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Business Ethics, Values and Compliance: Walking the Talk

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Wish you and your family all happiness, prosperity, peace and good health in the brand new year 2012

Business Ethics, Values and Compliance: Walking the Talk

Ethical business conduct and value standards, especially of medium, large to very large corporations are coming under increasing stakeholders’ scrutiny and being severely criticized for non-compliance in many instances. At the same time, more and more corporate initiatives are being taken towards this direction by both the global and local companies with special emphasis to combat bribery/ corrupt business practices and contribute to social justice and environmental protection.

The scope of ‘ethical business conducts and value standards’ of a company usually encompasses the following, among many others:

  1. The employees, suppliers, customers and other stakeholders
  2. Caring for the society and environment
  3. Fiduciary responsibilities
  4. Business and marketing practices
  5. R&D activities, including clinical trials
  6. Corporate Governance
  7. Corporate espionage

That said, codes of ethical conduct, corporate values and their compliance should not only get limited to the top management, but must get percolated downwards, looking beyond the legal and regulatory boundaries.

Statistics of compliance to codes of business ethics and corporate values are important to know, but the qualitative change in the ethics and value standards of an organization should always be the most important goal to drive any business corporation and the pharmaceutical sector is no exception.

Business Ethics and Values in the globalized economy:

Globalization of business makes the process of formulating the codes of ethics and values indeed very challenging for many organizations. This is mainly because of the fact that the cultural differences at times create a conflict on ethics and values involving different countries.

For this purpose, many business organizations prefer to interact with the cultural and religious leaders in the foreign countries, mainly to ascertain what really drives culturally diverse people to act in certain ways.

With the wealth of knowledge of the local customs and people, the cultural and religious leaders can help an organization to unify the code of ethics and values of the globalized business.Such leaders can also help identifying the ‘common meeting ground of minds’ from a specific country perspective, after carefully assessing the cultural differences, which are difficult to resolve in the near term.

The ‘common meeting ground of minds’, thus worked out, could form the bedrock to initiate further steps to strengthen global business standards of ethics and values of an organization.

OECD with USA started early enacting ‘Foreign Corrupt Practices Act (FCPA)’:

To prevent bribery and corrupt practices, especially in a foreign land, in 1997, along with 33 other countries belonging to the ‘Organization for Economic Co-operation and Development (OECD)’, the United States Congress enacted a law against the bribery of foreign officials, which is known as ‘Foreign Corrupt Practices Act (FCPA)’.

This Act marked the early beginnings of ethical compliance program in the United States and disallows the US companies from paying, offering to pay or authorizing to pay money or anything of value either directly or through third parties or middlemen. FCPA currently has significant impact on the way American companies are required to run their business, especially in the foreign land.

But a dichotomy exists in the US for ‘Grease Payment’:

‘Grease payment’ is classified by OECD as “a facilitating one if it is paid to government employees to speed up an administrative process where the outcome is already pre-determined.”

In the FCPA of the US ‘grease payment’, has been defined as “a payment to a foreign official, political party or party official for ‘routine governmental action,’ such as processing papers, issuing permits, and other actions of an official, in order to expedite performance of duties of non-discretionary nature, i.e., which they are already bound to perform. The payment is not intended to influence the outcome of the official’s action, only its timing.”

Considering all these ‘grease payments’ seem to be an absolute dichotomy to the overall US policy for ethical standards and against corruption.

Currently besides US, only Canada, Australia, New Zealand and South Korea are the countries that permit ‘Grease payments’.

Notwithstanding the fact that the governments of the US and four other countries allow companies to keep doing business without undue delay by making ‘grease payments’ to the lower government officials, such payments are considered as illegal in most other countries, if not all, in which they are paid, including India.

In India such a business practice is viewed as bribery, which is not only perceived as unethical and immoral, but also a criminal offense under the law of the land. Even otherwise, ‘grease payments’ are viewed by a vast majority of the population as a morally questionable standard of ‘business conduct’.

