Did you know that healthcare professionals (HCPs) are considered one of the riskiest types of third-party relationships in the pharmaceutical industry? Engaging with HCPs poses significant risks due to the complex and regulated nature of the sector. Compliance with laws, regulations, and ethical standards is essential to ensure safety and maintain compliance in the medical industry.
The COVID-19 pandemic has further complicated third-party compliance, with restrictions on site visits and increased operational challenges. Donations to independent charitable organizations and patient assistance programs (PAPs) also require thorough due diligence to avoid violations of anti-kickback statutes and anti-corruption laws.
To address sector-specific risks and ensure compliance, life sciences companies need to strengthen their third-party risk management programs and adopt sophisticated due diligence methodologies and research practices.
Key Takeaways:
- The pharmaceutical industry heavily relies on third parties, such as healthcare professionals and charitable organizations.
- Compliance with laws, regulations, and ethical standards is crucial for patient safety and regulatory compliance.
- Healthcare professionals are considered one of the riskiest types of third-party relationships in the pharmaceutical industry.
- Due diligence is necessary to mitigate risks and comply with regulations like the Physician Payments Sunshine Act.
- Donations to charitable organizations require thorough due diligence to avoid violations of anti-kickback statutes and anti-corruption laws.
Regulatory Scrutiny of Healthcare Professionals (HCPs)
Life sciences companies operating in the pharmaceutical industry face significant regulatory scrutiny when it comes to their interactions with healthcare professionals (HCPs). One key regulation that impacts these relationships is the US Physician Payments Sunshine Act. This act requires companies to report any payments or transfers of value made to HCPs, adding a layer of transparency and accountability.
Compliance with this act and other regulations necessitates clear visibility into and comprehensive due diligence on third-party relationships involving HCPs. However, verifying HCP licenses and establishing their good standing can be challenging. Centralized online databases for license confirmation are limited, making it necessary for companies to rely on specialized verification services.
A survey conducted by Control Risks highlights the perceived risk associated with HCP relationships in the pharmaceutical industry. Consequently, compliance departments must conduct thorough due diligence to ensure there are no HCPs associated with third parties, thereby avoiding violations of reporting requirements.
To further enhance compliance programs, establishing connections with HCPs and incorporating medical-related litigation database searches can provide valuable insights. Overall, addressing the risks posed by HCPs is a crucial aspect of third-party risk management in the pharmaceutical industry.
Table: Comparative overview of regulatory scrutiny related to HCPs
| Regulation | Description | Implications |
|---|---|---|
| US Physician Payments Sunshine Act | Requires reporting of payments or transfers of value made to HCPs. | Enhanced transparency and accountability in HCP relationships. |
| Anti-Kickback Statute | Prohibits the exchange of remuneration for referrals or the generation of healthcare business. | Prevention of improper inducements and kickbacks in HCP relationships. |
| Foreign Corrupt Practices Act (FCPA) | Prohibits bribery of foreign officials, including HCPs. | Prevention of corruption and unethical practices in HCP relationships. |
Risks of Donations to Charitable Organizations
Pharmaceutical and biotechnology companies often contribute donations, grants, and sponsorships to independent charitable organizations. While these acts of philanthropy are commendable, they come with inherent risks that must be effectively managed. In the United States, regulators have initiated investigations and reached settlements related to donations made to independent charity patient assistance programs (PAPs), specifically focusing on potential violations of the Anti-Kickback Statute.
These government actions underscore the importance of conducting thorough due diligence and implementing robust risk management strategies when engaging with charitable organizations. Life sciences companies must carefully assess the structure, ownership, and potential risks associated with PAPs, including evaluating disease funds and determining eligible recipients. However, due diligence should not be limited to PAPs alone; it should also encompass financial assistance provided to not-for-profit organizations for their operations or specific events.
Furthermore, it is imperative to identify any healthcare professionals who may have affiliations with these charitable organizations. This step is crucial in order to avoid running afoul of anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. By implementing a comprehensive third-party risk management program, companies can effectively address the risks associated with donations and interactions with charitable organizations.
| Risks of Donations to Charitable Organizations | Key Considerations |
|---|---|
| Potential violations of the Anti-Kickback Statute | – Thorough due diligence on charitable organizations – Evaluation of disease funds and eligible recipients – Compliance with anti-corruption laws |
| Financial assistance to not-for-profit organizations | – Review of the structure, ownership, and risks associated with the organizations – Assessment of potential healthcare professional affiliations – Avoidance of FCPA and UK Bribery Act violations |
Effectively managing the risks of donations to charitable organizations requires a proactive and diligent approach. By conducting thorough due diligence, staying compliant with applicable regulations, and implementing robust risk mitigation strategies, pharmaceutical companies can ensure that their charitable contributions are made in alignment with their ethical and legal obligations.
