California State Senate Passes Bill Banning “Gifts” to HCPs: The “California Effect” Strikes Again?

06.26.17 | By

California has long been known as a trailblazer in policy making – the “California Effect” was first coined after California passed strict car emissions standards in the 1960s, and subsequently other states and the Federal government followed. California’s recent legislation, which poses the strictest limits on pharmaceutical manufacturer’s interactions with healthcare professionals (HCPs), begs the question whether the “California Effect” will also alter the pharmaceutical industry landscape in the same way. This new legislation, SB 790, was passed by the California State Senate on May 18th, and expands the definition of “gifts” to flights, meals, travel, speaking fees, entertainment, consulting payments, or other financial benefits to HCPs, and effectively restricts these types of payments to HCPs from pharmaceutical companies [1].

Despite expanding the types of restricted payments in California, SB 790 does designate some “allowable expenditures” including [1]:

  • Payments to the sponsor of a significant industry conference
  • Annual direct salary support for clinical trials
  • Gross compensation, direct salary support per HCP, and HCP expenses for research projects that are systemic investigations with value to the professional community working that field
  • Honoraria and payment of the expenses of a HCP on the faculty at a bona fide educational industry conference or seminar provided the honoraria is restricted to medical issues and the content of the presentation is determined by the HCP
  • Meals provided to HCPs that do not exceed $250 per year.

Notably absent from the “allowable expenditure” designations are bona fide fee-for-service arrangements such as speaker programs and advisory boards. Thus, should this bill pass, pharmaceutical companies would be compelled to evaluate their fee for-service arrangements in given the likelihood that these programs would be prohibited.

Despite the impact on fee-for-service arrangements, the bill was passed on the premise that relationships, though not causal, with HCPs who receive payments and in-kind benefits (i.e. meals and travel) from pharmaceutical companies are more likely to prescribe the brand name drugs instead of their generic counterparts. Supporters of the bill cite recent studies published by the University of California San Francisco and Harvard Medical School that link the recipient of just one meal, for example, to the likelihood of prescribing a brand name versus generic medication. As we wrote in a prior post, the studies used open payments data published in 2014, along with Medicare Part D data to support their conclusions [2].

The bill, which is essentially a hybrid between the gift ban laws in Vermont and Minnesota, also includes a provision which states that if the Sunshine Act is repealed California would enact similar reporting requirements. [3] This California bill, as well as the current reporting laws in Massachusetts, Vermont, Minnesota and the recently drafted gift ban law bill in Maine [4], reveal the growing trend of states taking decisive and autonomous action when they feel the Sunshine Act does not go far enough and/or are concerned about its repeal. Moreover, if recent initiatives to cap federal Medicare spending on a per capita basis (sending a fixed amount to the states for each beneficiary) are enacted as proposed in the federal budget plan and healthcare legislation, we should expect this trend to accelerate as other states attempt to curb healthcare spending by encouraging the use of generics.

Despite SB 790 requiring passage through the state assembly to become law, companies must be aware of and prepared for potential impacts. This means having processes in place to track transfers of value to HCPs at the state level. Companies should be aware that, like in Vermont, the California ban may not only cover those who are currently practicing in California, but also those who are licensed to practice in the state of California but practice outside California. As a point of comparison, the Vermont gift ban considers a covered recipient as any HCP who has practiced one day in Vermont. Companies should also be prepared to utilize open payments data to determine the extent of their current business activity in California, and analyze where such activity may implicate the law. Companies can choose to take this a step further by combining their open payments data analysis with Medicare Part D claims data to determine if and to what extent the correlation between meals and prescription data exists in their business. This is particularly applicable where a company provides a brand name product with a generic equivalent.

This data can then be leveraged by Compliance, sales and marketing stakeholders to create contingency plans should the bill pass. An effective plan should consider current strategies around speaker programs, particularly the development of tracking and monitoring to ensure compliance with the $250 expenditure cap. These plans should also use insights from publicly available data to adjust commercial strategies and monitoring programs to promote adherence to the new legislation.

As the push for transparency continues to grow and new data is recurrently reported, public scrutiny and legislation addressing relationships between industry and HCPs will only intensify. Strategic preparation requires proactively developing a framework to monitor publicly available data. Companies that utilize Open Payments data to drive risk management protocols will be ahead of the curve in preparation for additional reporting requirements and the consequent repercussions that that may damage their brand.


[2] [3]