Many companies are setting-up the ethical business standards globally:

While visiting the website of especially the large global and local companies, one finds that all these companies barring a very few exceptions have already put in place a comprehensive ‘code of business ethics and values’. Some of these companies have also put in place dedicated code compliance officers across the globe.

However, it is important to ensure that the persons who are appointed either as the ‘Watch Dogs’ for such commendable initiatives or to head any committee on the subject, are individuals with squeaky clean record of adherence to the ‘Code of Ethics and Values’. Otherwise, the entire exercise may be perceived as making a mockery of the whole purpose.

Despite all these commendable initiatives towards establishing a corporate codes of business ethics and values, the moot question that haunts many time and again: “Are all these companies ‘walking the talk’?”

Otherwise, why does one read news items like ‘Dirty Secrets In Soap Prices’ as appeared in the ‘Wall Street Journal’ dated December 9, 2011 reporting that P&G, Colgate and Henkel have been fined $484 million by the French Government for ‘Price Fixing’ of laundry soap.

Or why do we see reports like one in the “Fierce Pharma’ dated October 5, 2010 stating that in the US eleven pharmaceutical companies have paid a total of over $6 billion to the government in 22 months for unethical marketing practices Or a ‘Bloomberg’ report dated January 17, 2011 with the headline, “Glaxo Sees $3.5 Billion Charge Related to Avandia Claims, Sales Practices.”

Or…

It is perhaps a sheer coincidence that whenever, such incidents take place, the fingers are usually pointed towards the middle or lower management cadre of the corporations concerned for non-compliance. The Corporate or top management ownership of such seemingly avoidable incidents still remains a distant reality.

Public perception of ethical standards of Pharmaceutical companies is not encouraging:

In the pharmaceutical sector all over the world, the marketing practices have still remained a very contentious issue despite many attempts of self-regulation by the industry. The flow of complaints for alleged unethical business practices have not slowed down significantly, across the world, even after so many years of self-regulation.

Nearer home, the Department of Pharmaceuticals of the Government of India has already circulated a draft ‘Uniform Code of Pharmaceutical Marketing Practices (UCPMP)’ for stakeholders to comment on it. The final UCPMP, when it comes into force, if not implemented by the pharmaceutical players in its ‘letter and spirit’, may attract government’s ire in form of strong doses of regulatory measures.

A study on the UCPMP:

Ernst & Young released the key findings of a survey report on the UCPMP in September, 2011 titled ‘Pharmaceutical marketing: ethical and responsible conduct’, which are as follows:

  • Around two-third of the respondents felt that the implementation of the Uniform Code of Pharmaceutical Marketing Practices (UCPMP) drafted by the Department of Pharmaceuticals, would change the manner in which the pharma products are currently marketed in India
  • More than 50% of the respondents are of the opinion that UCPMP guidelines may lead to manipulation in recording of actual sampling activity
  • More than 50% of the respondents indicated that the effectiveness of the code will be very low in the absence of legislative support provided to the UCPMP committee
  • Majority of the respondents (90%) felt that pharma companies in India should focus on building a robust internal controls system for ensuring compliance with the UCPMP
  • Around 72% of the respondents felt that the MCI was not stringently enforcing its medical ethics guidelines
  • Only 36% of the respondents felt that the MCI’s guidelines would have an impact on the overall sales of the pharma companies

Thus the quality of implementation of self-regulatory ‘Code of Marketing Practices’ is not only attracting heavy criticism from the stakeholders in many countries in the world, including India, but also indicating a trust deficit between the industry and the civil society in general.

Clinical Trials in India: Ethics and values

Clinical Trial is another area of pharmaceutical business, especially in the Indian context, where more often than not, issues related to ethics and values are being raised. In an article titled, ‘Clinical trials in India: ethical concerns’ published by the World Health Organization (WHO) following observations have been made:

“The latest developments in India reflect a concerted effort on the part of the global public health community to push clinical trials issues to the fore in the wake of several high-profile cases in which pharmaceutical companies were shown to be withholding information from regulators.”

Similarly ‘Times of India’ in its June 6, 2011 issue reported, “Clinical trials claimed 25 lives in 2010, only 5 paid compensation.”