Importance of Strong Supplier Relationships
The pharmaceutical industry relies heavily on strong relationships with suppliers and third parties throughout the entire supply chain. These relationships are crucial for researching, developing, manufacturing, and distributing medicines and other pharmaceutical products.
When it comes to suppliers, choosing the right ones is paramount to ensure a continuous and high-quality supply of materials. Suppliers play a vital role in maintaining resilient supply chains that effectively control the conditions under which products are transported, ensuring that there are no disruptions along the way.
Pharmaceutical companies establish their expectations for suppliers through policies like the Working with Third Parties policy. Suppliers are required to adhere to strict standards, including those related to anti-bribery and corruption, labor rights, quality, health and safety, and environmental practices. These standards help ensure that suppliers maintain responsible and ethical practices in their operations.
To evaluate and mitigate the risks associated with engaging third parties, pharmaceutical companies implement robust Third-Party Risk Management (TPRM) programs. These programs include assessments specifically designed for high-risk third parties, such as those with interactions with government officials or those involved in high-value transfers. By thoroughly assessing these high-risk relationships, companies can effectively identify and address potential vulnerabilities.
In addition, pharmaceutical companies recognize the importance of providing additional support to critical suppliers, including those involved in the production of active pharmaceutical ingredients (APIs). Conducting site visits and offering guidance and tools to help suppliers manage risks further strengthens these crucial relationships.
Paying suppliers on time is another crucial aspect of maintaining strong and mutually beneficial relationships. Prompt payments demonstrate the company’s commitment to responsible procurement and help build trust and long-term partnerships with suppliers.
Furthermore, pharmaceutical companies emphasize the importance of supporting diverse businesses within their supplier network. By implementing initiatives that foster diversity and inclusion, companies contribute to a more inclusive and sustainable supply chain.
To sum up, strong supplier relationships are essential for the pharmaceutical industry. Maintaining these relationships requires adherence to responsible and ethical practices throughout the supply chain. By prioritizing supplier relationships and implementing effective third-party risk management strategies, pharmaceutical companies can ensure a reliable supply of high-quality products while mitigating potential risks.
Standardizing Third-Party Risk Assessment
The global pharmaceutical industry faces significant challenges in managing the risks associated with thousands of vendors and third-party relationships. To ensure compliance with laws, regulations, and corporate standards, companies need to enhance their third-party risk assessment processes.
A standardized approach to third-party risk assessment is crucial in aligning the assessment process with the company’s standards of excellence. This standardized approach involves a comprehensive evaluation, including due diligence, audits, reassessments, and ongoing monitoring.
Components of a Comprehensive Risk Assessment:
- Due diligence: Conducting thorough investigations and assessments of suppliers and third parties to ensure compliance with anti-bribery and corruption, labor rights, quality, health and safety, and environmental standards.
- Audits: Regularly reviewing and evaluating supplier practices and processes to identify potential risks and areas for improvement.
- Reassessments: Periodically revisiting the risk assessment to ensure that it remains up to date and reflective of the changing landscape.
- Ongoing monitoring: Continuously monitoring the performance and compliance of suppliers and third parties to mitigate potential risks and address any non-compliance issues.
External research, financial disclosures, and publicly available information play a crucial role in evaluating supplier practices and identifying potential risks. Utilizing these resources helps ensure a comprehensive risk assessment.
Implementing an advanced operating model supported by technology, process re-engineering, and organizational structures such as shared services or process outsourcing can enhance the efficacy of third-party risk assessment. This approach improves the accuracy and timeliness of risk reports, minimizes duplicate assessments, and optimizes the capacity of the procurement team.
A standardized approach to third-party risk assessment enhances compliance and fosters better overall risk management within the pharmaceutical industry.
| Risk Assessment Components | Description |
|---|---|
| Due diligence | Thorough investigations and assessments of suppliers and third parties to ensure compliance with anti-bribery and corruption, labor rights, quality, health and safety, and environmental standards. |
| Audits | Regular reviews and evaluations of supplier practices and processes to identify potential risks and areas for improvement. |
| Reassessments | Periodic revisiting of the risk assessment to ensure it is up to date and reflective of the changing landscape. |
| Ongoing monitoring | Continuous monitoring of supplier performance and compliance to mitigate potential risks and address non-compliance issues. |
The Role of Due Diligence in Third-Party Risk Management
Due diligence plays a crucial role in third-party risk management for pharmaceutical companies. It involves a comprehensive assessment of suppliers, sub-suppliers, and other third parties to ensure they meet the company’s ethical standards and comply with regulations. The due diligence process includes evaluating policies and practices related to anti-bribery and corruption, confidentiality, conflict of interest, data privacy, employment practices, fair trade and competition, governance, product security, product communication, research and development ethics, and health, safety, and environmental principles.
