American Health Lawyers Association
2011 Annual Meeting
CURRENT CONCERNS IN CLINICAL RESEARCH
Eve M. Brunts, Esq.
Ropes & Gray LLP
May 26, 2011
Table of Contents
II. FUNDING ...........................................................................................................................1
A. Mandated Coverage for Clinical Trial Items and Services under Federal Health
B. Medicare Secondary Payer Reporting for Clinical Trials under Section 111 of the
Medicare, Medicaid and SCHIP Extension Act of 2007...........................................4
III. REGULATION ...................................................................................................................8
A. Adverse Event Reporting Requirements for Investigational New Drug Studies and
Bioavailability and Bioequivalence Studies ..............................................................8
B. Proposed Data Falsification Regulations.................................................................13
C. Changes to HIPAA’s Requirements for Clinical Research .....................................15
IV. COMPLIANCE .................................................................................................................19
A. Insider Trading Enforcement ...................................................................................19
B. Conflicts of Interest .................................................................................................25
This paper was prepared with the assistance of Andrew Rusczek, an associate with Ropes & Gray LLP. David
Mindell and Stacy Tromble, associates with Ropes & Gray LLP, also contributed to the paper.
Clinical trials raise significant legal, ethical and practical concerns for investigators, clinical
sites, and sponsors. In recent years, there have been numerous new regulatory developments and
emerging trends in clinical trials. A discussion of all such developments and trends is beyond
the scope of this paper. This paper addresses only the following key developments and trends:
Recent changes to clinical research funding: (i) mandated coverage for clinical trial items
and services under federal health reform and (ii) Medicare secondary payer reporting for
Recent changes to regulations that affect clinical research: (i) regulations addressing
adverse event reporting requirements, (ii) proposed data falsification regulations, and (iii)
changes to clinical research requirements under the Health Insurance Portability and
Accountability Act of 1996 (HIPAA); and
Recent clinical research compliance related issues: (i) insider trading liability for
researchers and financial consultants, and (ii) financial conflicts of interest.
A. Mandated Coverage for Clinical Trial Items and Services under Federal Health
Section 2709 of the Public Health Service Act (Section 2709), 1 which was added by
Section 1201 of the Patient Protection and Affordable Care Act (ACA), 2 requires group
health plans and health insurance issuers to provide coverage of certain services for
individuals participating in approved clinical trials. Health plans and insurance issuers
may not drop coverage for an individual with cancer or another life-threatening condition
who enrolls in a clinical trial or deny the individual coverage for the routine care received
during the clinical trial for which the health plan or insurance issuer would typically
Note that, while Section 2709 uses terminology and concepts from Medicare clinical trial
coverage policy, the clinical trial coverage required by Section 2709 is more limited than
coverage under Medicare for clinical trial services. For example, Medicare coverage is
not limited to trials for cancer and other life-threatening diseases or conditions. 3
42 U.S.C. ch. 6A (2011).
Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010); Health Care and
Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (2010) [hereinafter ACA]. Note
that citations in this document to ACA are to sections in the consolidated print, available at
See CENTERS FOR MEDICARE & MEDICAID SERVICES, NATIONAL COVERAGE DETERMINATION (NCD) FOR
ROUTINE COSTS IN CLINICAL TRIALS (310.1) (2007).
The requirements in Section 2709 are effective for plan years beginning on or after
January 1, 2014. 4 Further details and limitations on these requirements are set forth
1. Basic Requirement
Section 2709 prohibits group health plans and health insurance issuers offering group
or individual health insurance from:
(i) Denying a “qualified individual” the right to participate in an “approved clinical
(ii) Denying, limiting, or imposing conditions on the coverage of “routine patient
costs” of items and services provided in connection with the clinical trial; and
(iii)Discriminating against a qualified individual due to the individual’s participation
in a clinical trial.
The defined terms above are important to understanding the limitations of this
requirement and are described in further detail below.
Section 2709 expressly states that the individual’s right to coverage for these clinical
trial services extends to clinical trials conducted outside of the state in which the
2. Routine Patient Costs
“Routine patient costs” is defined broadly to include all items and services that are
typically covered for a qualified individual not in a clinical trial (consistent with the
plan or insurance coverage), except the following:
(i) The investigational item, device, or service;
(ii) Items and services provided solely for data collection and analysis and not used in
the patient’s direct clinical management; and
(iii)Services that are clearly inconsistent with “widely accepted and established
standards of care” for the diagnosis.
3. Qualified Individual
The mandated coverage extends to “qualified individuals,” which means individuals
who are participants or beneficiaries under the health plan or insurance coverage and
are eligible to participate in an approved clinical trial for the treatment of cancer or
another life-threatening disease or condition as set forth in the trial protocol. Either
See ACA, supra note 2, § 1255.
of the following two conditions must also be met for these individuals to be
considered “qualified individuals”:
(i) The health care professional referring the individual is a participating provider in
the health plan or insurance coverage and has determined that the individual’s
participation in the clinical trial is appropriate based on the trial protocol and
the individual’s condition; or
(ii) The individual (or a beneficiary) provides medical and scientific information that
establishes that participation in the trial is appropriate based on the trial
protocol and the individual’s condition.
4. Approved Clinical Trial
A clinical trial is only an “approved clinical trial” if it is a Phase I-IV clinical trial
aimed at preventing, detecting or treating cancer or another life-threatening disease or
condition (i.e., a disease or condition from which death is probable if the course of the
disease or condition is not interrupted) and is:
(i) Funded or approved by a federal agency or department listed in Section 2709 or
conducted by cooperative groups/centers of the agencies and departments
(with the list including, among others, the National Institutes of Health, the
Centers for Disease Control and Prevention, the Agency for Health Care
Research and Quality, and the Centers for Medicare & Medicaid Services);
(ii) Conducted under an investigational new drug application (IND) that is reviewed
by the Food and Drug Administration (FDA); or
(iii)A drug trial that is exempt from IND application requirements.
5. Use of In-Network Providers
Section 2709 does not require a health plan or insurance issuer to provide coverage
for routine patient care services provided by out-of-network providers unless the plan
or insurance coverage otherwise provides out-of-network benefits. Also, Section
2709 does not prohibit a group health plan or a health insurance issuer from requiring
that a qualified individual participate in the clinical trial through a participating
provider that will accept the individual as a trial participant.
6. Grandfathered Plans
An additional significant limitation to the coverage mandate in Section 2709 is that
the requirements do not apply to grandfathered plans (i.e., a group health plan or
health insurance coverage that an individual was enrolled in on the date that ACA
was enacted, regardless of whether coverage is renewed thereafter). 5 Although this
See ACA, supra note 2, § 1251(a)(2).
exemption will limit the significance of Section 2709 when its provisions first take
effect, over time these grandfathered plans will become less prevalent in the market.
B. Medicare Secondary Payer Reporting for Clinical Trials under
Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007
1. Background on Medicare Secondary Payer Law
The Medicare Secondary Payer (MSP) law establishes certain coordination of
benefits requirements. 6 Specifically, the MSP law requires that Medicare serve as a
secondary payer, rather than a primary payer of health care services, when certain
other types of health coverage are available.
For example, Medicare is secondary to liability insurance (including self-insurance),
no-fault insurance, and workers’ compensation insurance. Businesses that undertake
risks but do not have third-party liability insurance are considered to be “self-insured”
and are also subject to the MSP law as liability insurers. These types of insurance are
referred to as non-group health plan (NGHP) insurance and are considered primary
payers relative to Medicare.
A primary payer is expected to pay for health care services before Medicare. If a
primary payer is responsible for covering health care expenses and Medicare
incorrectly pays for such care, Medicare may, upon learning that another payer has
legal responsibility for covering these expenses, recoup Medicare’s payment for the
services. Medicare has the right to collect this payment from the Medicare
beneficiary, the provider, or the primary payer, among others.
The Centers for Medicare & Medicaid Services (CMS), which administers the
Medicare program, requires primary payers to notify the agency if Medicare has
made a payment for services for which the liability insurer has also paid or should
have paid. Prior to 2007, however, CMS did not impose sanctions on primary payers
that failed to provide such notice to the agency. Instead, CMS typically relied upon
Medicare beneficiaries and their attorneys to report such payments.
2. Background on New Medicare Secondary Payer Reporting Requirements
Section 111 (Section 111) of the Medicare, Medicaid and SCHIP Extension Act of
2007 (MMSEA) amended the MSP law to require primary payers that are responsible
for paying for health care services on behalf of Medicare beneficiaries through legal
settlements, judgments, awards, or otherwise to report such payments to CMS.
