Clouds Begin to Lift with Sunshine Act Proposed Rules

The publication of long-awaited proposed rules under the federal Physician Payment Sunshine Act (Sunshine Act) gives drug, biological, device and medical supply manufacturers a clearer view of what lies ahead with respect to reporting of payments or other transfers of value to physicians and teaching hospitals.

Key Definitions

The Sunshine Act, which was included in the transparency provisions of the Patient Protection and Affordable Care Act, requires "applicable manufacturers" to report payments and other transfers of value ("payments") made to "covered recipients."

Applicable manufacturers include entities engaged in the production, preparation, propagation, compounding or conversion of a covered drug, device, biological or medical supply for sale in the United States, and entities under common ownership that assist or support in the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered device. Manufacturers and affiliates whose products are sold or distributed in the U.S. (or in a territory, possession or commonwealth of the U.S.) fall within the definition of "applicable manufacturer," regardless of the country of incorporation and location of the manufacturing facilities where the products being sold are made.

Covered drugs, devices, biological or medical supplies are those for which payment is available under Medicare, Medicaid, or CHIP programs (either directly or as part of a composite rate). Drugs and biologicals are covered if they require a prescription and covered devices and medical supplies are those that require premarket approval by or premarket notification to the Food and Drug Administration (FDA). If an applicable manufacturer makes at least one covered product, it must report all payments it makes to covered recipients (as defined below), even payments that relate only to non-prescription drugs/biologicals or exempt devices, for example.

Covered recipients include physicians and teaching hospitals. Physician means a doctor of medicine, osteopathy, dentistry, optometry and podiatry, as well as licensed chiropractors. A teaching hospital is a hospital that receives direct or indirect graduate medical education payments from the Medicare program. The Centers for Medicare and Medicaid Services (CMS) plan to annually publish a list of those hospitals on the CMS website. If payments are made to entities or individuals at the request of, or designated on behalf of, a covered recipient, those payments must be reported under the name of the covered recipient (the "indirect payment rule").

Reporting Requirements

Applicable manufacturers must report the following with respect to payments made to physicians and teaching hospitals:

• Name and business address of covered recipient (and any individual or entity that received the payment at the request or on behalf of the covered recipient)
• Specialty and national provider identifier of the individual covered recipient
• Amount, date, form (cash, in kind items or services, stock or other investment interests or other) and nature of the payment. Nature of the payment (must select from 1 of 15 categories, including consulting fee, honoraria, gift, entertainment, food, travel, education, research, charitable contribution, royalty, ownership interest, grant, other)
• Name of product associated with the payment, if the payment relates to marketing, education or research specific to a particular product

There are certain items that do not have to be reported, including:

• Transfers of value less than $10 (if the total transfers to the recipient are $100 or less in a calendar year)
• Product samples intended for patient use
• Educational materials that directly benefit patients or are intended for patient use
• Loans of covered devices lasting no more than 90 days to permit evaluation by the covered recipient
• Items or services provided under a warranty set out in a purchase or lease agreement
• Discounts and rebates
• In-kind items used to provide charity care
• Payments made through a third party, such as a distributor, where the manufacturer does not know the identity of the recipient
• Payments made to physicians for services with respect to a civil or criminal action or an administrative proceeding

Manufacturers have an opportunity to delay the publication of reported payments made under product research or development agreements and clinical research agreements in certain circumstances. The Sunshine Act specified that the payments would not be published until the first reporting date that follows the earlier of (1) the date of approval, licensure or clearance of the covered product by FDA, or (2) four calendar years after the date the payment was made. The proposed rules put the burden on the manufacturer to notify CMS that publication of the payment should be delayed. In addition, the proposed rules require the manufacturer to notify CMS when the delay in reporting is no longer appropriate and failure to do so could subject the manufacturer to penalties. The proposed regulations specify strict criteria for the specific types of research and development agreements and clinical investigations that will qualify for delayed reporting.

Uncertainty Ahead

Although the proposed regulations shed light on the new reporting obligations, they do not clear the skies completely.      Questions remain about how the Sunshine Act will impact reporting under existing state laws. The proposed rules say the Sunshine Act preempts state or local manufacturer reporting laws that require reporting of the "type of information" reported under federal law without giving clear guidance about which state laws are preempted.

The Sunshine Act's executive certification requirements, which require a manufacturer's chief executive officer, chief financial officer or chief compliance officer to attest that the reported information is true, correct and complete, may also cause consternation. Companies will need to develop systems to ensure that employees and vendors responsible for data collection and reporting understand the need for complete and accurate information. Companies may want to require such employees or vendors to provide sub-certifications or other forms assurance upon which these top officers may rely.

The proposed rules also present the possibility of conflicts between manufacturers and physicians. For example, CMS proposes that when manufacturers provide meals in a group setting (e.g., educational program), they report the cost per "covered recipient" receiving the meal, even if every physician in attendance does not eat. Physicians, who attend but decline to eat, may be frustrated to be listed as beneficiaries or may simply refuse to attend manufacturer programs to avoid this outcome. Similarly, payments provided to a physician through a physician group or practice must be reported in the name of the physician group as well as the individual physician. This could result in the group's name appearing on a reporting list simply because one of the partners accepted a payment from a manufacturer through the practice.

To the extent physicians and manufacturers disagree about reported information; the proposed rules place the burden on manufacturers to resolve those disputes. Physicians would have a period of at least 45 days to review the information reported to CMS by a manufacturer before CMS makes the information public. If the manufacturers and recipients cannot resolve disputes over the reported information within 45 days, CMS will make both parties' versions public. In what will surely be another source of frustration, CMS proposes not to allow a review period for the entities or individuals who receive payments "on behalf of" covered recipients before the data is made publicly available on the CMS website.

The proposed regulations also provide insight into the Sunshine Act's requirements on how manufacturers and applicable group purchasing organizations must report ownership or investment interests in their organizations held by physicians or the immediate family members of physicians.

Finally, the exact time frame for implementation is uncertain. The proposed rules provide that manufacturers will not be required to begin collecting payment data until after the publication of the final rule. CMS recognizes manufacturers will require time to prepare and proposes that manufactures have 90 days after publication to begin complying with the data collection requirements. With the comment period not ending until February 17, 2012, it is hard to predict exactly when data collection must begin. A reasonable prediction, however, is that dispositions of those involved in implementing Sunshine may not be too sunny in the days ahead.

For more information, contact any member of the health and life sciences practice.