In addition to internal assessments, external research and data analysis are conducted to gather information on supplier performance, regulatory actions, and financial disclosures. Through due diligence, pharmaceutical companies can identify potential risks and non-compliance, implement risk mitigation measures, and protect their reputation. Ongoing monitoring and support systems are essential to ensure that suppliers maintain ethical standards and meet key performance indicators. Prompt corrective actions and regular audits help maintain compliance and integrity throughout the supply chain.
Benefits of Due Diligence in Third-Party Risk Management
The role of due diligence in third-party risk management brings numerous benefits to pharmaceutical companies:
- Enhanced Risk Identification: Due diligence allows companies to identify potential risks associated with third-party relationships, such as compliance violations, financial instability, or reputational damage.
- Risk Mitigation: By conducting thorough due diligence, companies can implement appropriate risk mitigation measures, including contract provisions, performance monitoring, and regular audits.
- Compliance Assurance: Due diligence ensures compliance with laws, regulations, and ethical standards, safeguarding the company from legal and reputational risks.
- Protection of Financial Performance: Effective due diligence helps prevent financial losses stemming from non-compliant or unethical third-party activities.
- Reputation Management: Through due diligence, pharmaceutical companies can maintain a strong reputation by avoiding associations with unethical or non-compliant entities.
Overall, due diligence is a critical component of third-party risk management in the pharmaceutical industry. It enables companies to identify and mitigate risks, ensure compliance with regulations, protect their financial performance, and safeguard their reputation. By implementing robust due diligence processes, pharmaceutical companies can maintain the integrity of their supply chain and uphold ethical standards.
| Benefits of Due Diligence in Third-Party Risk Management |
|---|
| Enhanced risk identification |
| Risk mitigation |
| Compliance assurance |
| Protection of financial performance |
| Reputation management |
The Importance of Timely Supplier Payments
Timely and responsible supplier payments are crucial for maintaining strong relationships and ensuring the smooth operation of the pharmaceutical supply chain. Pharmaceutical companies have a responsibility to support their suppliers by paying them on time. In some cases, companies may offer exceptions or modified payment terms for small and medium-sized businesses or diverse suppliers. Initiatives like supporting diverse businesses owned by women, minorities, and disabled veterans contribute to supplier diversity and inclusion. Supplier diversity programs engage with and mentor small and diverse businesses in the supply chain, helping them identify opportunities for growth. By prioritizing timely payments and supporting supplier diversity, pharmaceutical companies demonstrate their commitment to responsible procurement and contribute to a sustainable and resilient supply chain.
| Benefits of Timely Supplier Payments |
|---|
| 1. Strong supplier relationships |
| 2. Smooth operation of the supply chain |
| 3. Enhanced trust and loyalty with suppliers |
| 4. Improved cash flow for suppliers |
| 5. Quicker resolution of issues or concerns |
| 6. Supports responsible and sustainable procurement practices |
Case Study: Digital Third-Party Risk Management
In a rapidly evolving regulatory landscape, the pharmaceutical industry has embraced digital solutions to enhance third-party risk management. A global pharmaceutical company collaborated with Genpact to improve the assessment of its thousands of vendors and ensure compliance with relevant laws and regulations. The company needed a scalable approach to assess vendor risk accurately and provide timely risk reports. Genpact developed a third-party risk management process based on the pharmaceutical company’s standards of excellence. The process involved risk assessment, due diligence, monitoring and support, reporting, and governance.
By implementing this digital solution, the company achieved nearly 100% assessment coverage of high-risk third parties at a faster pace. Accurate and timely reporting improved the company’s Dow Jones Sustainability Index ranking, demonstrating its commitment to ethical practices and compliance. This case study highlights the importance of embracing digital solutions for effective and efficient third-party risk management in the pharmaceutical industry.
Benefits of Standardized Third-Party Risk Management
The implementation of a standardized approach to third-party risk management offers several benefits for pharmaceutical companies. By defining a single, rigorous risk assessment process and aligning it with industry standards and corporate policies, companies can ensure compliance and mitigate potential risks.
Standardization allows for increased assessment coverage of high-risk third parties, reducing the chances of oversight or duplication. The adoption of digital tools and technology streamlines the risk assessment process, enabling faster and more accurate reporting.
Standardization also improves supplier relationships and communication, as expectations and requirements are clearly outlined. With consistent processes, roles, and responsibilities, the procurement team can focus on maintaining a world-class supply chain rather than spending excessive time on detailed assessments.