(i) General Reporting Requirement
Plans and payers which are required to report payments to CMS under Section 111
are referred to as Responsible Reporting Entities (RREs). To comply with Section
111, RREs must: (a) determine whether an individual who has filed a claim for
See generally 42 U.S.C. § 1395y(b) (2011); 42 C.F.R. pt. 411, subpt. B (2011).
expenses related to health care services is entitled to Medicare benefits; and (b) if the
individual is entitled to Medicare benefits, electronically report the individual’s name
and information about the claim and injury to the Medicare program. 7 The purpose
of Section 111 is to enable Medicare to collect information to assist its MSP recovery
RREs that fail to comply with the reporting requirement are subject to fines of $1,000
for each day of noncompliance per claimant. 8 This fine is in addition to any other
legal penalties that may apply as well any recoupment of any payment for medical
expenses from the RRE where Medicare has mistakenly made payment.
3. Application of New Reporting Requirements to Clinical Trials
Section 111 reporting requirements are significant for the ongoing operation of
clinical trials. CMS has taken the position that payments by clinical trial sponsors for
health care expenses for research-related injuries represent liability self-insurance.
Specifically, in May of 2010, CMS issued an alert on clinical trials (Clinical Trials
Alert) that states in its entirety:
When payments are made by sponsors of clinical trials for
complications or injuries arising out of the trials, such payments
are considered to be payments by liability insurance (including
self-insurance) and must be reported. The appropriate Responsible
Reporting Entity (RRE) should report the date that the
injury/complication first arose as the Date of Incident (DOI). The
situation should also be reported as one involving Ongoing
Responsibility for Medicals (ORM). 9
The CMS guidance appears to apply Section 111 reporting requirements without
regard to whether a study subject has filed or threatened to file a claim against the
study sponsor for the complication or injury (e.g., even if the study sponsor simply
has made a voluntary payment for health care expenses). As a result, if a clinical trial
sponsor assumes a voluntary obligation to pay such health care expenses, under
CMS’s current policy, the sponsor will be considered an RRE and must report such
payments under Section 111.
Specifically, claim information is to be submitted if the injured party is a Medicare beneficiary and medicals are
claimed and/or released or the settlement, judgment, award or other payment has the effect of releasing
medicals. See MMSEA SECTION 111 MEDICARE SECONDARY PAYER MANDATORY REPORTING LIABILITY
INSURANCE (INCLUDING SELF-INSURANCE), NO-FAULT INSURANCE AND WORKERS’ COMPENSATION USER
GUIDE, VERSION 3.1 (July 12, 2010), § 6, p. 18 [hereinafter MMSEA USER GUIDE].
42 U.S.C. § 1395y(b)(8)(E) (2010); see also MMSEA USER GUIDE, supra note 7, app. F, pp. 263–64.
The language from the Clinical Trials Alert was subsequently incorporated into Section 11.10.2 of the MMSEA
4. Reporting Payments for Medical Expenses for Clinical Trial Subjects
Section 111 reporting imposes specific requirements on RREs related to registration
RREs must electronically register as such via the Section 111 Coordination of
Benefits Secure Website (COBSW) and undertake data transmission testing
before reporting required information.
NGHP RRE registration with CMS began in May of 2009. An NGHP RRE is
expected to register as an RRE once CMS guidance indicates that the RRE
will have a reasonable expectation of claims to report. 10 Registration should
occur with enough time to allow a full calendar quarter of data transmission
testing before reporting begins. Clinical trial sponsors became aware, through
the Clinical Trials Alert, of NGHP RRE reporting obligations in May of 2010.
RREs must report payments as: (a) an ongoing responsibility for medicals
(ORM) and/or (b) total payment obligation to claimant (TPOC). 11 ORMs
refer to an RRE’s responsibility to pay, on an ongoing basis, for a Medicare
beneficiary’s health care expenses associated with a specific claim. 12 ORMs
require the filing of two Section 111 reports: the first report is filed when the
RRE assumes the ORM and the second report is filed when the ORM
terminates. TPOC refers to the dollar amount of a settlement, judgment,
award, or other payment that is made in addition to and apart from ORM. A
TPOC is generally a one-time payment intended to resolve or partially resolve
a liability claim. 13 Although TPOCs that fall below a certain dollar threshold
($5,000 or less on TPOCs with a TPOC Date 14 prior to January 1, 2013) do
See NGHP RRE COMPLIANCE: ALERT FOR LIABILITY INSURANCE (INCLUDING SELF-INSURANCE), NO-FAULT
INSURANCE, AND WORKER’S COMPENSATION (Feb. 24, 2010).
Discussions of TPOCs and ORMs in this paper are limited to the products liability context. Different rules
apply in workers’ compensation or no-fault contexts.
MMSEA USER GUIDE, supra note 7, sec. 2, p. 9.
A TPOC is only reported once regardless of whether or not it is funded through a single payment, an annuity or
a structured settlement. MMSEA USER GUIDE, supra note 7, sec. 11.1, p. 46.
A TPOC Date is defined as the date the payment obligation was established. This is the date the obligation is
signed if there is a written agreement unless court approval is required. If court approval is required, the TPOC
Date is the later of the date the obligation is signed or the date of court approval. If there is no written
agreement, the TPOC Date is the date the payment (or first payment if there will be multiple payments) is
issued. See MMSEA USER GUIDE, supra note 7, app. A, p. 166.
not need to be reported, 15 all ORMs, no matter how small the dollar amount,
must be reported. 16
In the Clinical Trials Alert, CMS clarified that clinical trial sponsors who are
RREs must report payments for complications or injuries arising out of
clinical trials as ORMs. Importantly, ORMs must be reported without regard
to whether there has also been a separate TPOC payment made through a legal
settlement or judgment.
As ORMs must be reported at the time the ORM is assumed and when the
ORM is terminated, a clinical trial sponsor must identify the date on which the
responsibility for payment began and the date on which the responsibility for
(iv) Information Required to be Reported
If a clinical trial sponsor has assumed an ORM, the sponsor must report the
following information: (a) information on the injured party; (b) information on
the injury, incident, or illness; (c) self-insurance information; (d) plan
information; (e) information on the injured party’s attorney or representative
(where applicable); and (f) information on the settlement, judgment, award, or
other payment. 17
To report this information, a clinical trial sponsor must first determine
whether a study subject on whose behalf the sponsor makes medical payments
is a Medicare beneficiary. CMS has established procedures to enable RREs to
make this determination. An RRE may determine Medicare status by
submitting a “Query Input File” to the COBSW. In order to query a
claimant’s Medicare status the RRE must have the claimant’s first initial, last
name, date of birth, gender, and Medicare Insurance Claim Number (HICN).
If a HICN is unavailable, a Social Security number can be used. RREs have
reported difficulty obtaining HICN and/or Social Security numbers from
claimants. In response, CMS has drafted a sample form which can be used by
RREs to collect this information. 18 CMS representatives have also indicated
that an RRE must document attempts to collect the necessary reporting
information from a claimant in the event that questions arise as to why a
particular claim was not reported. 19 If an RRE relies on information about the
The dollar thresholds for TPOC reporting decrease gradually until they are eliminated entirely on January 1,
2015. See CMS ALERT ON THE REVISED IMPLEMENTATION FOR TPOC LIABILITY INSURANCE AND EXTENSION
OF CURRENT DOLLAR THRESHOLDS FOR LIABILITY INSURANCE (Nov. 9, 2010).
MMSEA USER GUIDE, supra note 7, sec. 11.4, p. 60.
The MMSEA User Guide includes a “Claim Input File Record” that details all of the data that must be reported.
See MMSEA USER GUIDE, supra note 7, app. A, pp. 136–78.
See CMS ALERT ON HICN, SSN COLLECTION-NGHP MODEL LANGUAGE (Aug. 24, 2009).
See, e.g., TOWNHALL TELECONFERENCE TRANSCRIPT 4–5 (June 30, 2010),
https://www.cms.gov/MandatoryInsRep/07_NGHP_Transcripts.asp; see also TOWNHALL TELECONFERENCE
TRANSCRIPT 9–10 (July 28, 2010).
Medicare status of a subject from an investigator or a clinical site, the RRE
remains responsible if the information proves to be incorrect. While an RRE
can use an agent to collect and submit its Section 111 reports, the RRE
remains legally responsible for reporting.
(v) Reporting Timeframe
The Section 111 reporting requirement applies to any clinical trial health care
expenses for which a clinical trial sponsor had ongoing responsibility as of
January 1, 2010, or for which the clinical trial sponsor assumes responsibility
on or after January 1, 2010. Liability insurer RREs, including clinical trial
sponsors, began reporting ORMs in 2011. An ORM that was in existence on
or after January 1, 2010 must be reported even if the ORM was terminated
prior to 2011.
