Courts Limit Administration’s Discretion in Public Contracts

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Recent rulings by two administrative courts in Italy have restricted the discretion of public entities in the award of public contracts without open procurement procedures, in particular in the healthcare sector. The two decisions reaffirm the Courts’ policy of restricting recourse to in-house contracts and extensions of expired contracts.

The first decision, issued on May 7, 2015 by the Supreme Administrative Court in Rome, invalidated the award of a service contract to a company established and owned by the regional government of Puglia for the provision of in-house services to healthcare facilities in the region. The contract was awarded without a public procurement procedure, on the basis of the fact that it was an in-house service contract. The Court, deciding upon an appeal brought by a competitor who was not granted the possibility to submit its offer, held that a procurement procedure open to competitors must always occur, even if a governmental entity has established a specific vehicle for the purpose of providing in-house services. The Court left a limited room for in-house services, i.e., services provided by an entity fully controlled and managed by the same administration awarding the contract, as if it was one of its internal departments.

On a different occasion, the regional administrative Court of Turin had the chance to reiterate that the extension of expired public contracts is prohibited by public procurement legislation, as it prevents competitors from participating in new public procurement procedures. In addition to stating again this general principle, the Court in its decision of April 3, 2015 no. 573 also held that governmental entities should proceed with calls for tenders whenever the goods or services they intend to procure are not covered by a national or regional framework agreement. In an effort to curb public spending, the Italian government has implemented in several sectors a centralized negotiation process, whereby a central governmental agency (“Consip”) enters into framework agreements for the supply of goods and services to local administrations. Local administrations are generally bound to adhere to such framework agreements and, if they do so, no call for tender needs to be issued. Public hospitals, on the other hand, must adhere to healthcare-specific regional framework agreements and to Consip agreements; only if no such agreements exist they may proceed with the issuance of a call for tenders.

In the case the before the Court, a local healthcare office postponed the validity of an expired supply contract, after assessing that the framework agreement entered into by Consip would have only partially covered the needs of the local administration and – most importantly – would have entailed a higher cost than the expired agreement. Regardless of the potential savings that the extension of the existing contract would have granted the public administration, the Court held that no exceptions can be envisaged to the issuance of a public procurement procedure. Clearly, more than by savings, the Court must have been guided by the desire to sanction a widespread practice of extending expired contracts, which in most cases stifles competition and does not guarantee lower prices.

It is expected that this policy, increasingly adopted by many administrative Courts, will be one of the highlights of the new public procurement legislation that is currently being examined by Italian lawmakers. The new public procurement code is, in fact, expected to provide new instruments for a more effective fight against corruption and inefficiencies within the public administration.

On-line Sale of OTC Medicinal Products

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Effective as of tomorrow (July 1, 2015), Italian consumers will be able to purchase over-the-counter (“OTC”) drugs on-line.

Legislative decree nr. 17 of 2014 (“Decree”), enacting EU Directive 2011/62, introduced an innovative way of marketing medicinal products for pharmacies and authorized retailers. In order to do so, pharmacies and retailers must meet several conditions, aimed at preventing marketing of counterfeit products.

  1. First of all, pharmacies and retailers must be authorized by either regional entities, provinces or other competent authorities, upon providing the following information:
  • name, VAT and full address of the logistic site;
  • starting date of on-line sale;
  • website address and any other information that may be necessary to identify the seller’s website.

Any change must be communicated within 30 days, subject to forfeiture of the authorization.

  1. Secondly, the seller’s website must contain at least:
  • information relating to the authorizing authority;
  • a link to the Ministry of Health’s website;
  • a specific logo, including a link to the list of the authorized pharmacies and retailers, maintained by the Ministry of Health.

Additionally, the Ministry of Health’s website shall contain a link to a website created by the European Medicines Agency, which will include information on the purpose of the specific logo, as well as on the risks relating to medicinal products that are unlawfully supplied to the public. The Ministry of Health’s website will also contain information relating to the applicable laws and regulations, including any information on differences vis-à-vis other countries as to conditions regulating the supply of medicinal products.

