The Updated AdvaMed Code—Is It Time to Reassess Your Advisory Board?

The Revised and Restated Code of Ethics on Interactions with Health Care Professionals became effective June 1. Issued by the Advanced Medical Technology Association (AdvaMed), the Revised Code provides guidance to the medical technology industry on interactions between device manufacturers and health care professionals.

The Revised Code is not legally binding, but it provides useful guidance—and its revision presents a good opportunity for medical technology companies to re-evaluate certain business practices in light of changing industry norms.

Physician advisory boards are among the areas potentially impacted by the Revised Code. Many medical technology companies have a board of physicians who provide input and advice to the company management. In fact, most medical technology companies find that feedback from the physician community is essential for the development of their products and the growth and success of their companies.

Application of the Revised Code to Advisory Boards

Under the Revised Code, physicians on an advisory board are considered consultants and are subject to the Revised Code's limitations on consultants who are also in a position to order or refer the company's products. In connection with consulting services, the Revised Code provides that:

• Services should be provided under a written agreement that describes all services to be provided.
• There should be a specific, documented need for the advisory board services (excluding the potential for generating business from the consultant).
• Advisory board members should be selected on the basis of the individual's qualifications and ability to meet the specifically defined need.
• Compensation should be consistent with fair market value in an arm's length transaction and should not be based on the advisory board member's past, present or anticipated business.
• Companies may reimburse for the expenses related to travel to board meetings, including reasonable travel, modest meals and lodging costs.
• Companies may have board meetings, but the venue should be conducive to the exchange of information; meals and refreshments should be modest in value, and no recreation or entertainment should be included.
• Sales personnel may provide input about the suitability of a proposed board member, but should not control or unduly influence the decisions concerning board member selection.

The clarification and additional guidance in the Revised Code provides a opportunity for medical technology companies to assess whether their advisory board is providing maximum business value at minimal legal risk.

Minimize Legal Risk

There is some legal risk with all advisory boards simply because they are composed of physicians who are in a position to order or make referrals for a company's products. However, prudent companies can operate their advisory boards in a manner that minimizes that risk by implementing compliance measures that include the following:

• Developing and implementing a compliance policy that reasonably adapts the requirements in the Revised Code to the specific circumstances of the company.
• Documenting the key measures, including the need for the advisory board (including its size and format), the fair market value of compensation paid, and the process by which advisory board members are selected.
• Maintaining minutes from board meetings that connect to the documented basis for the existence of the board.

Maximize Business Value

Aside from the legal risk, advisory boards present both business risk and opportunity. Advisory boards can be expensive, both in cost and in executive management's time and energy. Unfocused board activity can eat up valuable recourses without providing reciprocal value to the company. To assess whether an existing or potential advisory board provides maximum value to the company, consider the following questions:

• What are the specific needs of the company that are to be addressed by the board? If these needs have changed over time, has the board approach also changed?
• Were the specific needs of the company used to develop objective criteria with reasonable specificity used to identify potential candidates?
• Were the board members chosen from a large slate of qualified advisory board candidates, or were the board members chosen based upon their personal relationships to the organization?
• What process is in place to provide quantifiable and verifiable data on the effectiveness of the advisory board?

Many medical technology companies have advisory boards that have evolved over time. With the power of inertia, many boards continue to operate, but in ways other than originally intended or in a way that does not fully meet the company's current needs. The Revised Code provides a great opportunity for companies to re-examine their advisory boards. Such a re-examination could provide both a reduction in legal risk and an increase in business value.