CMS Releases Final Rule Implementing Physician Sunshine Act

On February 8, 2013, the Centers for Medicare & Medicaid Services (CMS) at long last published in the Federal Register the final rule implementing the “Sunshine Act” provisions in section 6002 of the Patient Protection and Affordable Care Act (PPACA) (the Final Rule), which require “applicable manufacturers” of drugs, biologicals, devices, or medical supplies covered under Medicare, Medicaid or the Children’s Health Insurance Program (CHIP) to report annually to CMS certain payments or other transfers of value (hereafter “payments”) to physicians and teaching hospitals. The Final Rule also requires “applicable manufacturers” and “applicable group purchasing organizations” (GPOs) to report to CMS certain information regarding ownership or investment interests held by physicians or their immediate family members.

Manufacturers must begin collecting reportable data on August 1, 2013 and submit the required information about each payment made through the end of 2013 to CMS by March 31, 2014, and then annually thereafter. CMS will organize and publish this data in a searchable database on its website, with the 2013 reported data becoming publicly available by September 30, 2014.

Penalties for failure to timely, accurately or completely report any payment covered by the Final Rule may be imposed on manufacturers and GPOs by CMS and/or the Department of Health and Human Services Office of Inspector General in amounts ranging from $1,000 to $10,000 up to a cap of $150,000 per annual submission. However, when the failure to report is deemed to be knowing, penalties will range from $10,000 to $100,000 per line item with an increased cap of $1 million annually.

Below is a summary answering some of the key questions that those in the health care industry may have about the Final Rule:

Reports on Payments and Other Transfers of Value

Who Must Report Payments?

The Final Rule is applicable to manufacturers of covered products that operate in the United States (including any territory, possession or commonwealth), by which CMS means manufacturers that have physical facilities in the US or sell one or more covered products here. The concept of an applicable manufacturer involves a two-pronged definition.

The first prong covers entities operating in the United States that engage in “the production, preparation, propagation, compounding or conversion” of prescription drugs or biologicals and medical devices and supplies that, by law, require premarket approval by or premarket notification to the Food and Drug Administration (FDA), provided payment is available for the product under Medicare, Medicaid or CHIP. Unless manufacturers derive less than 10% of their total revenues from the sale of covered products, companies must report all applicable payments to physicians or teaching hospitals, regardless of whether those payments relate to covered products or other goods or services.

The second prong of the definition reaches entities that are (1) under common ownership (5% test) with an entity that is covered by the first prong and (2) the related entity provides one or more services that are necessary for or integral to the “production, preparation, propagation, compounding, conversion, marketing, promotion, sale or distribution” of a covered product. Prong two entities are required to report only those payments related to a covered product for which they provided assistance or support to an affiliated applicable manufacturer. The definition would extend to wholesalers and distributors who take title to covered drugs and otherwise meet the two-pronged definition of an “applicable manufacturer.”

Who Is Excluded from Reporting Payments?

Hospitals, laboratories and pharmacies that produce or manufacture products solely for use within the facility or to dispense, pursuant to a prescription, to individual customers at retail are expressly carved out of the first prong of the applicable manufacturer definition.

What Payments Must Be Reported?

Unless an applicable manufacturer qualifies for limited reporting because it earns less than 10% of its gross revenues from the sale of covered products, it must report all payments made to physicians or teaching hospitals unless the type of transaction involved is expressly excluded from reporting. Teaching hospitals will be identified based on the hospitals’ Medicare cost reports and CMS will publish a list of such hospitals on its website annually.

Payments must be categorized to indicate the form of payment (i.e., cash, in-kind, stock) and the “nature of each payment” must be defined by assigning the payment to one of the categories specified in the regulation. Only one “nature of payment” category may be indicated for each payment. For example, a meal is to be reported as a meal, even if it is associated with travel or a consulting contract. As to the reporting of physician meals, after much debate with commenters, CMS will require that applicable manufacturers only report the per-person cost for meals actually eaten by physicians, which limits the amount required to be reported for conferences that include non-physician participants.

In addition to categorizing payments by their form and nature, if the payment is “related to” a covered drug, the marked name of the product and National Drug Code must be disclosed or, if the drug is not yet on the market, the name registered on A welcome change for medical device manufacturers, the Final Rule does permit a designation at the therapeutic area or product category in lieu of at the individual product level for devices and medical supplies.

One key reporting exclusion embraced by CMS in the Final Rule involves payments related to accredited Continuing Medical Education (CME). Applicable manufacturers are exempt from reporting payments to sponsors of accredited CME if the manufacturers do not pay the CME faculty directly or select or recommend individual faculty members.

In addition, CMS has excluded payments related to research, which include pre-clinical research, FDA phases I-IV research, and investigator-initiated studies from the reporting requirements in the Final Rule. All payments designated as research must be made subject to a written agreement, contract or research protocol. Research payments include payments made indirectly to physicians or teaching hospitals if there is “an unbroken chain of agreements” that links the manufacturer with the covered recipient such as through clinical research organizations. The publication of payments for research and development, and clinical investigations related to a new product may be delayed, at the annual request of the manufacturer, but not if it is for a new indication of a currently marketed product.

Reports on Physician Ownership and Investment Interests

Who Must Report?

Applicable manufacturers and “applicable GPOs,” defined as entities that operate in the United States and arrange for or negotiate the purchase of covered products for a group of individual or organizations, must report on certain ownership and investment interests held by physicians or their immediate family members as well as dividend and other returns on investment made to such individuals.

What Must Be Reported?

Ownership interests may be direct or indirect and through debt, equity or other means. They include stock, stock options, partnerships, loans and bonds.

What Is Excluded from Reporting Requirements?

All physician or physician family member ownership or investment interests trigger reporting except publicly traded securities or mutual funds, holdings in a retirement plan offered by the applicable manufacturer or GPO to employees, stock options and convertible securities received as compensation until they are exercised or converted, and unsecured loans subordinated to a credit facility. To avoid duplicate reporting, the Final Rule instructs applicable manufacturers to designate payments provided to physician owners or investors under the “return on investment” nature category in their Reports on Payments and Other Transfers of Value, discussed above, and note in that report that the physician is also a physician owner or investor.

Report Submission and Correction

Manufacturers and GPOs that are required to report for any given calendar year must register with CMS within 90 days after the end of that year, but the registration may be carried out immediately before filing of the annual report.

All reports for a given calendar year are to be filed electronically by March 31 of the following year. CMS will be providing reporting templates at least 90 days prior to the first day of data collection for each calendar year. Only manufacturers and GPOs with payments or ownership interests to report need to file.

Applicable manufacturers under common ownership with separate entities that also are subject to reporting under the regulations may, but are not required to, file a consolidated report. All manufacturers must, however, register separately regardless of whether they intend to report separately or on a consolidated basis with related entities.

CMS will notify physicians and teaching hospitals that have voluntarily registered with it ahead of time when reports are available for review. Non-registrants will be alerted through list serves and postings on the CMS website. Covered recipients may dispute data with which they disagree during a review period that will run 45-day from the time CMS first makes the reports available and manufacturers and GPOs will have an additional 15-day period to resolve such disputes and submit revised reports and attestations. Unresolved disputes will be marked as “disputed” but the manufacturer’s or GPO’s most recent attested data subject to the dispute will be published on the CMS website by June 30 of each year.


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