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SB 790 – California Proposed Legislation on Pharmaceutical Gifts to Health Providers

Legislative Status:  The California Senate passed SB 790 and it is now before the California Assembly Committee on Health (next hearing is June 27, 2017), having been amended by the Assembly on June 13, 2017. If adopted by the Assembly with amendments from the version passed by the Senate, the Senate will then have to “concur” on such a version before it is passed by the legislature and sent to the Governor for final adoption and incorporation into the California Health and Safety Code.

Summary:  This bill prohibits a manufacturer of a prescribed product (or its agent) from offering or giving a gift to a health care provider. A gift is anything of value provided for free and includes any payment, food, entertainment, travel, subscription, advance, service, or anything else of value, UNLESS it falls under the allowable expenditure exception (see below Key Provisions) or the cost of such gift is paid back by the health care provider at fair market value (since advances are prohibited, fair market value may include interest).

The bill also prohibits a manufacturer of a prescribed product, or an entity on its behalf, from providing a fee, payment, subsidy, or other economic benefit to a health care provider in connection with the provider’s participation in clinical trials or research projects, except as provided under paragraph (a)(3) (see below Key Provisions) relating to the allowable expenditure conditions applicable to clinical trials and research projects.

Other exceptions to the above prohibitions are as follows:

  • Samples for free distribution to patients of a prescribed product or reasonable quantities of an OTC drug, medical food, or infant formula.
  • Provision, distribution, or receipt of peer-reviewed academic, scientific, or clinical articles and other items serving a genuine educational function for the benefit of patients.
  • Scholarship or other support for medical students, residents, and fellows to attend a Conference (defined below) of a national, regional or specialty medical or other professional association if such recipient is selected by the association.
  • Rebates and discounts for prescribed products provided in the ordinary course of business.
  • FDA approved labels for prescribed products.
  • Provision to a free clinic of financial donations or free prescription drugs, OTC drugs, biological products, combination products, medical food, or infant formula.
  • Free or discounted prescribed products pursuant to a manufacturer sponsored or funded patient assistance program.
  • Fellowship salary support provided through grants for manufacturers if (i) grants are applied for by an academic institution or hospital; (ii) the institution or hospital selects the recipient fellows; (iii) the manufacturer imposes no further demands or limits on the institution’s, hospital’s, or fellow’s use of the funds; AND (iv) fellowships are not named for a manufacturer and no individual recipient’s fellowship is attributed to a particular manufacturer of prescribed products.

Key Provisions:   As amended, SB 790, if passed and approved by the Governor in its current form, would codify the following into law.

SB 790 provides two key provisions, each of which has important exceptions:

  • “A manufacturer of a prescribed product or an agent thereof, shall not offer or give a gift to a health care provider.” Emphasis added.
  • “Except as described in paragraph (3) of subdivision (a) … a manufacturer or an entity on behalf of a manufacturer shall not provide a fee, payment, subsidy, or other economic benefit to a health care provider in connection with the provider’s participation in research.” Emphasis added.

Exceptions to Key Provisions:

  • The term “gift” is defined broadly, but does include key exceptions. A “gift” means either (i) “[a]nything of value provided for free to a health care provider” or (ii) “[a] payment, food, entertainment, travel, subscription, advance, services, or anything else of value provided to a health care provider, unless it is an allowable expenditure as defined in subdivision (a) or the health care provider reimburses the cost at fair market value.” Emphasis added.