The ORM data set that is required to be submitted under Section 111 is
referred to as a “Claim Input File.” Beginning April 1, 2011, RREs were
required to submit ORMs on a quarterly basis. 20
A. Adverse Event Reporting Requirements for Investigational New Drug Studies and
Bioavailability and Bioequivalence Studies
In March 2003, the FDA proposed amendments to its regulations that require sponsors
and others to report adverse events and safety information during the course of pre-
marketing and post-marketing studies of human drug and biological products. The FDA
proposed the amendments in order to clarify provisions in the prior regulations that
resulted in an over-reporting of serious adverse events that were not related to the study
drug or product. This over-reporting hampered the FDA’s ability to detect true safety
concerns. The proposed regulations were also intended to clarify and integrate various
safety reporting requirements and guidance documents of the FDA and international
In response to comments that the FDA received after issuing the proposed regulations in
March 2003, the FDA decided to release the final regulations for pre-marketing and post-
marketing studies in two separate rulemakings. On September 29, 2010, the FDA
released its final amendments to the IND safety reporting regulations at 21 C.F.R. Part
312 and safety reporting requirements for bioavailability and bioequivalence studies at 21
C.F.R. Part 320. The FDA plans to release final amendments to the regulations
addressing post-marketing safety reporting requirements in a future rulemaking. 21
See CMS ALERT ON THE REVISED IMPLEMENTATION TIMELINE FOR TPOC LIABILITY INSURANCE AND
EXTENSION OF CURRENT DOLLAR THRESHOLDS FOR LIABILITY INSURANCE AND WORKERS’ COMPENSATION
(Nov. 9, 2010).
See IND Safety Reporting and Safety Reporting for BA/BE Studies, 75 Fed. Reg. 59935 (Sep. 29, 2010) (to be
codified at 21 C.F.R pts. 312, 320).
Also on September 29, 2010, the FDA released a related draft guidance document,
“Guidance for Industry and Investigators: Safety Reporting Requirements for INDs and
BA/BE Studies,” which provides further information on the reporting requirements in the
proposed regulations (FDA Safety Reporting Guidance). 22 On March 25, 2011, the FDA
announced that the agency intended to exercise enforcement discretion with respect to the
new reporting requirements until September 28, 2011. 23
1. Intent Behind Changes
FDA revised these safety reporting regulations and requirements in order:
(i) To improve the quality of safety reports and the FDA’s ability to effectively
review safety information by ensuring that only relevant and useful
information is reported to the FDA (e.g., by reducing the reporting of
information that does not help the FDA evaluate the safety of a drug);
(ii) To help the FDA improve its monitoring of human drug and biological products
by requiring expedited reports of certain safety information; and
(iii)To ensure consistency with guidance from the International Conference on
Harmonisation of Technical Requirements for Registration of Pharmaceuticals
for Human Use (ICH) and the World Health Organization’s Council for
International Organizations of Medical Sciences (CIOMS), and guidance
adopted by the European Union. 24
2. Key Definitions
The definitions in the final IND safety reporting regulations are intended to be clear,
internally consistent, and consistent with definitions that are used internationally.
The FDA was particularly focused on clarifying the causal relationship that must exist
between an adverse event and a drug in order for the adverse event to be considered a
suspected adverse reaction and clarifying what adverse events or suspected adverse
reactions are unexpected. The definitions included in the revised IND safety
reporting regulation and FDA Safety Reporting Guidance reflect this focus. 25
(i) “Adverse event,” generally means an untoward medical occurrence that is
associated with use of a drug in humans (even if not drug related).
(ii) “Adverse reaction” means any adverse event caused by the drug (i.e., there is
reason to conclude the drug caused the adverse event).
This guidance document is available at:
The announcement is available at:
See 75 Fed. Reg. at 59936.
See 21 C.F.R. § 312.32(a) (2011) and FDA Safety Reporting Guidance, supra note 23, p.
(iii)“Life-threatening adverse event” or “life-threatening suspected adverse reaction,”
generally means an adverse event or suspected adverse reaction which places
the patient or subject at immediate risk of death (as determined by the
investigator or sponsor).
(iv) “Serious adverse event” or “serious suspected adverse reaction,” generally means
an adverse event or suspected adverse reaction which (as determined by the
investigator or sponsor) results in:
(b) Life-threatening adverse event;
(c) Inpatient hospitalization or prolongation of hospitalization;
(d) Persistent or significant incapacity to, or substantial disruption of, the
ability to perform normal life functions;
(e) A congenital anomaly/birth defect; or
(f) An important medical event that may jeopardize the patient or subject and
require medical or surgical intervention to prevent one of the foregoing
outcomes (e.g., allergic bronchospasms that require intensive treatment).
(v) “Suspected adverse reaction” generally means an adverse event for which there is
a “reasonable possibility” (i.e., evidence to suggest a causal relationship) that
it was caused by the drug.
(vi) “Unexpected adverse event” or “unexpected suspected adverse reaction,” means
an adverse event or suspected adverse reaction which:
(a) Is not mentioned in the investigator brochure (or not mentioned for the
particular drug) or is not mentioned at the specificity or severity that
(b) If no investigator brochure, is inconsistent with the risk information in the
general investigational plan or otherwise inconsistent with the information
in the current application.
The FDA regulations seek to clarify the causal relationship between an adverse event
and a drug that will rise to reporting requirements.
(i) The FDA, as evident in the key definitions, establishes a hierarchy of causality:
(a) Adverse Event. No causality necessary.
(b) Suspected Adverse Event. There is evidence to suggest causality.
(c) Adverse Reaction. There is reason to conclude that there is causality.
(ii) Evidence of a causal relationship sufficient to require reporting exists if there is a
“reasonable possibility” that an adverse event was caused by a drug. The
FDA has offered the following examples of when a “reasonable possibility”
(a) a single occurrence of an event that is uncommon and known to be
strongly associated with drug exposure;
(b) one or more occurrences of an event that is not commonly associated with
drug exposure, but is otherwise uncommon in the population exposed to
the drug; or
(c) an aggregate analysis of specific events observed in clinical trial indicating
events occur more frequently n the drug treatment group than in a
concurrent or historical control group. 26
Example (c) may involve adverse events that are known consequences of the
underlying disease or condition or other adverse events that commonly occur
in the study population independent of drug therapy.
The FDA regulations impose enhanced monitoring responsibilities on sponsors.
Sponsors must undertake a prompt review of all relevant safety information obtained
or otherwise received by the sponsor from any foreign or domestic sources. The
(i) Clinical or epidemiological investigations,
(ii) Animal or in vitro studies,
(iii)Reports in the scientific literature,
(iv) Unpublished scientific papers,
(v) Reports from foreign regulatory authorities,
(vi) Reports of foreign commercial marketing experience for drugs not marketed in
FDA guidance also indicates that sponsors should act proactively to identify safety
information by undertaking annual literature searches.
21 C.F.R. 312.32(c)(1)(i). See also FDA Safety Reporting Guidance, supra note 22, p. 8-9.
21 C.F.R. 312.32(b). See also FDA Safety Reporting Guidance, supra note 22, p. 6-7.
5. IND Safety Reports
The final regulations require the sponsor to submit an IND safety report to the FDA
and provide notice to all participating investigators of any of the following as soon as
possible and in no event later than 15 calendar days after the sponsor determines that
the information must be reported:
(i) Suspected adverse reactions that are both serious and unexpected;
(ii) Findings from epidemiological studies, analysis of multiple studies, or clinical
studies, even if not conducted by the sponsor or under an IND, that suggest a
significant risk to humans exposed to the drug;
(iii)Findings from animal or in vitro testing, even if not conducted by the sponsor, that
suggest a significant risk in humans exposed to the drug; and
(iv) Clinically important increases in the rate of a serious suspected adverse reaction
over the rate listed in the protocol or investigator brochure. 28
6. Unexpected Fatal or Life-Threatening Suspected Adverse Reaction Reports
The sponsor must inform the FDA of any unexpected fatal or life-threatening
suspected adverse reaction as soon as possible but in no event later than 7 calendar
days after receiving the information. 29
7. Investigator Reports
The revised regulations also require the investigator to report certain information to
the sponsor. 30 The investigator must immediately report any serious adverse event to
the sponsor and provide the sponsor with his or her assessment of the possibility that
the drug caused the event. While the investigator reports any serious adverse event
without regard to causality, the investigator also provides an assessment of the
possibility of causality. The sponsor decides whether the serious adversement
constitutes a serious suspected adverse reaction taking into account the investigation’s
assessment. The investigator must also report nonserious adverse events as required
by the timetable set forth in the protocol. 31
8. Reporting Requirements for Bioavailability and Bioequivalence Studies
The former regulations exempted certain bioavailability and bioequivalence studies
from the IND requirements under 21 C.F.R. Part 312, including the safety reporting
requirements. The revisions to the bioavailability and bioequivalence regulations
include safety reporting requirements that apply to these bioavailability and
See id. § 312.32(c)(1).
See id. § 312.32(c)(2).
See id. 312.64(b) and FDA Safety Reporting Guidance, supra note 22, p. 14-15.
