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New Hampshire House Passes Sweeping Rules Regarding Physician Relationships with Medical Device Companies

On March 29, 2012, with veritably no debate and less fan-fare, the New Hampshire House of Representatives recommended for passage HB 1725. HB 1725 is broad-reaching, and would prohibit all medical practitioners from prescribing or referring any FDA class II or class III implantable device in cases where they would gain profit, directly or indirectly from the sale of the device, or from performing any procedure involving the device. HB 1725 is currently being fast-tracked – the New Hampshire Senate Committee on Health and Human Services has scheduled a hearing on HB 1725 on April 19, 2012.

Supporters of the bill assert that it is necessary to protect New Hampshire from the perceived problems associated with physician-owned distributors (“PODs“), which appears to be pre-textual insofar as it is believed that no PODs are currently operating in New Hampshire, though supporters have argued the law is necessary as a preventative measure. As drafted, however, the bill goes significantly further than merely outlawing PODs; HB 1725 would essentially prohibit physicians from continuing to practice in their specialty in New Hampshire if they have legitimately developed medical devices and received payment for the same. Thus, even in the absence of any potential abuse or evidence of over-utilization, those physicians would effectively be barred from practice in the State.

Opponents of the bill argue that it could have significant unintended patient safety implications, as New Hampshire would effectively have outlawed the process by which physicians and legitimate medical device manufacturers continuously develop, promote, test, obtain feedback on, and improve life-saving medical devices. Additionally, HB 1725 could have significant chilling and anti-competitive effects on innovators, small businesses/medical device startup companies, and hospitals that employ physicians who develop intellectual property (such as university hospitals and others who engage in significant research and pay royalties to physicians).

Most of the potentially negative effects of HB 1725 occur because of the breadth of the bill, its lack of exceptions, and the fact that it layers upon a statutory definition in New Hampshire’s current “self-referral” law, which currently merely requires disclosure of certain ownership interests to patients (a la the Stark In Office Ancillary Services exception’s disclosure requirement for certain imaging services). That statute defines an “ownership interest” broadly as being:

“any and all ownership interest by a health care practitioner or such person’s spouse or child, including, but not limited to, any membership, proprietary interest, stock interest, partnership interest, co-ownership in any form, or any profit-sharing arrangement. It shall not include ownership of investment securities purchased by the practitioner on terms available to the general public and which are publicly traded.”

HB 1725, as drafted, would prevent a practicing physician (or their spouse/children) from receiving royalties for intellectual property that they have developed and licensed to a medical device manufacturer. Further, an innovative and entrepreneurial physician would be subject to liability if they, or their spouse or children, decided to create or invest in a medical device company for otherwise legal purposes. HB 1725, as drafted, does not distinguish between legitimate physician/medical device company interactions (e.g., bona fide businesses, as opposed to a marketing tool of a device manufacturer, or a sham entity designed to provider remuneration to referring physicians), and creates a near-absolute prohibition on physicians capitalizing on their intellectual property while continuing to practice in their field of specialty.

Opponents of the bill include the New Hampshire Medical Society, which questions the need for the legislation as no PODs currently exist within the state, and is concerned about the effect the law may have on medical innovation and legitimate cost savings vehicles, including ACOs and other payment/purchasing modalities. The Medical Society has further questioned whether the bill is necessary given developments in Federal law, and whether the legislature would be better off amending the bill to include the guidelines adopted by the AMA instead of a wholesale restriction on such activities.

To date, the legislative passage of New Hampshire’s HB 1725 has not been widely publicized. The next significant legislative step occurs on April 19, 2012, when New Hampshire Senate Committee on Health and Human Services has scheduled a hearing on HB 1725.

For more information regarding this issue, please contact Adrienne Dresevic, Clinton Mikel, or Carey Kalmowitz at (248) 996-8510 or visit the HLP website.

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