Looking the Other Way: What About Upstream Corporate Considerations?

  • Posted on 29.03.2017

Looking the Other Way: What About Upstream Corporate Considerations?

Chris White

Christopher White

General Counsel, AdvaMed


As a medtech lawyer, my focus naturally gravitates to assessing “downstream” relationships and risk; that is, analysis of the legal arrangements between manufacturers, distribution agents, and health care providers that together bring medical technologies to the patient’s bedside. These relationships can be complex, as are the legal issues they raise. But ensuring ethical standards in these relationships is critical, because patients deserve the confidence of knowing that the medical technologies used in their care are based on clinical consideration of what is best for them, not financial considerations or other such factors. 

Downstream arrangements in the medtech industry are governed by well-established authorities that are very familiar to health care lawyers, such as the anti-kickback statute, beneficiary inducement civil monetary penalty provisions, the foreign corrupt practices act, and in some cases distribution licensure. The law in this area is mature, and supplemented by extensive regulations, subregulatory guidance, and voluntary industry codes of ethics. When health care lawyers talk about “compliance,” they usually are referring to these downstream arrangements.

But “upstream” compliance – relating to the supply chain that supports the production of medical technologies – is also emerging as a focus for the medtech industry. As I have mentioned before, I am constantly awed by the pace of medtech innovation in bringing sophisticated technological solutions, cures and treatments to patients—from nanotechnology, to robotics, to diagnostics, digital and beyond. These technological innovations utilize a range of materials, with associated supply chains that can be complex and global, even for small companies. 

Upstream ethics and compliance issues have been the subject of several important legal and policy developments. Here are a few trends–from other industrial sectors–that I’m watching:

Materials sourcing/conflict minerals: Atrocities in the Democratic Republic of Congo (DRC) and adjoining countries financed by mineral trade have spurred efforts in the US and globally to promote responsible sourcing of these minerals, some of which are used in medical devices and various electronics. In particular, Section 1502 of the Dodd-Frank Act requires companies to report on measures taken to exercise due diligence regarding the source and chain of custody of certain conflict minerals (tantalum, tin, gold or tungsten) necessary in manufacturing. The Organisation for Economic Co-operation and Development also has issued Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, and the European Union is developing supply chain due diligence requirements for conflict minerals.

Human slavery/forced labor. The International Labor Organization estimates that almost 21 million people are victims of forced labor globally, and there are several government initiatives underway aimed at enlisting the business community in ending this exploitation. For instance, the California Transparency in Supply Chains Act requires certain global companies to disclose their actions to eradicate slavery and human trafficking in their supply chains, including verification, audits, and certification of compliance with slavery and human trafficking laws, among others. The United Kingdom’s Modern Slavery Act of 2015 likewise requires businesses to report annually on their actions to ensure that slavery and human trafficking is not taking place. More recently, in February 2016 President Obama signed the Trade Facilitation and Trade Enforcement Act, which strengthened the Customs and Border Protection’s ability to prevent products made with forced labor, including child labor, from entering the United States.

Shareholder resolutions. In the US, activist shareholders have advanced a variety of corporate responsibility resolutions intended to encourage companies to improve their social and environmental policies. Among the specific topics of these resolutions are sustainable sourcing of materials, including upstream supplier arrangements. Whether or not these resolutions are approved, they shine a bright light on individual company behavior and often result in policy commitments.

Many top medtech companies already have established forward-thinking corporate responsibility/sustainability policies that guide their upstream supplier arrangements. For instance, one leading company in the heart disease and critical care monitoring space has a multi-faceted sustainability initiative that includes measurable steps to reduce environmental and human health impacts from its use materials and chemicals in products and operations, including ensuring that all of its products are conflict mineral free by 2020. Another prominent manufacturer of medical devices and software for treating and managing cancer includes in its comprehensive sustainability policy detailed supplier requirements in the areas of conflict minerals, human trafficking, and the prohibition of corrupt acts. The sweeping sustainability strategy of another global science/health care company includes a Supplier Responsibility Code, including standards related to conflict minerals, and creation of a Sustainability Center of Excellence to integrate related activities across the company’s businesses.

There are many forces propelling growing interest in upstream compliance, despite the complexities involved. Robust corporate responsibility/sustainability policies, including ethical upstream supplier management, can represent both good corporate citizenship and good business, since companies with an upstream focus can lessen their exposure to operational disruptions, reputational damage, negative financial impact (including share price volatility), and potential legal consequences. 

I am so encouraged by the medtech companies that have distinguished themselves as leaders in corporate citizenship. I expect this to be an area of continued effort and achievement, with truly global benefits.  

Later this Spring, I’m honored to join a panel hosted by the  Association of British Healthcare Industries (ABHI) on this topic, and will look forward to learning more from experts and colleagues there.

If you have thoughts or share my interest in learning more about trends in this area, I invite you to join a discussion on this topic at the annual Global MedTech Compliance Conference that AdvaMed co-hosts with MedTechEurope, taking place in Amsterdam on May 3-4. The program is now available, and the conference will feature sessions exploring compliance models based on trust vs. rules as well as the interaction between corporate social responsibility and human rights.

This blog is part of the GMTCC 2017  blog series. You can follow the conversation under #GMTCC and find more details and at gmtcc.com

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