See id. § 312.64.
bioequivalence studies exempt from the IND requirements. Pursuant to the revised
regulations, a person conducting a bioavailability or bioequivalence study must
inform the FDA and all participating investigators of any serious adverse event as
soon as possible but in no event later than 15 days after learning of the serious
adverse event. (The definition of “serious adverse event” in 21 C.F.R. 312.32(a)
applies here.) Further, a person conducting a bioavailability or bioequivalence study
must inform the FDA of any fatal or life-threatening adverse event as soon as possible
and in no event later than 7 calendar days after learning of the adverse event. 32
B. Proposed Data Falsification Regulations
On February 19, 2010, the FDA issued proposed regulations requiring sponsors of
research subject to FDA jurisdiction to report information regarding falsification of
data. 33 The proposed amendments are intended to clarify requirements in the existing
regulations regarding: (1) reporting possible falsification of data; (2) information that
must be reported when a study is terminated or an investigator’s participation is
terminated; (3) the individuals whose actions are subject to the reporting requirements;
and (4) the timing for submitting reports. The proposed regulations amend a number of
FDA regulations, including those addressing investigational new drug applications 34 and
investigational device exemptions. 35 As of the time of submission of this paper, the FDA
has not yet promulgated final regulations.
1. Reporting Requirements
Upon learning that “any person” engaged in, or may have engaged in, “falsification of
data” while reporting study results or “proposing, designing, performing, recording,
supervising, or reviewing studies conducted by or on behalf of a sponsor or relied on
by a sponsor,” the sponsor must report this falsification of data (or possible
falsification of data) to the relevant FDA center with jurisdiction (e.g., the Center for
Drug Evaluation and Research or the Center for Devices and Radiological Health).
The falsification of data (or possible falsification of data) must be reported even if the
sponsor has no evidence of the person’s intent. This information must be reported to
the FDA center promptly and in no event later than 45 calendar days after the sponsor
learns of the falsification of data (or possible falsification of data).
The proposed regulations do not contain any minimum threshold that must be met to
trigger the reporting requirements. Further, the FDA advises that a sponsor should
not wait for conclusive proof that falsification of data has occurred before reporting
the information. According to the agency, the FDA may be able to determine if a
person engaged in falsification of data, even if an individual sponsor cannot, because
the FDA is able to analyze aggregate data from multiple sponsors.
See id. § 320.31.
Reporting Information Regarding Falsification of Data, 75 Fed. Reg. 7412 (Feb. 19, 2010) (to be codified at 21
C.F.R. pts. 16, 58, 71, 101, 170, 171, 190, 312, 511, 571, 812).
See 21 C.F.R. pt. 312 (2011).
See id. pt. 812.
2. Persons Whose Data Falsification Must be Reported
The FDA interprets the term “any person” in the reporting requirements above very
broadly to include any person involved the study, including the individuals
conducting the study as well as their colleagues and subordinates.
3. Definition of “Falsification of Data”
Falsification of data is defined broadly to mean “creating, altering, recording, or
omitting data” so that the data is not an accurate representation of what actually
occurred. Falsification of data does not include errors, such as typographical errors or
transposed numbers or characters. The proposed regulations outline four categories
of possible falsification of data:
(i) Creating Data. This category of falsification of data includes creating data that
were not obtained, such as fabricating and recording or reporting data or
results, reporting data for a subject who did not exist, or forging a subject’s
signature on an informed consent form.
(ii) Altering Data. This category of falsification of data includes altering data by
replacing original data with other information or data when this other
information or data is not an accurate representation of the study conduct or
results. For example, falsification of data in this category would include
altering a laboratory measurement to minimize the extent to which it deviates
(iii)Inaccurately Recording or Obtaining Data. This category of falsification of data
includes recording or obtaining data for a specimen, sample or test when the
specimen, sample, or test is described inaccurately or described in a way that
is not an accurate representation of the data. For example, this would include
changing the date that a specimen, sample or test was recorded or obtained;
adding an improper substance to a specimen or sample; or inaccurately
identifying the subject who was the source of a specimen or sample.
(iv) Omitting Data. This category of falsification of data includes omitting data that
were obtained and should be recorded based on the study design and conduct,
such as not recording exclusionary medical information for a subject or
omitting data from the statistical analysis to produce a favorable result.
4. Information Reported
In the event that a sponsor is required to report the falsification of data, or possible
falsification of data, to the FDA, the report must include the following information:
(i) The name, last known address, and last known phone number of the person who
may have engaged in falsification of data;
(ii) The identity of the study that may have been affected by the falsification of data,
such as the study title, study sites, study dates, application number, and
investigational protocol number (as applicable); and
(iii)Information describing how the falsification may have occurred.
5. Administrative and Enforcement Actions
Once the FDA receives a report of falsification of data (or possible falsification of
data), the FDA will analyze the report and information that it has received from other
sponsors to determine whether to conduct further investigation. FDA investigations
may lead to administrative or enforcement actions, such as disqualifying clinical trials
from FDA consideration, suspending a clinical trial, disqualifying an investigator, or
initiating criminal proceedings.
The FDA has also indicated that the failure to report possible falsification of data
might constitute a violation of Section 301(e) of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 331(e)) (concerning failure to make a required report) or 18
U.S.C. 1001 (concerning the submission of a false statement to the federal
C. Changes to HIPAA’s Requirements for Clinical Research
The use or disclosure of individually identifiable health information in connection with
clinical research implicates the Health Insurance Portability and Accountability Act of
1996 (HIPAA) and the regulations promulgated thereunder at 45 C.F.R. Parts 160 and
164 (Privacy Rule).
The Privacy Rule limits the use and disclosure of individually identifiable health
information by certain types of entities known as “covered entities” (which term includes
most health care providers) and other entities known as “business associates” (which term
generally includes entities that perform certain functions involving the use or disclosure
of health information for or on behalf of a covered entity). In general, such information
is known as “protected health information” (PHI) under the Privacy Rule. 37
On February 17, 2009, the Health Information Technology for Economic and Clinical
Health Act (HITECH) was signed into law as part of the American Recovery and
Reinvestment Act of 2009. By signing HITECH, Congress made the first significant
changes to HIPAA since HIPAA was enacted in 1996. One of the significant changes
that HITECH made to HIPAA was with regards to the sale of PHI in the context of
research and otherwise. This change is discussed in further detail below.
See Reporting Information Regarding Falsification of Data, 75 Fed. Reg. at 7416.
Extensive guidance from the Department of Health and Human Services (HHS) and the National Institutes of
Health (NIH) on the application of the Privacy Rule to research is available at http://www.hhs.gov/ocr/hipaa/.
The NIH has prepared and posted on its website a number of documents addressing the application of the
Privacy Rule to research at http://privacyruleandresearch.nih.gov.
On July 14, 2010, HHS issued commentary and proposed regulations to address the
impact of HITECH on the regulations promulgated under HIPAA, including the Privacy
Rule. In this rulemaking, in addition to implementing HITECH’s provisions restricting
the sale of PHI, HHS (1) issued proposed amendments to the Privacy Rule regarding the
use of compound authorizations in clinical research and (2) solicited comments on its
prior guidance regarding the use of authorizations for future research.
This section discusses HITECH’s restrictions on the sale of PHI, the proposed regulations
on compound authorizations, and the commentary on authorizations for future research.
Note that final regulations implementing the research-related provisions were expected
in the spring of 2011, but had not been issued at the time of submission of this paper.
1. HITECH’s Restrictions on the Sale of PHI
HITECH generally prohibits a covered entity or business associate from receiving
any payment or other remuneration in exchange for any individual’s PHI unless the
covered entity obtained the individual’s HIPAA-compliant authorization which
specifically authorizes the exchange of the individual’s PHI for payment or other
remuneration. 38 HITECH outlines seven exceptions to this general prohibition,
including exceptions covering disclosures for (i) “research” when the payment
reflects the cost of preparing and transmitting the data; 39 (ii) public health activities;40
(iii) treatment of the individual (subject to other federal regulations); and (iv)
providing an individual with access to his or her PHI under HIPAA. 41 HITECH’s
prohibitions on the sale of PHI take effect six months after final implementing
regulations are promulgated.
On July 14, 2010, HHS issued proposed regulations to implement various HITECH
provisions, including the prohibition on the sale of PHI. 42 The proposed regulations
generally track the requirements in HITECH, except that the proposed regulations
include additional exceptions for (i) disclosures required by law as permitted under
HIPAA and (ii) disclosures otherwise permitted by HIPAA if the only remuneration
received is a reasonable fee to cover the cost of preparing and transmitting the PHI or
a fee otherwise permitted by law. 43 HHS did request comments on the types of costs
involved in preparation and transmission of the PHI. 44
See 42 U.S.C. § 1795(d) (2011).
“Research” is defined consistent with the Common Rule to mean “a systematic investigation, including research
development, testing, and evaluation, designed to develop or contribute to generalizable knowledge.” 45 C.F.R.
§ 164.501 (2011).