  1. Lastly, distribution shall be carried out in compliance with good distribution practices.

The Italian Agency for Pharmaceutical Products (Agenzia Italiana del Farmaco, “AIFA”) will be in charge of enforcing the new set of rules. AIFA will direct an anti-counterfeiting system in cooperation with the Ministry of Health, the High Institute for Health (Istituto Superiore di Sanità, “ISS”), the Anti-counterfeiting and Health Department of the Police (Nuclei Antisofisticazione e Sanità, “NAS”), and the Customs Authorities. The system will receive reports concerning allegedly counterfeit medicinal products, and AIFA will coordinate seizure of actually counterfeit medicinal products.

Furthermore, the Ministry of Health, upon AIFA’s proposal, will have the power to issue cease and desist orders directed at on-line sellers, as well as orders aiming at blocking the access to websites selling counterfeit medicinal products.

Lastly, on-line sale of prescription drugs will be punished with imprisonment up to one year and a fine between Euro 2,000.00 and Euro 10,000.00, whereas on-line sale of medicinal products by unauthorized individuals or entities will be punished with imprisonment from 6 months to 2 years and a fine between Euro 3,000 and Euro 18,000. On-line sale of counterfeit medicinal products will be instead punished with imprisonment up to 3 years and with a fine between Euro 2,600.00 to Euro 15,600.00.

The measures introduced by the Decree appear balanced. On the one hand they grant an overall wider access to OTC medicinal products along with a presumable price reduction; on the other hand they set forth a solid enforcement system preventing and punishing marketing of counterfeit drugs. As with every innovation in the field of health, only time will tell if benefits and risks are actually balanced.

3D Printing In Healthcare: Regulatory Issues To Consider

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The Democratization of 3d Printing: Joys and Sorrows

A fascinating technology is becoming more and more widespread and may completely change the world of manufacturing as we know it: 3D printing. An object passed through a 3D scanner or a file downloaded through the internet may enable almost anybody to produce an unlimited number of 3D copies.

This is a classic example of an innovative technology that is going through the process of “democratization”: with the price of 3D printers now in the range of tens of thousands of Euros, a manufacturing method, which was once available only to a few, may now be found in every architecture firm, in your garage and… in your hospital.

A beautiful National Geographic title points to the revolutionary aspects of 3D printing: “As epoch-making as Gutenberg’s printing press, 3-D printing is changing the shape of the future.” As in many other “revolutions”, it is difficult to imagine its full potential at its onset. Therefore, 3D printing sparks both enthusiasm and anxiety. Many intellectual property owners have much to fear from the possibility of producing countless unauthorized copies of products looking exactly like theirs. While the music and movie industries already suffered when home taping or file sharing became commonplace, 3D printing may impact nearly all industries. Others point to the risks connected with the complete lack of control over the production of guns or other dangerous objects (with others questioning how serious of a threat this might be).

3D printing is already vastly used in the field of medical practice, and many more uses can be imagined in the future (printing organs for transplants is no longer an entirely futuristic scenario). Recent research on 3D programs deployed in Italian hospitals point to the advantages related to 3D models of patients for pre-surgery planning, for training, as well as for obtaining the patient’s informed consent. None of such uses are likely to trigger legal or regulatory issues, if data protection aspects are correctly handled.

Is 3d Printing a Regulated Activity? Is a 3d Printed Item a Regulated Object?

If, instead, a 3D object is created and used closer to patients, it is possible that a regulated item is obtained (most likely a medical device or an advance therapy medicinal product), or that a regulated activity is carried out, with a host of regulatory consequences. In fact:

3d Printing and Liabilities

Who is responsible if a 3D printed medical object is defective? The process of 3D printing involves a number of potentially responsible individuals, who may be liable, in full or in part. A Court would have to determine what went wrong. Depending on the circumstances, the doctor prescribing the 3D object, the surgeon implanting it, the radiologist choosing the images on which the 3D printing process is based, the manufacturers of the 3D printer or of the materials used, the user of a 3D printer… each of them may be responsible for the defect.

