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SPIF at Your Own Risk

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Recent DOJ Settlements Signal Need to Restructure Dealer Promotional Incentive Programs

March 8, 2017
Edward Buthusiem and Katherine Norris
BRG Healthcare client alert

LIFE SCIENCES COMPANIES BEWARE: your sales dealer sales incentive programs may soon come under fire from the Department of Justice (DOJ).

Dealer sales promotion incentive funds (SPIFs) are a common type of sales incentive program used by many companies in the life sciences industry to encourage promotion of a company’s products by independent distributors and suppliers. However, recent actions the DOJ has brought against medical device manufacturers and their suppliers indicate that the federal government no longer views SPIF programs as harmless marketing campaigns. In recent settlements, the DOJ has raised the possibly that such programs may be viewed as illegal inducements paid in violation of the federal Anti-Kickback Statute (AKS), which prohibits payments made to induce the referral or recommendation for the purchase of a product reimbursable under a federal healthcare program.

In a December 2015 settlement agreement with the DOJ, Coloplast Corp. paid $3.1 million to resolve allegations that it paid kickbacks to numerous suppliers to induce them to convert patients to Coloplast products. Under Coloplast’s SPIF program, the company offered funding for cash incentives paid to suppliers’ sales personnel in exchange for product conversions. The DOJ also alleged that Coloplast offered rebates or price concessions contingent on suppliers’ participation in promotional campaigns on the company’s behalf. Similarly, Hollister, Inc. and its supplier Byram Healthcare collectively paid $20.9 million in an April 2016 settlement agreement in connection with the Hollister SPIF program. The DOJ alleged that Hollister was disguising the payments of cash incentives to suppliers’ sales personnel as “marketing funding.” The DOJ pegged as an illegal kickback Hollister’s “catalog funding” program, which involved yearly payments to suppliers to encourage recommendation of Hollister products to patients during the calendar year. The DOJ asserted that these payments by Hollister were designed to “convert” patients from competitors’ products to their own, and were then billed to federal healthcare programs.

The DOJ’s scrutiny of certain types of sales incentive payments signals a warning to life sciences companies that rely on SPIF programs for their sales. Because the recent settlement agreements involve specific situations, it may be difficult for companies to glean meaningful guidance as to what types of payments are permissible in the eyes of the DOJ. To ensure that their promotional activities are in compliance with the AKS, companies may wish to reevaluate how their SPIF programs are structured, paying special attention to circumstances in which sales representatives interact with federal healthcare program beneficiaries directly.

Berkeley Research Group, LLC professionals stand ready to advise manufacturers and independent distributors and suppliers regarding compliance with federal and state anti-kickback statutes. For further information, please contact Edward J. Buthusiem at ebuthusiem@thinkbrg.com or a member of the BRG Health Analytics team. Find out more about BRG’s Healthcare Corporate Compliance and Risk Management practice.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.

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