Recordkeeping in the biotech world is nothing to take lightly. The federal government wants to know exactly how pharma, medical device, and healthcare firms make and handle money.

And things are about to get heavier. In 2013 stricter federal laws will demand that every cent spent, moved, and received by health and life sciences companies — from lunches to launches — be accountable at any time. This, says Mike Bell, is a good idea. But it is a little more complicated than it might first appear.

Bell, the founder and CEO of R-Squared, a compliance software technology firm that just expanded into 29 Emmons Drive from its former home at 103 Carnegie Center, says that as total transparency becomes policy, a large number of healthcare and biotech firms will have to rework their recordkeeping systems to meet the demands of federal regulatory agencies.

R-Squared, founded in 2007, helps healthcare and life science organizations, including hospitals, health systems, and health plans, solve thorny compliance issues. The company provides an array of back-office and security software that allows firms to cull their records and make sense of the many numbers scattered throughout. R-Squared also provides consulting services that help companies head off trouble before the feds come knocking.

What makes the whole compliance issue so complicated, according to Andrew Stuart, R-Squared’s chief technology officer, is the web of relationships biotech and healthcare organizations have with the world at large. A drugmaker, for example, has intimate relationships with scientists, researchers, hospitals, doctors, and healthcare programs — and on top of that, drugmakers have to play by the highly restrictive rules of federal agencies, such as the FTC and FDA. All those external relationships – where money, gifts, and perks change hands – need to be managed and tracked , Stuart says.

What further complicates things is that the feds will soon want to know about all the other external relationships a medical or health company has — like, say, when a salesperson takes a client to lunch. Considered a comparatively soft expense, the money spent entertaining clients, like the money spent hosting seminars or paying for travel expenses or on promotional materials, will soon be considered as important as the money spent on research and development.

“It’s surprisingly hard to understand every interaction,” Stuart says. “But [the government] wants to know what is being spent, from doughnuts to payment for developing products.”

Don’t let the idea of accounting for a dozen doughnuts fool you, though. Compliance issues and fraud investigations tie up federal investigators in cases that involve billions of dollars.

And fraud investigations always look at the interactions a company’s representatives have with clients, sales reps, and suppliers. The need, then, for strong internal controls is huge.

“Smart companies are trying to get ahead of it,” Bell says of the 2013 regulations. “These are very complicated legal issues. The costs are far beyond what you see.”

Bell should know. Long before founding R-Squared (which refers to “risk reduction,” by the way) Bell spent 10 years as an attorney in Washington, D.C. He was born in Florida into a highly professional family — his father was a programmer on mainframe computers, his sister and one brother are doctors, another brother is a pharmaceutical executive with a Ph.D., and his other brother is a lawyer in northern New Jersey.

Bell studied economics at Wake Forest University and attended law school at Seton Hall. He began his career at Epstein Becker Green and then moved onto Mintz Levin, where he became a partner. There he also got involved in privacy and compliance matters involving small and medium-sized businesses and started writing software.

The double career as a lawyer and software writer culminated with Bell’s hands clutching his head at his desk. “I decided I wanted to pursue this on my own,” Bell says. He did some fraud and training software for Kaplan EduNeering, where he met Stuart, who was the CIO there at the time.

Stuart’s parents started in the U.K. before moving to France, where Stuart’s father developed computers for HP, including a role in developing the world’s first touch-screen computer. Stuart went to school in France, Brazil, and Malaysia before moving to the United States at age 11. The family was supposed to be here for a year, but Stuart, like his father, fell in love with the can-do attitude Americans had.

In Europe, Stuart says, trying to start a company is usually met by crooked looks and furrowed brows. Here he finds an optimism that has helped propel him through his involvement with five start-ups, most notably the enterprise content management firm Documentum, which employed 20 when Stuart worked there in the 1990s. In 2003 Documentum was bought by EMC Corporation for $1.7 billion.

For four years R-Squared operated virtually — much of that time as just Bell and Stuart — before moving into 29 Emmons Drive in September. The company now employs almost 50 full-timers at Emmons Drive and externally. Since moving in, R-Squared has hired a new chief database architect (former Bloomberg computer architect John O’Connell) and a vice president of sales and marketing, Rob Zelinsky, who helped launch Alleron, a Pennsylvania-based marketing firm for the biotech and medical industries.

A natural problem-solver who earned his bachelor’s in mathematics from the University of Manchester (England) in 1995, Stuart has overseen the development of R-Squared’s software platforms, which he and Bell have designed to be user-friendly and flexible.

The software, Stuart says, is built for the entire system a company operates and is able to keep track of everything from events and meetings to grants and shipping costs.

It also can link up these disparate pieces of information and put them into something readable and quantifiable.

R-Squared’s software packages focus on managing physician relationships, reporting aggregate spending, online grants management, and conflict of interest management. The watchword for all of this, Stuart says, is flexibility. “You can’t have a static system,” he says. “You must be able to get information on the fly.”

R-Squared also is releasing an app for iPad that will be able to “figure out ‘this is who was there and this is what I gave them,’” Stuart says.

The advance of computer technology overall is allowing all this to happen, Stuart says. Faster computer systems and expanded networks and bandwidth allow for speed and complicated processing in ways computers heretofore were unable to accomplish.

Stuart began his career in computer-aided design for torpedo systems and learned early the frustrations of limited computer capacity.

“As computers become more powerful,” he says, “you can have an application that can almost develop itself, or at least tell the application ‘do this’ and allow it to write its own code.”

R-Squared, which makes its money on hourly consulting rates and software licensing fees, generally operates with medium and large companies, though it does have smaller clients. And while Bell did not specify rates, he is certain that the price of pre-emptive security outweighs the costs of gigantic settlements and government fines.

Despite a 10-year backlog, anti-kickback and fraud enforcement is at an all-time high in the post-9/11 world. The federal Office of the Inspector General and Department of Justice are ever on the hunt for money laundering, bribes, and payola. And if they catch a company playing fast and loose with its records, things can get expensive in a hurry. Just ask the dozens of companies a year that are forced to settle for millions of dollars after not being cautious.

For now, the trend is pre-emptive control, Bell says. R-Squared started out mainly with (and still works with) companies looking to fix their existing problems. “Ten years ago, companies could roll the dice in regard to their spending,” Stuart says. “That’s not the case anymore.” — Scott Morgan

#b#R-Squared#/b#, 29 Emmons Drive, Suite B-10, Princeton; 866-522-8558; fax, 609-778-4295. Michael Bell, president and CEO. www.r2ss.com

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