However, this is not a new scenario in medical technology, where product liability is always potentially connected with medical malpractice and where finding out the exact responsibility of each subject can be challenging. Italian law sets forth joint liability of all responsible persons and indicates that the person who paid damages has recourse against the other liable persons on the basis of risks, faults and consequences. If such allocation of liability is not possible, then each person is liable in equal parts.

Conclusions

There is often a general sense that an innovative technology is so new that it happens in a legislative vacuum, because how could the legislator have already foreseen rules specific to 3D printing? We have written about a similar approach in the field of medical apps. Instead, new technologies typically land on a pre-existing landscape of applicable regulations, which should be taken into account by innovators and users of innovation. Regulatory authorities may not be ready to start enforcement actions against 3D printing, but may decide to do so in the future.

 

TO REIMBURSE OR NOT TO REIMBURSE? A recent judgement on scientific evidence and appropriateness of care.

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A judgment by the Italian Supreme Court published on April 10, 2015, determined that an alternative cure must be covered by the Italian National Health Service even in the absence of compelling scientific evidence as to its efficacy.

Health is protected by Italian law as a fundamental right of the individual, as well as a collective interest of the community, and dignity and freedom of the human being must always be respected. These general principles are enshrined in the Italian Constitution (section 32) and in section 1 of Legislative Decree no. 502/1992. Therefore, the right to health is framed as an absolute and fundamental right, a theoretical approach that – given the many restraints affecting patients’ access to care – may appear almost fictional.

Further, Italian legislation sets forth that the National Health Service must offer uniform essential levels of care and assistance, taking into account human dignity, equal access to care, quality and appropriateness of therapy, as well as economic factors. (These latter economic factors often appear most pressing, as patients affected by hepatitis C are currently learning!).

With regard to reimbursement, the Italian National Health Service must cover assistance services which show, for specific clinical or risk conditions, scientific evidence of a significant health benefit, from an individual and collective standpoint, compared to the resources employed. Such concept is often called “appropriateness” and is something with which doctors, hospitals, patients and authorities struggle daily. Nobody will deny that all the above mentioned factors are of primary importance, but balancing them can be difficult in practice.

The recent decision by the Italian Supreme Court (Corte di Cassazione, judgement no. 7279 of 2015) determined that a quadriplegic patient was entitled to free access to a non conventional therapy (so called “DIKUL” therapy), even in the absence of compelling scientific evidence as to its efficacy, when it was proven that the patient benefited from it through a sworn appraisal of a Court appointed expert. The Court pointed out that, while no compelling scientific evidence was offered, the efficacy of the therapy was in doubt, but not openly proven as not efficacious.

In its reasoning, the Court reiterated the higher hierarchy of the constitutional right to health over the discretional administrative decision of the hospital to administer a certain therapy. Further, the Court emphasized that the efficacy principle set forth in Italian law may be based on actual benefits to the patient brought by the DIKUL therapy: the mere absence of available scientific evidence in favor of the DIKUL therapy was not sufficient to deny its access to the patient. Only if there had been scientific evidence proving that the DIKUL therapy was inefficacious, then its reimbursement could have been denied.

We have already commented on the infamous Stamina case in this blog, a case where the well intentioned desire of Courts and Parliament to help otherwise helpless patients prompted the recourse to a therapy which completely lacked any scientific basis and breached many legal provisions actually aimed at protecting patients (e.g., GMP manufacturing requirements, informed consent of patients).

The recent Supreme Court decision confirms the sometimes difficult relationship between scientific evidence and access to a certain therapy, particularly in cases of patients affected by diseases for which there are limited therapy options.

New Environmental Crimes Introduced: Time to Update Your Corporate Compliance Program!