This exception is limited to the public health activities discussed at Id. § 164.512.
See 42 U.S.C. § 1795(d) (2011).
See Modifications to the HIPAA Rules Under the HITECH Act, 75 Fed. Reg. 40868 (July 14, 2010) (to be
codified at 45 C.F.R pts. 160, 164).
See id. at 40921.
See 75 Fed. Reg. at 40891.
2. Proposed Regulations on Compound Authorizations and Commentary on
Authorizations for Future Research
Along with the proposed regulations addressing the sale of PHI, on July 14, 2010,
HHS (i) issued proposed amendments to the Privacy Rule regarding the use of
compound authorizations in clinical research and (ii) solicited comments on its prior
guidance regarding the use of authorizations for future use or disclosure of PHI for
future research projects.
(i) Compound Authorizations in Clinical Research.
(a) Concerns with Current Regulations. The Privacy Rule generally prohibits
a covered entity from conditioning an individual’s treatment on the
individual’s provision of an authorization for the use or disclosure of his
or her PHI. 45 There is an exception for research. A covered entity may
condition the individual’s research-related treatment on the individual’s
provision of an authorization for the use and disclosure of PHI for research
purposes. 46 In other words, a patient would not be allowed to participate
in a clinical trial unless the patient agrees to sign the HIPAA
authorization allowing the disclosure of PHI to the research sponsor (i.e.,
a conditioned authorization).
The Privacy Rule also permits a HIPAA research authorization to be
combined with another HIPAA authorization (creating a “compound
authorization”) unless the covered entity has conditioned the provision of
treatment (such as research-related treatment) on the individual’s
provision of one compounded authorization and not the other
authorization. 47 This prohibition on compound authorizations when one
of the authorizations is a conditioned authorization was intended to ensure
that individuals understand that they can decline to provide the
unconditioned authorization and still receive the treatment associated with
the conditioned authorization. 48
Various groups have expressed concern that, with regards to clinical
research, the prohibition on compound authorizations when one of the
authorizations is a conditioned authorization unnecessarily burdens
covered entities and subjects with the need to complete duplicate
authorizations when one compounded authorization would arguably
suffice. For example, these provisions would prohibit covered entities
from using a compound authorization for a clinical trial that includes
corollary research activities which are not conditioned on the provision of
an authorization (e.g., tissue banking) in addition to the main research-
See 45 C.F.R. § 164.508(b)(4) (2011).
See id. § 164.508(b)(4)(i).
See id. § 164.508(b)(3)(iii).
See 75 Fed. Reg. at 40892.
related treatment which is conditioned on the provision of an
authorization. Under the current regulations, in this situation, the covered
entity would need to present the subject with two authorizations, one for
the ancillary research (unconditioned) and one for the main research-
related treatment (conditioned). 49
(b) Proposed Amendments to Address Concerns with Current Regulations.
The proposed amendments seek to address the concerns outlined above by
amending the requirements in the Privacy Rule to permit covered entities
to combine conditioned authorizations and unconditioned authorizations
for a clinical research study. The authorization must clearly distinguish
between the conditioned and unconditioned aspects of the research and
clearly provide the individual with an opportunity to participate in the
unconditioned aspects of the research without providing his or her
authorization. Covered entities would have flexibility with regards to how
they choose to satisfy these requirements for clarity. With these proposed
amendments, for example, a covered entity would be permitted to combine
a conditioned authorization for research-related treatment with an
unconditioned authorization for the aspects of the study related to the
collection of tissue for a central tissue repository. 50
(ii) Authorizing Use or Disclosure in Future Research. Under the Privacy Rule, in
order for an authorization to be valid, the authorization must include a
description of “each purpose of the requested use or disclosure.” 51 In the past,
HHS has interpreted this requirement to mean than a HIPAA authorization
may not be a “blanket authorization” but must instead specify the uses and
disclosures covered by the authorization. 52 HHS’s interpretation was intended
to ensure that a subject has sufficient information about proposed research in
order to make an informed decision on whether to provide authorization for
the use or disclosure of his or her PHI in connection with the proposed
This HHS interpretation is problematic, however, for research that involves
creating a database or repository for the storage of information and specimens
for future research because at the time the information and specimens are
collected, the researchers may know little about the future research projects
that will be conducted with the information and specimens. Several groups
have expressed concern to HHS that this interpretation places unnecessary
burdens on secondary research and limits subjects’ ability to authorize the use
See id. at 40892–93.
See id. at 40893, 40921.
45 C.F.R. § 164.508(c)(1)(iv) (2011).
See Standards for Privacy of Individually Identifiable Health Information, 67 Fed. Reg. 53182, 53186 (Aug. 14,
2002) (to be codified at 45 C.F.R. pts. 160, 164).
and disclosure of their PHI for the future research without signing multiple
authorizations in the future. 53
In light of these concerns, HHS stated that it was considering, and soliciting
comments on, the following options (among others):
(a) Revising the Privacy Rule to permit subjects to provide authorization
for future research if the description of the future research in the
authorization is adequate enough that the subject may reasonably
expect that his or her PHI could be used or disclosed for future
(b) Revising the Privacy Rule to permit subjects to provide authorization
for future research purposes if the description of the future research in
the authorization includes certain elements or statements that would be
required by the Privacy Rule, as revised; or
(c) Revising the Privacy Rule as specified in clause (a), above, but
requiring disclosure statements in the authorization if the future
research may involve sensitive research activities (e.g., genetic or
mental health analyses). 54
The period for commenting on HHS’s proposed options ended on September
A. Insider Trading Enforcement
Recent government enforcement actions involving “insider trading” have significant
implications for researchers, research institutions and research sponsors involved in the
development of new drugs and devices. These actions focus on the scientists, physicians
and other experts who are paid to provide professional and industry insight to the
investment community. Concerns about the relationships between the investment
community and the researchers who have access to information about products in
development are not new. The recent aggressive enforcement activity, however, is. This
activity may affect oversight of relationships among investors, researchers, and research
1. Overview of Insider Trading Laws
Federal securities law, as interpreted by the Securities and Exchange Commission
(SEC) and the courts, prohibits parties from purchasing or selling securities while in
possession of material, nonpublic information (MNPI) in breach of a duty to the
See 75 Fed. Reg. at 40893.
company issuing the securities, the company’s shareholders, or the source of the
information. 55 Such transactions are broadly defined as “insider trading.”
Insider trading liability arises under one of three theories: (i) the traditional or
“classical” theory; (ii) an application of the “classical theory” to tippers/tippees; and
(iii) the misappropriation theory.
(i) Traditional Theory. The traditional or “classical” theory prohibits the most
common insider trading scenario: the employee who learns inside information
about his corporation and trades on the information. 56 The theory now applies
to agents of a corporation, fiduciaries of a corporation, or other parties in
whom a corporation has placed its trust and confidence57 as well as so-called
“temporary” insiders like accountants, investment bankers, and lawyers. 58
(ii) Tipper/Tippee Liability. The expansion of the “classical” theory to include
tipper/tippee liability prohibits insiders (or “tippers”) from “tipping” an
outsider about MNPI for the “improper purpose of exploiting the information
for [the tipper’s] personal gain.” 59 The theory also states that a tippee may
inherit the insider’s duty to corporate shareholders and subsequently violate
insider trading prohibitions by trading on the information without
disclosure. 60 Tippee liability exists when “a tippee assumes a fiduciary duty
to the shareholders of a corporation not to trade on material nonpublic
information . . . when the insider has breached his fiduciary duty to the
shareholders by disclosing the information to the tippee and the tippee knows
or should know there has been a breach.” 61
Rule 10b-5, which was promulgated under Section 10(b) of the 1934 Securities Exchange Act, states:
It shall be unlawful for any person, directly or indirectly, by the use of any means or
instrumentality of interstate commerce, or of the mails or of any facility of any national
securities exchange, (a) to employ any device, scheme, or artifice to defraud, (b) to make any
untrue statement of a material fact or to omit to state a material fact necessary in order to make
the statements made, in light of the circumstances under which they were made, not
misleading, or (c) to engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person, in connection with the purchase or sale of any
See also Chiarella v. United States, 445 U.S. 222, 234–35 (1980); United States v. O’Hagan, 521 U.S. 642, 661
445 U.S. at 227–29 (adopting rule from In re Cady, Roberts & Co., 40 S.E.C. 907, Release No. 34, 6668, 1961
WL 60638 (S.E.C. Release No. 1961)).
Donald C. Langevoort, INSIDER TRADING REGULATION, ENFORCEMENT, AND PREVENTION § 3:2 (Apr. 2010)
(citing Dirks v. Securities and Exchange Commission, 463 U.S. 646, 654 (1983) and Chiarella, 445 U.S. at 230
n.12) [hereinafter Langevoort].
See Dirks, 463 U.S. at 655 n.14.
See id. at 659–60.
