April 18, 2013 by Michael H. Bauscher and William F. Sondericker
As part of the Patient Protection and Affordable Care Act, more commonly known as Obamacare, Congress also passed the Physician Payment Sunshine Act (the “Sunshine Act”) in an attempt to provide the public with a way to learn about the financial relationships that exist between physicians and teaching hospitals on the one hand and medical device and drug manufacturers on the other. The Sunshine Act requires applicable manufacturers to provide annual reports to the Centers for Medicare and Medicaid Services (“CMS”) detailing all payments and transfers of value of $10 or more that the manufacturers made to physicians and teaching hospitals in the preceding calendar year. CMS will maintain these reports in a publicly-available online database. Congress and CMS (the agency charged with implementing the Sunshine Act) believe that these reports will allow patients to easily investigate the extent to which their doctors or hospitals accept payments or other transfers of value from drug and medical device manufacturers and will ultimately reduce healthcare costs by discouraging inappropriate financial relationships. The final implementing regulations, which were published by CMS earlier this year, became effective on April 9, 2013. The regulations provide that applicable manufacturers must begin collecting required data on August 1, 2013 and must file their first reports with CMS by March 31, 2014. In 2014, CMS will release the submitted reports in September. In subsequent years, manufacturers will be required to file their reports by the 90th day of each calendar year and CMS will publish the submitted reports in June. Penalties for noncompliance will range from at least $1,000, but not more than $10,000 for each unreported payment or transfer of value (not to exceed $150,000). Penalties for willful noncompliance will range from at least $10,000, but not more than $100,000 for each willful unreported payment or transfer of value. Total penalties for an applicable manufacturer may not exceed $1,150,000 annually. This advisory is intended to provide a broad overview of the reporting requirements imposed by the Sunshine Act. Notably, the Sunshine Act does not prohibit any activities; rather, it imposes new recordkeeping and reporting requirements. Applicable manufacturers should contact the author or their regular Carter Ledyard & Milburn attorney for further information and detailed guidance with respect to complying with the Sunshine Act. Who Must Report? “Applicable Manufacturers” include companies that manufacture drugs, devices, biologicals or medical supplies for which payment is available under Medicare, Medicaid, or CHIP, and which requires a prescription (for drugs and biologicals) or FDA premarket approval or notification (for devices and supplies). Note that foreign companies that satisfy these requirements are considered Applicable Manufacturers if they operate in the United States (i.e. have a physical presence or otherwise conduct business in the U.S.). Moreover, companies that do not actually manufacture an otherwise covered product are considered Applicable Manufacturers if they are under 5% common ownership with the actual manufacturer and they provide integral and necessary assistance and support to the actual manufacturer—for example, by marketing or distributing the product, or producing the active ingredient. Who is a Covered Recipient? Applicable Manufacturers must report all payments and transfers of value of $10 or more that they make to Covered Recipients. “Covered Recipients” include physicians and teaching hospitals. The implementing regulations define physicians to include doctors of medicine and osteopathy, dentists, podiatrists, optometrists, and chiropractors, who are legally authorized to practice by the State in which they practice. The definition does not include residents or nurse practitioners. With respect to teaching hospitals, CMS will publish an annual list of qualifying teaching hospitals. What Types of Payments & Transfers of Value Must be Reported?