Conclusion:

The need to formulate ‘Codes of Business Ethics & Values’ and even more importantly their compliance are gaining increasing importance and relevance in the globalized business environment. Unfortunately, at the same time, many companies across the world are being increasingly forced to come to terms with the heavy costs and consequences of ‘unethical behavior and business practices’ by the respective governments, perhaps arising out of intense pressure for the business performance.

There is no global consensus, as yet, on what is ethically and morally acceptable ‘Business Ethics and Values’ across the world. However, even if it these are implemented in a country-specific way, the most challenging obstacle to overcome by the corporates would still remain ‘walking the talk’ and owning the responsibility.

The million dollar question thus emerges ‘How to make it happen?’

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Does India need an equivalent of ‘The Physician Payment Sunshine Act’ of the US for transparency in pharmaceutical marketing?

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Currently a strong and palpable public sentiment against corruption has engulfed India albeit more than what we witness in movements like ‘Occupy Wall Street’ against systemic corruption not only in the US but in a large number of cities across the world.

Long suppressed public sentiment against corruption is fast spreading like a wild fire in India and has now become all pervasive and almost irreversible, as it were.

That said, this strong sentiment is not just against corruption, but also for greater transparency and clean governance both in the government and corporate sectors of the country.

In a situation like this, there is a wide spread belief within the civil society not just in India, but across the world that the pharmaceutical companies try to skew the ‘prescription decision making process’ of the doctors towards their respective brands largely through different types of allurements and not based solely on robust health outcome criteria.

The key reason:

The entire issue arises out of the key factor that the patients do not have any say on the use/purchase of brand/brands that a doctor will prescribe.

It is generally believed by the civil society that doctors predominantly prescribe mostly those brands, which are promoted to them by the pharmaceutical companies in various ways.  Thus, in today’s world and particularly in India, the degree of commercialization of the noble healthcare services, as reported often by the media, has reached a new high, sacrificing the ethics and etiquette both in medical and pharmaceutical marketing practices in the rat race of unlimited greed, want and conspicuous consumption.

Growing discontentment:

Many within the civil society feel, as a result of fast degradation of ethical standards, moral and the noble values, just in many other areas of public life, in the healthcare space as well, the patients in general have started losing their absolute faith and trust both on the medical profession and the pharmaceutical companies, by and large. However, health related multifaceted compulsions do not allow them, either to avoid such a situation or even raise a strong voice of protest against the vested interests.

Growing discontentment of the patients both in the private and public healthcare space in the country, is being regularly and very rightly highlighted by the media all over the world, including reputed medical journals like, ‘The Lancet’ to help arrest this moral and ethical decay with demonstrable and tangible proactive measures.

A global issue, not just local:

For quite some time from now this issue has indeed become a global phenomenon. Many countries, including India, have seriously taken note of such examples of socioeconomic decay.

Just the other day, the November 3, 2011 edition of ‘The Guardian’ reported, “British drugs giant GlaxoSmithKline has agreed to pay $3bn (£1.9bn) to settle a series of old criminal and civil investigations by the US authorities into the sales and marketing of some of its best-known products”.

The Scenario in India:

The current scenario in India though not very much different, in terms of seriousness of the issue, from what is being reported in the US, the evolving regulatory standards in the US on this subject are definitely more robust and far superior to what we see India.

In India over 20, 000 pharmaceutical companies of varying size and scale of operations are currently operating. It has been widely reported in the media that the lack of regulatory scrutiny is prompting many of these companies to adapt to ‘free-for-all’ types of aggressive sales promotion and cut-throat marketing warfare involving significant ‘wasteful’ expenditures. Such practices reportedly involve almost all types of their customer groups, excepting perhaps the ultimate consumer, the patients.

It has been well reported that industry’s gifts to physicians in India can range from expensive cars, dinners in exotic locations, pricey vacations at various places of interest of the world and sometimes with the doctors’ families to hefty consulting and speaking fees.

Unfortunately in India there is no single government agency, which is accountable to take care of the entire healthcare needs of the patients and their well-being, in a holistic way.