Id. at 660–61.
Id. at 660.
(iii)Misappropriation Theory. The “misappropriation theory” states that a person
commits insider trading “when he misappropriates confidential information
for securities trading purposes, in breach of a duty owed to the source of the
information” (and therefore not in breach of a duty owed to the corporation
issuing the stock or to shareholders of the corporation). 62 A duty of
confidentiality exists if the person undertaking the trading and the source of
the information share a relationship of trust and confidence. 63 SEC rules state
that a duty of confidentiality exists whenever: (a) “a person agrees to maintain
information in confidence”; (b) “the person communicating the material
nonpublic information and the person to whom it is communicated have a
history, pattern, or practice of sharing confidences, such that the recipient of
the information knows or reasonably should know that the person
communicating the material nonpublic information expects that the recipient
will maintain its confidentiality” or (c) “a person receives or obtains material
nonpublic information from his or her spouse, parent, child, or sibling.” 64
Concerns about relationships between physicians and other researchers and the
investment community have existed for a number of years. On August 7, 2005, The
Seattle Times published the investigative report entitled Selling Drug Secrets, which
detailed the increasing number of physicians discussing ongoing clinical trials with
the investment community in exchange for compensation. 65 Immediately following
the report, on August 8, 2005, Senate Finance Committee Chairman Charles E.
Grassley issued a letter to the U.S. Department of Justice (DOJ) and the SEC
requesting that the agencies review these findings and advise whether Congress
should consider strengthening any laws. 66 In 2006, an article in the Journal of the
American Medical Association highlighted the increase in the number of physicians
serving as consultants to the investment community. 67 The article identified
concerns arising from the consulting arrangements related to both insider trading and
conflicts of interest (i.e., if physicians have an investment interest in the investment
O’Hagan, 521 U.S. at 652–53.
See Langevoort, supra note 57, § 6:6. The Second Circuit has recently shown a willingness to expand the
misappropriation theory even to those who owe no fiduciary duty or duty of confidentiality. In SEC v.
Dorozhko, 606 F.Supp.2d 321, 338–39 (S.D.N.Y. 2008), the defendant was a hacker who cracked a database,
found inside information, and traded on it. The District Court denied the SEC’s motion for an injunction,
reasoning that the defendant did not owe any fiduciary duty to the source of the information. The Second
Circuit reversed that decision. The court concluded that the commission of deceptive act violates Rule 10b-5
even if the defendant did not owe a duty to the source; only a deceptive omission requires that the defendant
have a pre-existing duty. The Second Circuit remanded the case to the District Court to determine whether the
defendant gained access to the database by actively misrepresenting his identity or whether he merely exploited
a technical vulnerability.
See 17 C.F.R. § 240.10b5-2 (2011).
L. Timmerman and D. Heath, Selling Drug Secrets, SEATTLE TIMES, Aug. 7, 2005.
Letter from Charles E. Grassley, Chairman of the Committee on Finance of U.S. Senate, to Alberto R.
Gonzales, U.S. Attorney General and Christopher Cox, Chairman of U.S. Securities and Exchange Commission
(Aug. 6, 2005).
E. Topol and D. Blumenthal, Physicians and the Investment Industry, 293 JAMA 2654 (June 1, 2006).
firm and/or a pharmaceutical or biotechnology company whose success may be
affected by the physicians’ service as consultant).
3. Recent Enforcement Activity
In November of 2010, the SEC brought an action for insider trading against a French
physician, Yves M. Benhamou, M.D., who was involved in an investigational drug
clinical trial for a pharmaceutical company and serving as a consultant to a hedge
fund. 68 The DOJ initiated parallel criminal proceedings for securities fraud. 69 Both
actions were based on the alleged provision of confidential information regarding
disappointing clinical trial results to a hedge-fund portfolio manager.
According to the allegations, the physician was involved in clinical trials conducted
by Human Genome Science, Inc. (HGSI). The clinical trials focused on a new drug
then known as Albuferon that HGSI was developing for the treatment of chronic
hepatitis C. Dr. Benhamou was a member of a five person steering committee
overseeing the Albuferon clinical trial. The physician was also the “country lead
investigator” for France and other parts of Europe. Dr. Benhamou had signed
confidentiality agreements with HGSI. While acting in these capacities, Dr.
Benhamou was also retained as a consultant by the hedge-fund portfolio manager,
who was managing portfolios of health care hedge funds that had interests in HGSI.
Dr. Benhamou allegedly alerted the portfolio manager about a setback in the clinical
trial. This “tip” occurred several days before HGSI’s public announcement of the
issues with the trial. In response to the tip, the hedge funds allegedly sold HGSI stock,
avoiding nearly $30 million in losses.
Dr. Benhamou has reportedly pled guilty to securities fraud and other charges and is
cooperating with federal investigators and prosecutors. 70 The hedge-fund portfolio
manager has been arrested on securities fraud charges. 71 The hedge fund paid a $33
million settlement without any admission of wrongdoing. 72
The complaint filed by the SEC is available at http://www.sec.gov/litigation/complaints/2010/comp21721.pdf.
See DOJ Press Release, Manhattan U.S. Attorney Charges French Doctor for Insider Trading Securities Fraud
(Nov. 2, 2010), available at
See DOJ Press Release, Manhattan U.S. Attorney Charges Former Hedge Fund Portfolio Manager for Insider
Trading Scheme Involving Clinical Drug Trial (April 13, 2011), available at
M. Goldstein and S. Herbst – Bayliss, Doctor-turned-trader paid cash for stock tips, Reuters, (Apr. 13, 2011),
The Dr. Benhamou action is part of a larger government crackdown on “experts”
recruited and retained by “expert network” firms to provide advice to certain
investors, often hedge funds, about their areas of expertise.73
4. Issues for Consideration
The recent government enforcement activity has implications for relationships among
the various participants in clinical research. The enforcement activity highlights the
increasing practice of physicians and other parties involved in clinical trials with
access to confidential information serving as consultants to the investment
community and the legal risk for such parties. Research sponsors may want to
enhance efforts to protect the confidentiality of information available to participants
in clinical trials. Researchers and research institutions may want to take action to
identify and restrict relationships with the investment community.
(i) Researchers. Researchers serving as consultants to the investment community
need to be aware of the distinction between professional and industry insight
that can be shared with investors and confidential information that cannot be
(ii) Research Institutions. Research institutions may want to implement protective
measures to ensure that researchers do not undertake to provide services to
investors that could place the researcher or research institution at risk. These
protective measures can build in part on existing procedures designed to
prevent relationships with research sponsors (such as pharmaceutical and
medical device companies) from creating potential financial conflicts of
interest in research. Protective measures could include:
(a) Educating researchers about insider trading restrictions and their
application to researchers;
(b) Requiring researchers to disclose relationships with expert networks and
the investment community;
(c) Reviewing relationships between researchers and the investment
(d) Restricting relationships between researchers and the investment
community (e.g., for the duration of a clinical trial);
(e) Reviewing language in consultant agreements between researchers and the
investment community; and
See SEC Press Release, SEC Brings Expert Network Insider Trading Charges (Feb. 3, 2011), available at
http://www.sec.gov/news/press/2011/2011-35.htm. See also S. Pulliam et al., U.S. in Vast Insider Trading
Probe, WALL ST. J. (Nov. 20, 2010).
(f) Communicating confidentiality provisions in clinical trial agreements and
obtaining assurances from researchers that obligations will be met. 74
Research Institutions must also be ready to respond to requests from research
sponsors for enhanced confidentiality protections and know what they can
(iii)Research Sponsors. For manufacturers and other companies conducting clinical
trials as research sponsors, recent enforcement activity highlights the potential
need to enhance protection of the confidential information available to the
broad range of third parties who assist in the conduct of clinical trials.
(a) Researcher sponsors may want to review procedures to ensure that all
third parties with likely access to clinical trial information during the
course of the clinical trial (e.g., scientific advisors, investigators, clinical
sites, independent review board members, data monitoring committee
members, clinical research organizations, biostatisticians) are identified
and agreements with each of those third parties have confidentiality
provisions or that third parties are otherwise put on notice about the need
to preserve confidentiality.
(b) Researcher sponsors may want to review their standard confidentiality
provisions in clinical trial agreements and consider whether those
provisions could be strengthened. For example, researcher sponsors may
want to include: (i) an acknowledgement that the other parties (or their
directors, officers, employees and agents) involved in the conduct of the
clinical trial may be “insiders” who have gained material, nonpublic
information about the clinical trial as a result of that involvement; and (ii)
an agreement by the other parties not to engage in transactions, or advise
others to engage in transactions, involving researcher sponsor stock until
the clinical trial results are public. Researcher sponsors may also want to
include specific provisions ensuring that any employees, contractors or
other agents used by the third parties are subject to, and aware of, the
particular confidentiality obligations contained in the agreement.