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On May 19, 2015 the Italian Senate passed bill no. 1345-B, introducing new environmental crimes. The law will become effective the day after its publication on the Official Gazette, following promulgation by the President of the Republic. The law introduces the following environmental crimes in the form of delitti (i.e. the most serious form of crimes), punishable with imprisonment and fines. It is important to note that such crimes are included among the crimes that give rise to criminal corporate liability pursuant to Legislative Decree 231/2001 (“Decree”).  As a result, companies who have already set up an organizational and control model aimed at exempting it from criminal corporate liability must update it in order to take into account prevention of the newly introduced criminal conducts. The new crimes can be described as follows:

  • Polluting.    Anyone who unlawfully damages or jeopardizes in a significant and measurable way waters, air, the surface or the underground, as well as ecosystems, plants or animals, is punishable with imprisonment between 2 and 6 years plus a fine between Euro 10,000.00 and 100,000.00. Sanctions may be higher in case of pollution of protected areas (such as historical sites) or protected plants or animal species. Also, imprisonment can reach as far as 20 years in case of death or injury as a consequence of pollution. As far as companies are concerned, commission of such crime leads to the imposition of monetary sanction between 250 and 600 quotas as per the Decree. Blacklisting sanctions set forth in the Decree may also apply.
  • Environmental disaster. This crime punishes, alternatively, the irreversible alteration of an ecosystem’s equilibrium, the alteration of an ecosystem’s equilibrium the restoring of which is particularly burdensome or can be achieved only by extraordinary measures, or the offense to public safety in light of its effects or the number of people affected. The mentioned conducts are punishable with imprisonment between 5 and 15 years. Also in this case, if protected areas or species are damaged, imprisonment can be increased by one third. The commission of such crime by a company leads to the imposition of monetary sanctions between 400 and 800 quotas, as per the Decree. Also in this case, blacklisting sanctions may apply.
  • Trafficking and disposal of highly radioactive materials.                       Unlawful sale, purchase, receipt, transportation, importation, exportation, supply, detention, transfer and disposal of highly radioactive materials are punished with imprisonment between 2 and 6 years, plus a fine between Euro 10,000.00 and 50,000.00. Sanctions may be increased in case of danger of damage or deterioration of waters, air, the surface or the underground, as well as ecosystems, plants or animals. Also, if any of the conducts jeopardizes the life or safety of individuals, sanctions may be increased by one half. Companies may be punished with monetary sanctions between 250 and 600 quotas in accordance with the Decree.
  • Hindered control. Hindrance of vigilance and control activities on environment, hygiene and safety on the workplace is punished with imprisonment between 6 months and 3 years.

If the above crimes are committed in the form of organized crime, sanctions already set forth against organized crime are increased by one third, and, if companies are involved, they may face sanctions between 300 and 1000 quotas as per the Decree. Sanctions are increased by one third to one half in case any public official or person in charge of a public service carrying out environmental-related offices partakes in the criminal organization. Not only the law provides for new crimes, but it also incentivizes remedial actions. Sanctions are in fact diminished by one half to two thirds in case remedial actions are taken to prevent occurrence of further consequences or to restore the status quo ante. Also, whistle-blowing is incentivized by reducing sanctions by one third to one half. Quite interestingly, the law prevents the statute of limitations from running in case of stay of proceedings ordered to allow remedial actions to be taken. Lastly, failure to take remedial actions, if ordered by a judge or by the law, is punished with imprisonment between one and four years plus a fine between Euro 20,000.00 to 80,000.00.

Italian Corporate Criminal Liability 101: Basic Facts You Should Know

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Are Companies Criminally Liable under Italian Law? Yes!

Legislative Decree no. 231/2001 (the “231 Decree”) has introduced in Italy the principle that companies are responsible for crimes committed by:

  • Individuals vested with powers of company’s representation, control, direction, or management;
  • Individuals subject to the authority or control by the above-mentioned individuals, including employees, consultants, non subordinate employees and whoever acts on behalf of the company.
  • As a result, a company may now be considered liable for crimes committed by individuals in the interest or to the benefit of the company (while crimes committed by individuals in their exclusive interest or in the exclusive interest of third parties do not trigger company’s liability). The company’s liability is separate and distinct from the liability of the individual who committed the crime.

Which Crimes Trigger Liability? Several (not just corruption!).

The 231 Decree lists a number of crimes for which companies may be liable, which include:

  • Corporate crimes;
  • Crimes against public administrations;
  • Crimes against the dignity of individuals;
  • Conspiracies and terrorism;
  • Crimes arising out of breach of laws protecting the environment and health and safety at work;
  • Crimes related to criminal associations;
  • Money laundering.