The pharmaceutical industry of India, in general, has expressed many a time, the need for self-regulation of marketing practices in the absence of any regulatory compulsion, as is not uncommon in many other countries of the world, in various ways.

Be that as it may, after a protracted debate on the alleged ‘unethical marketing practices’ by the pharmaceutical companies, in May 2011, the Department of Pharmaceuticals (DoP) came out with a draft ‘Uniform Code of Pharmaceutical Marketing Practices (UCMP)’ to address this issue squarely and effectively in India. It has been reported that the final draft of UCMP is now lying with the Ministry of Health and Family Welfare of the Government of India for its clearance.

This decision of the government is the culmination of a series of events, covered widely by the various sections of the press, at least, since 2004.

However, many activists groups and NGOs still feel that the bottom-line in this scenario is the demonstrable transparency by the pharmaceutical companies in their dealings with various customer groups, especially the physicians.

“Market malpractices is a barrier to healthcare access”: The WHO report of 2006:

A 2006 report of the ‘World Health Organization (WHO) and ‘The Ministry of Health and Family Welfare, Government of India’ titled ‘Options for Using Competition Law/Policy Tools in Dealing  with Anti-Competitive Practices in Pharmaceutical Industry and Health Delivery System’ states:

“The right to health is recognized in a number of international legal instruments. In India too, there are constitutional commitments to provide access to healthcare. However despite the existence of any number of paper pledges assuring the right to health, access to health remains a problem across the world”.

“There are several factors that are responsible for such deprivation. Market malpractices in general, and in particular, anti-competitive conduct in the pharmaceutical industry and the health delivery system are also among them.”

The scenario in the US:

Like in India, a public debate started since quite some time in the US as well, on allegedly huge sum of money being paid by the pharmaceutical companies to the physicians on various items including free drug samples, professional advice, speaking in seminars, reimbursement of their traveling and entertainment expenses etc. All these, many believe, are done to adversely influence their rational prescription decisions for the patients.

As the financial relationship between the pharmaceutical companies and the physicians are getting increasingly dragged into a raging public debate, making disclosure of all payments made to the physicians by the pharmaceutical companies’ is being made mandatory by the Obama administration, as a part of the new US healthcare reform process of the last year.

Some global pharmaceutical majors have set examples by taking absolutely voluntary measures to make their relationship with the physicians transparent. Eli Lilly, the first pharmaceutical company to announce such disclosure voluntarily around September 2008, has already uploaded its physician payment details on its website.

US pharma major Merck followed suit and so are many other large companies like, Pfizer, GSK, AstraZeneca and Johnson & Johnson.

Cleveland Clinic and the medical school of the University of Pennsylvania, USA are in the process of disclosing details of payments made by the Pharmaceutical companies to their research personnel and the physicians. Similarly in the UK the Royal College of Physicians has been recently reported to have called for a ban on gifts to the physicians and support to medical training, by the pharmaceutical companies.

The New York Times (NYT) in its April 12, 2010 edition in an article titled, “Data on Fees to Doctors is Called Hard to Parse”, reported that though some big pharmaceutical companies have started disclosing payments to doctors who act as consultants or speakers, many still find it far too difficult to follow the money trail.

NYT reported in the same article, “Senate researchers have found that some prominent doctors at academic medical centers have failed to disclose millions of dollars in drug company payments, despite university requirements that they do so. Federal prosecutors say some payments are really kickbacks for illegal or excessive prescribing”.

‘The Physician Payment Sunshine Act’:

To address this issue effectively in the US, ‘The Physician Payment Sunshine Act’, which was originally proposed in 2009 by Iowa Republican Charles Grassley and Wisconsin Democrat Herb Kohl, became a part of the US healthcare law in 2010. This Act came as an integral part of the healthcare reform initiatives of President Obama to reduce healthcare costs and introduce greater transparency in the system.

The Act requires all pharmaceutical and medical device companies of the country to report all payments to doctors above US $10. As stated earlier, the industry’s gifts to physicians in the US, reportedly, can range from expensive hospitality/dinner in exotic locations, pricey golfing vacations in various places of interest to consulting and speaking fees. After the Act comes in force with all its rules in place, failure to provide such details will attract commensurate penal provisions.