- Applicable Manufacturers must report payments and other transfers of value made to a Covered Recipient that fall within one of the following categories:
- Consulting Fees
- Compensation for services other than consulting
- Food and Beverage
- Travel and Lodging
- Charitable Contributions
- Royalty or license payments
- Compensation for serving as faculty or as a speaker for an unaccredited and non-certified continuing education program
- Compensation for serving as faculty or as a speaker for an accredited or certified continuing education program
- Space rental or facility fees (applies only to teaching hospitals)
- Ownership or investment interests
With respect to food and beverages, Applicable Manufacturers are not required to track or report buffet meals, snacks, or coffee provided to all recipients at a large-scale conference or similar event. Reporting is required, however, if food or beverages are provided to a smaller, identifiable subset of conference attendees. With respect to a speaking engagement for an accredited or certified continuing education program, compensation does not have to be reported if: (1) the program meets the accreditation or certification requirements of (i) The Accreditation Council for Continuing Medical Education; (ii) The American Academy of Family Physicians; (iii) The American Dental Association’s Continuing Education Recognition Program; (iv) The American Medical Association; or (v) The American Osteopathic Association; (2) the Covered Recipient speaker is not paid directly by the Applicable Manufacturer; and (3) the Applicable Manufacturer does not specifically select the speaker or provide the program sponsor with a specific list of potential speakers. Indirect Payments Payments that are not made directly from an Applicable Manufacturer to a Covered Recipient must be reported in two specific instances. First, Applicable Manufacturers must report payments that are made to third parties either at the request of or on behalf of Covered Recipient. Second, Applicable Manufacturers must report payments that are made to third parties if the manufacturer directs, instructs, requests, or otherwise causes the payment to be transferred to a Covered Recipient. Research Payments The regulations provide that research payments will be reported using a separate template than non-research payments. The specific data that must be reported depends to some extent on who receives the research payment—i.e. whether an Applicable Manufacturer pays a physician, teaching hospital or third-party non-covered recipient. Additionally, reports related to research payments should include the total of all payments made pursuant to the relevant written research agreement or protocol. In other words, a research payment should be reported as a one-time (aggregate) payment, even if payments are actually made periodically pursuant to the applicable agreement. Moreover, payments related to research and development or clinical investigations may be eligible for delayed publication. A payment is eligible for delayed publication if it is made pursuant to a written product research or development agreement and relates to either (i) the research on or development of a new drug, biological, device or medical supply, or a new application of an existing drug, biological, device or medical supply, or (ii) a clinical investigation relating to a new drug, biological, device or medical supply. Payments that qualify for delayed publication will be published on the first publication date after the earlier of (i) the date of FDA approval, licensure or clearance; or (ii) four calendar years after the date of payment or other transfer of value. Key Exclusions The following categories of payments or transfers of value do not have to be reported:
- Existing personal relationships (e.g., if a husband works for an Applicable Manufacturer and his wife is a physician, the husband does not have to report personal gifts that he gives to his wife)
- Payments or transfers of value less than $10. This exclusion only applies, however, if the total annual value provided to a Covered Recipient does not exceed $100; once a Covered Recipient receives $100 in a calendar year, then all payments (including those under $10) to that Covered Recipient must be reported.
- Educational materials that directly benefit patients or are intended for patient use
- Discounts and rebates
- In-Kind items for the provision of charity care
- Short-term loans of covered devices (90 days or less) or short-term supplies of disposable or one-time use covered products (90-day supply or less)
- Contractual warranties
Submissions and Review Although CMS encourages Applicable Manufacturers to allow Covered Recipients to review data prior to submitting it to CMS, such a pre-submission review is not mandatory. However, physicians and teaching hospitals will be given a chance to review submitted reports prior to CMS making them publicly-accessible. Specifically, there will be a 45-day review period after each annual submission date for physicians and teaching hospitals to review the submitted data. If a particular payment report is disputed, CMS will attempt to resolve the dispute between the Applicable Manufacturer and the Covered Recipient. Disputed payments which are ultimately not resolved will still be published, but they will include a notation that the payment is disputed. Applicable Manufacturers will be required to attest to the accuracy of each filed report. Conclusion The Sunshine Act imposes significant new recordkeeping and reporting requirements for Applicable Manufacturers. Given the relatively low $10 threshold, Applicable Manufacturers will be required to collect and report a lot of data. It is therefore important for Applicable Manufacturers to clearly understand the reporting requirements and develop detailed, user-friendly compliance policies. Applicable Manufacturers can significantly reduce the risk of noncompliance by implementing methodical and organized recordkeeping processes.
For more information concerning the matters discussed in this publication, please contact the author Michael H. Bauscher (212-238-8785, email@example.com) or William F. Sondericker (212-238-8656, firstname.lastname@example.org) or your regular CL&M attorney.
 The Sunshine Act appears at Section 6002 of the Patient Protection and Affordable Care Act.
 It should be noted that the Sunshine Act also requires applicable group purchasing organizations to file reports, however this article is limited to applicable manufacturers and does not discuss group purchasing organizations.
 OPENPAYMENTS, the CMS online platform for managing the Sunshine Act reports and data is available at http://www.cms.gov/Regulations-and-Guidance/Legislation/National-Physician-Payment-Transparency-Program/index.html.
 The regulations are available in the Federal Register at 42 CFR Parts 402 and 403.
 Although the Sunshine Act does not specifically prohibit any activities, manufacturers are reminded that federal and state anti-kickback, bribery and false claims acts are not affected by the Sunshine Act.
 Applicable Manufacturers are required to report any ownership interest that a Covered Recipient holds in the Applicable Manufacturer. However, this advisory is not intended to discuss the details of this particular category of payment.
 Reporting templates for both research and non-research payments are available for download at http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperwordReductionActof1995/PRA-Listing-Items/CMS-10419.html.
 Payments related to a clinical investigation of a new application of an existing drug, biological, device or medical supply are not eligible for delayed publication.