Which Sanctions Apply? Monetary and blacklisting sanctions.

If a company is found liable, the following sanctions may apply:

  • monetary sanctions up to a maximum amount of Euro 1,549,370.69 (and precautionary seizure of the price or profit arising from the crime),
  • blacklisting sanctions (applicable also as a precautionary measure), with duration between 3 to 24 months, which can consist of, inter alia, the prohibition to conduct the Business’ commercial activity, the prohibition to contract with the public administration, the prohibition to advertise goods or services, seizure, or the publication of the court’s decision (if a blacklisting sanction is applied).

Are There any Grounds of Exemption from Criminal Corporate Liability?  Yes!

A company is not liable pursuant to the 231 Decree if it proves that:

  1. The management has adopted and effectively implemented a so-called ‘Organizational Model’ in order to prevent the commission of the criminal offences listed in the 231 Decree by subjects acting on behalf of the company;
  2. The company has established an internal body (‘Compliance Committee’) entrusted with the task of supervising the proper functioning and update of the Organizational Model, as well as the actual compliance by all those who must abide by it;
  3. Crimes were committed by individuals vested with management powers who have fraudulently avoided compliance with the Organizational Model;
  4. The Compliance Committee has not omitted to perform, or negligently performed its supervision duties.
  5. This explains why companies operating in Italy typically devote substantial resources in the setting up of an Organizational Model.

How to Set up an Organizational Model?  Risk assessment, gap analysis, preventive measures.

In order to prepare an Organizational Model the following process is usually followed:

  1. Examination of areas of risk: on the basis of the company’s Organizational Model and relevant job descriptions, the risk of commission of each crime set forth in the 231 Decree is assessed.
  2. Analysis of existing procedures: all existing procedures and ethical principles are reviewed in order to identify procedures that may reduce the risk of commission of the crimes.
  3. Possible implementation of new measures: should the analysis of existing procedures lead to conclude that some of the risks are not properly reduced, new procedures should be implemented.

The Organizational Model must be Effective.  A compliance program on paper will not help!

Once a company has adopted an Organizational Model by means of a resolution of the Board of Directors, the company must ensure that it is effectively implemented, that employees and other individuals acting on behalf of the company are duly trained on the model and that any breach of the Model is sanctioned.

In particular, the appointed Compliance Committee must actively supervise the effective functioning and adequacy of the Model on an ongoing basis and in independent fashion. The Compliance Committee is generally in charge of:

  • Monitoring the activity carried out within the company and the areas considered at risk;
  • Assessment of the actual implementation of, and compliance with the Organizational Model;
  • Cooperation and consultation with the management as regards the application of disciplinary sanctions to employees in the event of breach of the internal procedures provided by the Organizational Model.

Legality Rating by the Italian Antitrust Authority: Is It Useful?

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“Not only must we punish corrupt companies but also encourage healthy businesses“. The statement released by Mr. Raffaele Cantone, Chairman of the Italian Anti Corruption Authority, summarizes the rationale underpinning the so called “legality rating”, i.e. a score that the Italian Antitrust Authority assigns to companies who apply for it. In fact, Law no. 62/2012, converting Law Decree no. 29/2012, requires the Italian Antitrust Authority to assign a score ranging from one to three “stars”, to any applying company who complies with a series of legal requirements (inter alia, the absence of criminal sanctions or preventive/precautionary measures against key personnel of the company, no judgments pursuant to Legislative Decree No. 231/2001, no breaches in the field of health and safety at work, and no definitive tax assessments against the company).

The instrument, available to entities generating a turnover in excess of Euro two million per year, is completely optional, but continues to be widely utilized. A statement of the Antitrust Authority shows in fact that, in January 2015, the Authority  received respectively 14% more applications than in the previous month and the trend seems to continue.

So, companies line up as schoolboys in order to show that they are worth a certain number of “stars” in an effort to demonstrate the soundness of their compliance program: is it worth it? To respond, we have looked into the benefits of the legality rating to understand the actual relevance of a practice that is becoming widespread. Below is a summary of the alleged benefits.

