities that do the earliest testing of medical devices. Such inspections declined from 33 in 2005, to seven in 2007, to just one last year”),  and FDA scientists from the Center for Devices and  Radiological Health, who have openly proclaimed that the FDA “is fundamentally broken.”), it’s worth a moment to consider that Synthes has agreed to “stop paying doctors who are conducting clinical trials of its products with stock or stock options,” and that AG Milgram described the compensation of research doctors with stock as being “apparently common” and a “widespread industry practice.”

Compensating a  doctor with stock or stock options financially tied to the results of his research may well be the antithesis of an impetus for objective clinical research.

The basic proposition is this: you, doctor, are charged with investigating whether or not this medical device is safe and fit and shows efficacy for human use. For doing so, we will give you a portion of the company (stock or stock options) which owns the medical device. If the medical device is efficacious and fit for human use, the company will stand to profit. As a holder of stock and/or stock options in the company, you will be paid a portion of that profit and/or the value of your holdings in the company will increase correspondent to your determination of safety for human use and efficacy. If you determine that the device is not safe for human use and/or not efficacious, your holdings in the company will be worth much less, if not worthless. “Is the device safe for human use and efficacious?” Does an answer of “Yes” surprise anyone?

It is also not an answer to say that the doctors may have merely been compensated in cash and then later converted that cash into stock or stock options independently. My guess is that in constructing these compensation packages, as with most securities matters, timing and knowledge is important. That the stock or stock options must be issued or at least contracted for by the researcher simultaneous with the hiring so as to avoid SEC difficulty regarding the particulars of the researchers’ “inside” and “confidential” knowledge regarding the device and the research itself. Researchers who have purchased interested stock (or who have had stock purchased by others) before news of their research has been made public have often paid a price.

And obviously, once the doctor’s research has been made public, any positive results will have been already reflected in the market price of the stock, all but foreclosing the research doctor from reaping profits tied directly to his research determinations.

As part of A.G. Milgram’s “Assurance of Voluntary Compliance agreement (the Synthes case was handled by Deputy Attorney General Megan Lewis, Chief of the Division of Law’s Affirmative Litigation Section, and Deputy Attorney General Michelle T. Weiner) Synthes must disclose any future payments made by the company to physicians conducting clinical trials on its devices, as well as any investments held by such physicians in the devices they test. A $3 billion global company, Synthes has also agreed to stop paying clinical trial physicians with company stock or stock options.”

Attorney General Milgram said that “the Synthes agreement should serve as a template for the entire industry,” and in her letter to the FDA remarked that she was “hopeful the Synthes terms will become “best practices” for disclosure among medical device makers.”

In addition to signifying her hope, Ms. Milgram announced that her office issued subpoenas “to five major medical device manufacturing companies seeking information about their business practices.”