Type: Law Bulletins
Date: 11/17/2014

AdvaMed Guidance on Sample Products, Loaned Products and Consignment Products: Avoiding Pitfalls in Medical Product Sales and Marketing

The Advanced Medical Technology Association (“AdvaMed”) is a trade association that represents companies that develop, produce, manufacture and market medical products, technologies and related services and therapies used to diagnose, treat, monitor, manage and alleviate health conditions and disabilities (“medical technologies”). For many years, AdvaMed has published a code of ethics. The AdvaMed Code of Ethics is designed to facilitate ethical interactions between companies and individuals or entities that are involved in the provision of health care services and/or items to patients and purchase, lease, recommend, use, arrange for the purchase or lease of, or prescribe medical technologies in the United States. The code of ethics is designed to ensure transparency and compliance with applicable laws, regulations and government guidance. The code does not provide legal advice and is not explicitly endorsed by any governmental agency, but it provides helpful guidance for company compliance programs. Any company marketing and selling medical technologies in the United States must comply with the federal Anti-Kickback Statute, which makes it a criminal offense to knowingly and willfully offer, pay, solicit or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal health care program. The AdvaMed Code of Ethics is a good reference point for determining the effectiveness of compliance programs for the sales and marketing functions in such companies.

The AdvaMed Code of Ethics covers areas such as company-sponsored product training and education, company support of third-party educational conferences, sales meetings, consulting arrangements, meals and entertainment, gifts, research and educational grants, and evaluation and demonstration products. Although the code has not been revised since 2009, AdvaMed periodically publishes “Best Practices Guidance” relating to various aspects of the code. Recently, AdvaMed published its “Best Practices Guidance on Sample Products, Loaned Products, and Consignment Products.”

Samples and Loaned Products. A common sales practice is for a medical technology company to provide products to a health care professional at no charge to allow the health care professional to assess the product and determine whether to use, order, purchase or recommend the product in the future. For products that are designed to be used only once (e.g., an orthopedic implant), the company often provides a sample or samples; for products that may be re-used (e.g., diagnostic ultrasound equipment), a company will often loan the equipment to a health care professional. AdvaMed's guidance gives companies factors to consider in both situations.

Appropriate reasons for providing samples or multiple-use evaluation products to a health care professional may include:

  • The health care professional has not recently purchased or used the product (i.e., the health care professional is not familiar with the product).
  • The product is being marketed for a new indication or a new surgical technique.
  • The company or the health care professional has identified a need for training on the use of the device.

For samples, the quantity provided should not exceed the amount reasonably necessary for the adequate evaluation of the products. For multiple-use evaluation products, the evaluation period should not exceed the length of time reasonably necessary for the adequate evaluation of the products, and the company and health care professional should enter into an agreement that clearly specifies the length of the evaluation period and the terms and conditions for loaned products that are not returned. For both samples and loaned products, the no-charge nature of the product should be clearly communicated in writing to the health care professional in order to permit the health care professional to comply with restrictions on billing or seeking reimbursement for samples or loaned products. Further, in each case, companies should evaluate whether the provision of samples or loaned evaluation products may be reportable under federal or state laws (such as the Physician Payment Sunshine Act) requiring reporting of transfers of value to health care professionals.

Consigned Products. Consigned products are medical technologies that are provided to a health care professional for use in a patient care setting. Although consigned products are located at the health care professional’s site, the company retains ownership of the product until such time as it is used. At that time, the product is considered to be sold to the health care professional. The Office of the Inspector General (“OIG”) has long had concerns about consignment arrangements because such arrangements can implicate the Anti-Kickback Statute and/or the Stark Law. AdvaMed’s guidance relating to consigned products outlines steps companies can take to address the OIG’s concerns. The AdvaMed guidance states that:

  • The company should enter into an agreement clearly specifying the terms of the consignment arrangement, including specifying the number of products consigned.
  • The company should require that the health care professional segregate consigned products from other types of products, such as products the health care professional has already purchased or products under the control of the company’s representatives.
  • The company should implement procedures to periodically take inventory of consigned devices in order to bill the health care professional for products used, re-stock new products and remove obsolete or expired products if necessary.
  • The company should implement a process for reconciling any discrepancies between the company’s records of the number of products consigned and the number of products used or verified during inventory.
  • The company should consider in advance how to allocate the risk of loss for lost or destroyed consigned products.
  • The company may also consider implementing systems to allow for real-time tracking of consigned devices (e.g., portable scanning technology).
  • If a company enters into an agreement to rent storage space from a health care professional to store consigned products, any rental payments should be consistent with fair market value.

For both companies that sell medical technologies and health care professionals that use such technologies, the new AdvaMed guidance should serve as a reminder that even what appear to be simple sample or loan arrangements can have legal pitfalls. Taft’s health and life sciences attorneys are ready to help clients structure such arrangements to minimize risk.

In This Article

You May Also Like