(c) Researcher sponsors may want to consider specifically requiring
researchers and other third parties involved in clinical trials to disclose any
relationships with the investment community to the researcher sponsor as
part of the contracting process.
(d) Researcher sponsors may want to ensure that confidentiality obligations
are discussed in investigator meetings.
Certain proposed actions are based on recommendations made by Timmerman and Heath in the early JAMA
article. E. Topol and D. Blumenthal, Physicians and the Investment Industry, 293 JAMA at 2657.
B. Conflicts of Interest
1. Current Concerns and Controversy
Recent years have seen widespread focus on financial conflicts of interest created by
financial relationships between health care providers and the pharmaceutical and
medical device industries. Financial relationships in research have been a prominent
part of the focus. Indicia of this focus on financial conflicts of interest include:
(i) JAMA article, Health Industry Practices that Create Conflicts of Interest: A
Policy Proposal for Academic Medical Centers (2006);
(ii) Four American Association of Medical Colleges reports addressing conflicts of
interest in research (2001-2008);
(iii)Prominent academic medical centers adopt policies restricting financial
relationships between physicians and industry;
(iv) Senator Grassley challenged relationships between physicians at academic
medical centers and industry and failure to disclose accurately payments
received from industry;
(v) Four U.S. Department of Health and Human Services (HHS) Office of Inspector
General (OIG) reports focused on conflicts of interest in research (2005-
(vi) National Institutes of Health (NIH) actions against its own scientist (2006) and a
university (2008) for failure to disclose financial relationships with industry;
(vii) Pharmaceutical Researchers of America (PhRMA) and Advanced Medical
Technology Association (AdvaMed) revised codes of conduct (2009);
(viii) State legislation restricting financial relationships between health care
providers and pharmaceutical and medical device industry;
(ix) Section 6002 of Patient Protection and Affordable Care Act of 2010 (federal
“sunshine” provisions); and
(x) Government enforcement actions against pharmaceutical and medical device
manufacturers alleging payments made to physicians to prescribe products
through post-marketing studies.
The fundamental concern with financial conflicts of interest between health care
providers and industry is that the objectivity of health care providers making health
care decisions will be compromised. Patients will be placed at risk or government
health care programs defrauded. Initiatives to address financial conflicts of interest
typically involve disclosure, management, and/or restriction of financial interests.
Financial conflicts of interest in research raise heightened concerns because: (i)
conflicts can compromise not only the decision of a healthcare provider regarding
treatment of a particular patient, but also the integrity of the research and, for certain
industry-sponsored research, the process by which health care products are approved
for use by the public; and (ii) options for addressing conflicts of interest in research
may be constrained by the competing needs to ensure transparency and to preserve
the confidentiality of proprietary information.
A comprehensive discussion of all initiatives relevant to financial conflicts of interest
in research is beyond the scope of this paper. Below are summary discussions of the
following recent developments in government oversight of financial conflicts of
interest in research: (i) U.S. Department of Health and Human Services (HHS) notice
of proposed rulemaking to revise the current regulations designed to promote
objectivity in research for which Public Health Service (PHS) funding is sought; 75
and (ii) challenges to Food and Drug Administration (FDA) oversight of financial
interests in FDA-regulated research.
2. PHS Proposed Financial Conflicts of Interest Regulations
In 1995, HHS adopted regulations designed to promote objectivity in research
funded by the PHS. 76 On May 8, 2009, HHS announced its intent to revise the
regulations and requested for comments on potential changes to the regulations. 77
On May 21, 2010, HHS issued the proposed regulations.
Note that final regulations implementing the research-related provisions were
expected in the spring of 2011, but had not been issued at the time of submission
of this paper.
Current PHS financial conflict of interest regulations apply to research institutions
that seek or receive PHS funding for research.78 An investigator (which includes
his or her spouse and dependent children) must disclose “significant financial
interests” to his or her research institution. 79 An institution must have in place a
Responsibility of Applicants for Promoting Objectivity in Research for which Public Health Service Funding is
Sought and Responsible Prospective Contractors, 75 Fed. Reg. 28688 (May 21, 2010) (to be codified at 42
C.F.R. pt. 50, 45 C.F.R. pt. 94).
See Objectivity in Research, 60 Fed. Reg. 35810 (Jul. 11, 1995).
Responsibility of Applicants for Promoting Objectivity in Research for Which public Health Service Funding Is
Sought and Responsible Prospective Contractors; Request for Comments, 74 Fed. Reg. 21610 (May 8, 2009).
See 42 C.F.R. pt. 50, subpt. F (2011).
A “significant financial interest” includes “anything of monetary value” with certain exceptions: (1) salary,
royalties, or other remuneration from the research institution; (2) ownership interests in the institution, if the
institution is an applicant under the Small Business Innovation Research Program; (3) income from seminars,
lectures, or teaching engagements sponsored by public or nonprofit entities; (4) income from service on
advisory committees or review panels for public or nonprofit entities; (5) an equity interest that does not exceed
$10,000 in value as determined through reference to public prices or other reasonable measures of fair market
value, and does not represent more than a five percent ownership interest in any single entity; and (6) aggregate
financial conflict of interest policy for obtaining information on “significant
financial interests” and must manage, reduce or eliminate any identified financial
conflicts of interest. The institution must also report financial conflicts of interest
PHS proposed regulations expressly respond to the growing complexity of
biomedical and behavioral research; the increased interaction among government,
research institutions, and the private sector in attaining common public health
goals while meeting public expectations for research integrity; and increased
public scrutiny. 80
PHS proposed regulations would implement a number of changes to achieve a
“more rigorous approach” to financial conflicts of interest. 81
(ii) Scope of the Proposed Regulation
The regulations would apply to Small Business Innovation Research
(SBIR)/Small Business Technology Transfer Research (STTR) Phase I
applications which applications were previously excluded. 82
(iii) Scope of Definition of “Significant Financial Interests”
The proposed regulations would revise the definition of “significant financial
interest” reportable to an institution to include a “financial interest consisting of
one or more of the following interests of the Investigator (and those of the
Investigator's spouse and dependent children) that reasonably appears to be
related to the Investigator's institutional responsibilities” (i.e., his or her
professional responsibilities on behalf of the institution whether or not involving
research). 83 Significant financial interest would be further defined as follows:
(a) Publicly-Traded Entity. A significant financial interest exists if the
aggregate value in the twelve months preceding the disclosure and the
value of any equity interest in the entity as of the date of disclosure
(b) Non-Publicly Traded Entity. A significant financial interest exists if the
aggregate value in the twelve months preceding the disclosure exceeds
$5,000 or investigator holds any equity interest.
salary, royalties or other payments over the next twelve months that are not expected to exceed $10,000. 42
C.F.R. § 50.603 (2011).
75 Fed. Reg. at 28689.
Id. (to be codified at 42 C.F.R. § 50.602).
Id. at 28691–93 (to be codified at 42 C.F.R. § 50.603).
(c) Intellectual Property Rights. A significant financial interest includes the
rights (e.g., patents, copyrights), royalties from such rights, and
agreements to share in royalties related to such rights.
(d) Exclusions. A significant financial interest does not include: (1) salary,
royalties, or other payments paid by the institution to an employed or
contracted investigator; (2) any ownership interest in the institution held
by the investigator; or (3) income from seminars, lectures, teaching
engagements, service on advisory committees or review panels
sponsored/paid by a federal, state, or local government agency, or an
institution of higher education as defined at 20 U.S.C. 1001(a).
Changes in the definition of significant financial interest therefore include: (a) a
reduction (from $10,000 to $5,000) or elimination (for equity in non-publicly
traded company) in financial threshold for significant financial interests; (b)
disclosure of interests related to investigator’s institutional responsibilities and not
just specific research project; and (c) a focus on prior twelve month period (rather
than future twelve month period).