  • A new Regulation, developed by the Italian Antitrust Authority in collaboration with the National Anti Corruption Authority, entered into force on November 14, 2012, sets forth that companies benefitting from a legality rating are enrolled in a register of virtuous firms. Such registration is supposed tofacilitate relations with banks or the granting of public funding as well as the possibility to participate in public tenders.
  • The first example of a public procurement process taking into account the legality rating refers to postal services. The procurement documentation (Decision of December 9, 2014, published in the Official Gazette no. 1 of the January 2, 2015) stated for the first time that “for the public procurement of large size, the contracting authorities can evaluate the opportunity to give an additional and proportionate score to companies that benefit from a legality rating issued by the Antitrust Authority pursuant to §. 5 ter of Law-Decree no. 1 of January 24, 2012, or that have equivalent certifications issued to foreign firms from other agencies or public authorities”. For the first time, legality rating actually mattered as it gave a chance to companies to score additional points in public tenders.Some have criticized the use of a legality rating in this context, given that section 83 of the Italian Public Procurement Code (Legislative Decree no. 163/2006) requires that contracting authorities assess bidding companies on the basis of objective requirements only. It has been in fact argued that making reference to a legality rating is too discretionary. However, the Antitrust Authority, in opinion no. 163/2013, seemingly admits the possibility of using discretionary requirements, such as “the curriculum of the company, possession of licenses or quality certifications, availability of business assets, the providing of services or similar work, and in general, skills and references” as “factors that can be weighedas criteria for admission to tenders”.

In conclusion, if public procurement tenders give some weight to the legality rating, then obtaining it may actually be a good idea.

The risk is, as with any type of certification, that it will become a merely formal requirement, which does not attest the actual compliance efforts or a corporation’s culture.

The last event of our HEALTH INNOVATION ACADEMY is coming up!

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On May 21, 2015 our HEALTH INNOVATION ACADEMY series will hold its last event. Join us to hear speakers on the topic of networks for innovation at Via Francesco Sforza 28, Milano (Aula Milani) followed by drinks.

As always, the event is organized in cooperation with the hospital IRCSS Cà Granda – Ospedale Maggiore Policlinico di Milano and with Politecnico di Milano – e-Health LAB – Informatica BioMedica e Sanità Digitale

To find out more about the May 21 program or about HEALTH INNOVATION ACADEMY’s past events, click here: http://healthinnovationacademy.weebly.com/reti-dellinnovazione.html

EMA Issues New Guidelines to Prevent Medication Errors

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On April 14, 2015 the European Medicines Agency (“EMA”) released two drafts of good practice guides aimed at improving the reporting, evaluation and prevention of medication errors. The new guides are addressed to regulatory authorities, as well as the pharmaceutical industry.

Medication errors generally refer to unintended mistakes in the processes of prescribing, dispensing or administering of medicinal products in clinical practice and according to EMA they account for an estimated 18.7 – 56% of all adverse drug events among hospitalized patients.

The first guide released by EMA provides an overview of the main sources and types of medication errors, as well as measures to minimize the risks that such errors are made. The second guide, on the other hand, focuses on suspected adverse reactions caused by medication errors, providing guidance and recommendations on how to record, code, report and assess such errors.

The guidelines from EMA recommend a number of actions to marketing authorization holders, including the periodical reporting of information concerning medication errors. Recommendations to the industry include periodical safety update reports and risk management plans to be adopted for each marketed pharmaceutical product. The overall scope of these reporting obligations is to implement a real-life continuous evaluation of the risks and benefits of all medicines placed on the European market.

The two draft guidelines are now open to comments from all relevant stakeholders: the public consultation procedure will expire on June 14, 2015. The final version of the guidelines is expected to be finally adopted later in 2015.

More information and the new draft guides can be found here: http://www.ema.europa.eu/ema/index.jsp?curl=pages/news_and_events/news/2015/04/news_detail_002307.jsp&mid=WC0b01ac058004d5c1.