An “allowable expenditure” (exceptions to prohibited gifts in key provision #1) means any of the following:

  1. Payment by a manufacturer[1] of a prescribed product to the sponsor of a significant educational, medical, scientific, or policymaking conference or seminar (“Conference”) if ALL of the following conditions are met:
    1. The payment is not made directly to a health care professional or pharmacist.
    2. Funding is used solely for bona fide educational purposes except the sponsor may, in its discretion, apply some or all of the funding to provide meals and food for all conference participants.
    3. All program content is objective, free from industry control, and does not promote specific products.
  2. Honoraria and payment of expenses of a health care professional who serves on the faculty at a Conference if ALL of the following conditions are met:
    1. The honoraria or payment is governed by an explicit contract with specific deliverables that are restricted to medical issues, not marketing activities.[2]
    2. Consistent with federal law, the content of the presentation is determined by the health care professional.
  • For (1) a bona fide clinical trial or, alternatively, (2) a research project that constitutes a systematic investigation, is designed to develop or contribute to general knowledge, and reasonably can be considered to be of significant interest or value to scientists or health care professionals working in the particular field of inquiry, all of the following must be met[3]” (emphasized above as “paragraph (3)”):
    1. “Compensation for services provided by investigators, health care professionals, or health care entities in connection with the bona fide clinical trial or research project.
    2. Expenses paid on behalf of investigator, health care professionals, or health care entities in connection with the bona fide clinical trial or research project.
    3. Expenses paid by the investigators, health care professional, or health care entities in connection with the bona fide clinical trial or research project.
    4. Materials and supplies used in connection with the bona fide clinical trial or research project.”
  1. “Royalties and licensing fees paid to health care providers in return for contractual rights to use or purchase a patented or otherwise legally recognized discovery for which the health care provider holds an ownership right.”
  2. Payment of reasonable expenses of an individual related to an interview of such individual by a manufacturer in connection with a bona fide employment opportunity or for health care services on behalf of the manufacturer.
  3. Meals for a health care provider that do not exceed $250 per person, per year.
  • The pertinent exception that applies to key provision #2 is as follows:

For (1) a bona fide clinical trial or, alternatively, (2) a research project that constitutes a systematic investigation, is designed to develop or contribute to general knowledge, and reasonably can be considered to be of significant interest or value to scientists or health care professionals working in the particular field of inquiry, all of the following must be met” (see above and footnote 3):

  1. “Compensation for services provided by investigators, health care professional, or health care entities in connection with the bona fide clinical trial or research project.
  2. Expenses paid on behalf of investigator, health care professionals, or health care entities in connection with the bona fide clinical trial or research project.
  3. Expenses paid by the investigators, health care professional, or health care entities in connection with the bona fide clinical trial or research project.
  4. Materials and supplies used in connection with the bona fide clinical trial or research project.”

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[1] Under the law, a manufacturer “means a pharmaceutical manufacturer, biological product manufacturer, or any other person engaged in the production, preparation, propagation, compounding, processing, marketing, packaging repacking, distributing, or labeling of prescribed products.” Emphasis added. Manufacturer does not include a wholesale distributor of biological products, retailers, or pharmacists.

[2] “’Marketing’ means promoting, detailing, or any activity that is intended to be used or is used to influence sales or market share or to evaluate the effectiveness of a professional force.” As drafted, the language creates ambiguity between “medical issues” and “marketing activities” because often times deliverables from a provider’s services at a Conference may be focused on medical issues for marketing activities. Any administrative regulations promulgated pursuant to this statute will likely make a distinction to help guide interested parties. In the meantime, if passed, manufacturers (as defined by SB 790) should not influence the content of Conference presentations and any agreement for such deliverables should restrict such presentations to medical issues, which should focus on data results, treatment, and clinical analyses with no opinionated or emotional commentary as to the greatness of particular products at issue.

[3] Actual language as drafted: “For a bona fide clinical trial or a research project that constitutes a systematic investigation, is designed to develop or contribute to general knowledge, and reasonably can be considered to be of significant interest or value to scientists or health care professionals working in the particular field of inquiry, all of the following…” The language here is unclear on its face as to whether the language following “research project” also applies to clinical trials. However, the law goes on to define “Bona fide clinical trial” as an “FDA-reviewed clinical trial that constitutes research…that can be reasonably considered to be of interest to scientists or health care professionals in the particular field of inquiry.” Thus, the clinical trial exception is not qualified by the language following “research project” (e.g., “develop or contribute to general knowledge”).

Craig Bronsnick