(iv) Institution Responsibilities
The proposed regulations would revise and expand institution responsibilities in a
number of ways, including the following:
(a) Institution must post its written policy on financial conflicts of interest on
(b) If the institution’s policy has a broader definition of conflicts of interest
than required by the regulations, the institution must adhere to that
definition in reporting to PHS;
(c) Institution must not just inform investigators of its policy on financial
conflicts of interest, but provide training;
(d) Institution must ensure each subcontractor or subrecipient (through a
legally enforceable written contract) either adheres to the institution’s
financial conflicts of interest policy or its own policy (with enhanced
obligations regarding communication of subcontractor/subrecipient
conflicts) and Institution must manage disclosed conflicts;
(e) Investigators must submit disclosures not just at time of application for
PHS funding but also annually and upon any change;
(f) Institution would have responsibility for determining whether a significant
financial interest is related to research and, if so, whether the interest
creates a financial conflict of interest;
(g) Institution must maintain records of all investigator disclosures whether or
not determined to be a financial conflict of interest; and
(h) Institution must submit revised certification of compliance requirements. 84
(v) Management and Reporting of Conflicts of Interest
Institution responsibilities with respect to management of financial conflicts of
interest would be strengthened in a number of ways, including:
(a) Institution would have obligation not just to manage disclosed significant
financial interests that institution determines to be financial conflicts of
interest, but to have in place a formal management plan before expending
PHS research funds;
(b) Mechanisms recognized for management of a financial conflict of interest
are expanded (e.g., to include disclosure to subjects);
(c) Institution must respond promptly to obtain disclosures of, or review, new
significant financial interests, including implementing a mitigation plan if
such interests were not timely disclosed or reviewed;
(d) Institution must monitor investigator compliance with any management
(e) Institution must disclose on publicly accessible website a significant
financial interest currently held by a senior researcher that relates to PHS-
funded research and institution has determined to be a financial conflict of
(f) Institution must submit expanded information in a financial conflict of
interest report to PHS (including a description of the nature of the conflict
of the interest); and
(g) Institution must provide annual updates to financial conflict of interest
(vi) Institutional Conflicts of Interest
PHS had previously invited comments on whether the agency should address
institutional conflicts of interest (as compared to individual investigator
conflicts of interest), but decided in the proposed regulations not to propose
any changes in order to focus on revising in a timely manner the investigator
conflicts of interest provisions.86 The agency nonetheless invited comment on
Id. at 28693–96 (to be codified at 42 C.F.R. § 50.604).
Id. at 28696–99 (to be codified at 42 C.F.R. § 50.605).
Id. at 28700.
whether institutions should be required to adopt a policy addressing
institutional conflicts of interest even if the specifics remained undefined by
Note: Institutional conflicts of interest represent an ongoing area of interest.
A recent OIG report issued prior to the publication of the proposed rules
considered whether institutions receiving NIH grants had institutional
conflicts of interest policies in place.88 The OIG indicated that an institutional
conflict of interest can exist when an institution’s own financial interests (e.g.,
royalties, equity, stockholdings, and gifts) or those of its senior officials pose
risks of undue influence on decisions involving the institution’s research. The
OIG determined that a number of institutions had policies in place although
definitions of conflicts of interest and the substance of the policies varied.
The OIG recommended that NIH should require grantee institutions to
identify, report, and address institutional conflicts in a consistent and uniform
manner. According to the OIG, NIH should know of the existence of such
conflicts so the agency can ensure that the related research is free from any
intended or unintended bias. The OIG also recommended that NIH
promulgate regulations that address institutional financial conflicts of interest
and, until regulations are promulgated, NIH should encourage grantee
institutions to develop policies and procedures regarding institutional financial
interests and conflicts.
3. FDA Financial Disclosure
The FDA regulates financial conflicts of interest in clinical research subject to its
jurisdiction to ensure that bias does not exist in research submitted to the FDA in
support of a marketing application or a drug, device, or biologic product. 89
(i) Current Requirements
Current FDA financial disclosure requirements apply to any party who
submits clinical data in support of a marketing application to the FDA
(sponsor). 90 The sponsor must obtain information from investigators
regarding financial interests and disclose that information to the FDA.
Investigators include principal investigators or sub-investigators who are (or
will be) listed or identified in the application and directly involved in the
treatment or evaluation of research subjects (and their respective spouses and
Financial interests subject to disclosure requirements include:
HHS OIG REPORT, OIG INSTITUTIONAL CONFLICTS OF INTEREST FOR NIH GRANTEES, OEI-03-09-00480 (Jan.
21 C.F.R. Part 54 (2011).
Id. § 54.2.
(a) Any financial arrangement if the value of the compensation to the
investigator for conducting the study could be influenced by the outcome
of the study (i.e., compensation that could be higher for a favorable
outcome than for an unfavorable outcome, in the form of an equity interest
in the sponsor or in the form of compensation tied to sales of the product,
such as a royalty interest);
(b) Any significant payments (i.e., greater than $25,000) from the sponsor of
the covered study, such as a grant to fund ongoing research, compensation
in the form of equipment, retainer for ongoing consultation, or honoraria;
(c) Any proprietary interest (i.e., any property or other financial interest in the
product including, but not limited to, a patent, trademark, copyright or
licensing agreement) in the tested product; and
(d) Any significant equity interest (i.e., any ownership interest, stock options,
or other financial interest in a non-publicly traded corporation, or any
equity interest in a publicly traded corporation that exceeds $50,000) in
the sponsor of the covered study. 91
Disclosures must cover the duration of the study and one year after. Sponsors
must exercise due diligence in seeking to obtain the financial disclosures. 92 If
sponsors cannot obtain the information despite these efforts, sponsors must so
indicate on reports to the FDA. 93
Sponsors submit, with the marketing application, one of the following forms
for each investigator: (a) a completed FDA Form 3454 certifying that none of
the applicable financial interests exist, or (b) a completed Form 3455
disclosing the nature of those interests. Form 3455 requires a detailed
disclosure of the financial interest and steps taken by the sponsor to manage
the financial interest.
Upon receipt of a Form 3455, the FDA should consider the size and the nature
of the disclosed interests, the design and purpose of the study, and whether
appropriate steps have been taken in the design, conduct, reporting, and
analysis of the study to minimize any potential bias. If the FDA determines
that the financial interests of an investigator raise concerns about the
reliability of data generated by that investigator, the FDA is authorized to take
various actions, including auditing the data in question, requesting further
analysis of the data, requesting independent analysis of the data, or refusing to
accept the data in support of the application. 94
Id. § 54.2, .4.
Id. § 54.5.
(ii) Challenges to FDA Oversight
Government agencies have recently challenged FDA oversight of conflicts of
interest in research.
(a) HHS OIG Report, The Food and Drug Administration’s Oversight of
Clinical Investigators’ Financial Information (2009). 95 The OIG reviewed
financial disclosure information submitted to the FDA and FDA practices
with respect to the review of such information. The OIG made the
following key findings:
(1) Limited number of marketing applications (1%) had disclosed
financial interests and disclosures generally involved one financial
(2) FDA cannot determine whether sponsors have submitted financial
information for all investigators because the agency does not have a
complete list of clinical investigators.
(3) Almost half of the applications reviewed were missing financial
information (including some applications that relied on the “due
(4) There was no documentation of FDA review of financial information
in a third of the applications.
(5) Neither the FDA nor sponsors took any action with respect to financial
information disclosed in a fifth of the applications.
Based on its findings, the OIG made the following recommendations:
(1) The FDA should ensure that sponsors submit complete financial
information for all clinical investigators. The FDA should use a
complete list of clinical investigators to check that sponsors have
submitted financial information for all clinical investigators. The FDA
should check that sponsors have submitted all required attachments to
financial forms. The FDA should update guidance to sponsors
regarding the due diligence exemption. The FDA should add a review
of financial information to the onsite inspection protocol.
(2) The FDA should ensure that reviewers consistently review financial
information and take action in response to disclosed financial interests.
(3) The FDA should require that sponsors submit financial information for
clinical investigators as part of the pretrial application process.
HHS OIG REPORT, THE FOOD AND DRUG ADMINISTRATION’S OVERSIGHT OF CLINICAL INVESTIGATOR’S
FINANCIAL INFORMATION, OEI-05-07-00730 (Jan. 2009).
(b) New Jersey Attorney General Settlement with Synthes, Inc. (2009). In
2009, the medical device company Synthes, Inc. (Synthes) entered into a
settlement with the New Jersey Attorney General that resolved allegations
that the company conducted clinical trials and failed to disclose
investigator conflicts of interest to the FDA. The New Jersey Attorney
General alleged that a majority of the physicians who participated in the
clinical trials had significant investments in the products being
As part of the settlement, Synthes reimbursed the state for the costs of the
investigation ($236,000) and entered into an Assurance of Voluntary
Compliance (Assurance). The Assurance included the following
requirements with respect to clinical trials:
(1) Synthes must select clinical investigators based on expertise and
experience and engage the investigators through written contracts that
specify the nature of the services to be provided, require submission of
financial disclosure information and prohibit compensation tied to the
outcome of the clinical trial or in the form of stock or stock options;
(2) Synthes must exercise due diligence to obtain financial disclosure of
conflicts of interest involving investigators and provide written
documentation to the FDA if information is not obtained and maintain
records as required by law;
(3) Synthes must have standard operating procedures to obtain financial
disclosure of conflicts of interest;
(4) Synthes must provide fair market value compensation to investigators;
(5) Synthes can only enter into consulting agreements with physicians if
physicians are selected based on expertise and experience and paid fair
(6) Synthes must establish a database to hold financial conflict of interest
(7) Clinical trial agreements must require that the investigator disclose to
the institutional review board and study subjects any financial
(8) Synthes must disclose financial interests of clinical investigators on a
public website after the investigational product receives marketing
(9) Synthes must comply with federal and state laws regarding disclosure
of financial interests with clinical investigators.