However, on November 1, 2011 Reuters reported that the Department of Health and Human Services of the US Government missed the October 1, 2011 deadline for drafting the regulations for ‘The Physician Payment Sunshine Act’ to outline procedures for the concerned companies for reporting the requisite information and sharing the same with the public.

US health officials will now delay the enforcement of the Act to ensure that they can implement the statutory goals of the Act with minimal regulatory burden on the pharmaceutical and the medical device companies.

Last year, ‘The New York Times (NYT)’ in its April 12, 2010 edition commented that come 2013, under the new ‘The Physician Payment Sunshine Act’, disclosure of such database will become mandatory for all pharmaceutical and medical device makers, who will then be subjected to stricter disclosure requirements aimed at making their marketing practices much more transparent.

Conclusion:

In the US, ‘The Physician Payment Sunshine Act’ is now in place, though its effective implementation has got delayed. It appears that Obama Administration, with the help of this new law, will make the disclosure of payments to physicians by all pharmaceutical and medical device companies transparent and effective as the rules and procedures for the same are being worked out.

If President Obama administration can take such an important regulatory step with the enactment of ‘The Physician Payment Sunshine Act’ to ensure transparency in pharmaceutical marketing practices, will Dr. Man Mohan Singh government stay much behind in taking similar measures or give the self-regulatory mechanism, as is being charted by the Department of Pharmaceuticals, one last chance?

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Amendment of ‘Professional Conduct, Etiquette and Ethics’ Regulations for the Doctors by the MCI could dramatically change the Pharmaceutical Marketing Practices in India, hereafter.

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As reported in the media, the notification of the Medical Council of India (MCI) dated December 10, 2009 amending the “Indian Medical Council (Professional Conduct, Etiquette and Ethics), Regulations 2002″ has been welcomed by the medical profession.
Areas of stricter regulations:

The notification specifies stricter regulations for doctors in the following areas, in their relationship with the ‘pharmaceutical and allied health sector industry’:

1. Gifts
2. Travel facilities
3. Hospitality
4. Cash or Monetary grants
5. Medical Research
6. Maintaining Professional Autonomy
7. Affiliation
8. Endorsement

These guidelines have come into force with effect from December 14, 2009.

Possible implications:

With this new and amended regulation, the MCI has almost imposed a ban on the doctors from receiving gifts of any kind, in addition to hospitality and travel facilities from the pharmaceutical and allied health sector industries in India.

Moreover, for all research projects funded by the pharmaceutical industry and undertaken by the medical profession, prior approval from the appropriate authorities for the same will be essential, in addition to the ethics committee.

Although maintaining a cordial and professional relationship between the pharmaceutical industry and the doctors is very important, such relationship now should no way compromise the professional autonomy of the medical profession and a medical institution, directly or indirectly.

It also appears that the common practices of participating in private, routine and more of brand marketing oriented clinical trials could possibly be jettisoned as a pharmaceutical strategy input.

The new MCI regulations is much stricter:

Since the new amended regulations of the MCI are much stricter than the existing codes of marketing practices of the pharmaceutical industry associations, there could be an emerging disconnect between these two practices till such time a clearer picture emerges after due deliberations by all concerned, in this matter.

It is also interesting to note, how would the pre December 14, 2009 commitments for the post December 14, 2009 period, of both the medical profession and the industry related to such regulated practices, be handled by the MCI, in future.

Conclusion:

Be that as it may, the new ball game of pharmaceutical marketing strategies and practices will no longer be driven by more of a ‘deep pocket’ syndrome and less of ‘cerebral power’, by all concerned.

If this happens, I shall not be surprised to witness a dramatic change in the prescription share of various companies in the next 3 to 5 years thereby impacting the ranking of these companies in the Indian pharmaceutical industry league table.

Thus, the name of the game in the pharmaceutical marketing space, in not too distant future, will be “generation and effective implementation of innovative ideas”.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.