Overall, a standardized approach enhances compliance, efficiency, and risk management in the pharmaceutical industry.
| Benefits of Standardized Third-Party Risk Management |
|---|
| 1. Ensures compliance with industry standards and corporate policies |
| 2. Mitigates potential risks through rigorous risk assessment |
| 3. Increases assessment coverage of high-risk third parties |
| 4. Reduces the chances of oversight or duplication |
| 5. Streamlines the risk assessment process with digital tools and technology |
| 6. Enables faster and more accurate reporting |
| 7. Improves supplier relationships and communication |
| 8. Clearly outlines expectations and requirements |
| 9. Helps the procurement team focus on maintaining a world-class supply chain |
| 10. Enhances compliance, efficiency, and risk management in the pharmaceutical industry |
Conclusion: Navigating Third-Party Risk in Pharmaceuticals
Navigating third-party risk in the pharmaceutical industry requires a comprehensive and risk-based approach. The complex and regulated nature of the sector presents unique challenges for pharmaceutical companies in managing the risks associated with third-party relationships. From engaging with healthcare professionals to partnering with charitable organizations, each type of collaboration requires specific considerations and thorough due diligence.
To ensure patient safety, maintain regulatory compliance, and protect company reputation, pharmaceutical companies must prioritize compliance with laws, regulations, and ethical standards. Effective third-party risk management entails robust due diligence, continuous monitoring, and prompt corrective actions. Companies need to adopt standardized processes, leverage digital solutions, and prioritize responsible procurement to successfully navigate the multitude of risks in the industry.
By implementing a proactive and comprehensive approach to third-party risk management, pharmaceutical companies can safeguard their success, ensure compliance, and contribute to the sustainability of the industry. Mitigating risks and maintaining strong relationships with third parties is crucial for the pharmaceutical industry’s growth, stability, and reputation.
FAQ
What is third-party risk management and why is it important in the pharmaceutical industry?
Third-party risk management involves assessing and mitigating the risks associated with engaging with third parties, such as healthcare professionals and charitable organizations. It is crucial in the pharmaceutical industry due to the complex and regulated nature of the sector, as compliance with laws, regulations, and ethical standards is essential to ensure safety and maintain compliance.
What is the US Physician Payments Sunshine Act and why is it relevant to third-party compliance?
The US Physician Payments Sunshine Act requires pharmaceutical companies to report any payments or transfers of value made to healthcare professionals (HCPs). Compliance with this Act is crucial to ensure clear visibility and comprehensive due diligence on third-party relationships involving HCPs.
Why is due diligence important when making donations to charitable organizations?
Due diligence is crucial when making donations to charitable organizations to avoid potential violations of anti-kickback statutes and anti-corruption laws. Thorough due diligence helps assess the structure, ownership, and potential risks associated with charitable organizations, ensuring compliance and risk management.
How does the choice of suppliers impact third-party risk management in the pharmaceutical industry?
The choice of suppliers is crucial in the pharmaceutical industry to ensure a continuous and high-quality supply of materials. Selecting the right suppliers who meet anti-bribery and corruption, labor rights, quality, health and safety, and environmental standards helps maintain a resilient supply chain and mitigate risks.
What should be included in a comprehensive third-party risk assessment process?
A comprehensive third-party risk assessment process should include due diligence, audits, reassessments, and ongoing monitoring. It evaluates the compliance of suppliers and third parties with various standards, such as anti-bribery and corruption, labor rights, quality, health and safety, and environmental standards.
What role does due diligence play in third-party risk management?
Due diligence plays a crucial role in third-party risk management as it involves assessing and verifying the ethical standards and compliance of suppliers and third parties. It helps identify potential risks and non-compliance, implement risk mitigation measures, and protect the reputation of pharmaceutical companies.
Why are timely supplier payments important in the pharmaceutical industry?
Timely supplier payments are crucial for maintaining strong relationships and ensuring the smooth operation of the pharmaceutical supply chain. By prioritizing prompt payment to suppliers, companies demonstrate their commitment to responsible procurement and contribute to a sustainable and resilient supply chain.
How can digital solutions improve third-party risk management in the pharmaceutical industry?
Digital solutions can enhance third-party risk management by improving the assessment of vendors and ensuring compliance with relevant laws and regulations. These solutions streamline the risk assessment process, enabling faster and more accurate reporting, and demonstrate the company’s commitment to ethical practices and compliance.
What are the benefits of a standardized approach to third-party risk management?
A standardized approach to third-party risk management offers several benefits, including ensuring compliance and mitigating potential risks. It increases assessment coverage, reduces the chances of oversight or duplication, streamlines the process with digital tools and technology, and improves supplier relationships through clear expectations and requirements.
How can pharmaceutical companies navigate third-party risk in the industry?
Navigating third-party risk in the pharmaceutical industry requires a comprehensive and risk-based approach. By adopting robust third-party risk management programs, conducting due diligence, and prioritizing compliance, pharmaceutical companies can effectively manage the risks associated with third parties and ensure the success, compliance, and sustainability of the industry.
