United States: CMS Releases Proposed Rule On Physician Payments Sunshine Act

Last Updated: December 28 2011
Article by Ramy Fayed, Christopher G. Janney, Lisa Murtha and Gadi Weinreich

Implementation Date Delayed

On December 14, 2011, the US Centers for Medicare and Medicaid Services ("CMS") released a proposed rule, implementing Section 6002 of the Affordable Care Act ("ACA"), commonly referred to as the Physician Payments Sunshine Act. The proposed rule requires the annual reporting of payments or transfers of value made by manufacturers of prescription drugs, medical devices, biologicals, and supplies covered by federal health care programs to physicians and teaching hospitals. The proposed rule also requires manufacturers and group purchasing organizations ("GPOs") to report physician ownership or investment interests. These reports will be made publicly available. Comments to the proposed rule must be submitted to CMS by February 17, 2012.

The ACA imposed an October 1, 2011 deadline for CMS to release guidelines to implement the Sunshine Act. Due to CMS' delay, Senators Kohl and Grassley have pressured CMS to explain the delay, and Kohl scheduled a December 15, 2011 hearing as Chairman of the Senate Special Committee on Aging. Due to the release of the proposed rule, however, Chairman Kohl has delayed the hearing. CMS has delayed the January 1, 2012 date by which manufacturers must begin collecting the information that will be submitted to CMS until the final regulations are issued.

Transparency Reports

Two types of reports must be submitted to CMS under the proposed rule: (1) payments or transfers of value from applicable manufacturers to covered recipients; and (2) physician ownership and investment interests in applicable manufacturers and applicable GPOs.

Payments or Transfers of Value

CMS proposes to define an "applicable manufacturer" as any entity that is (1) engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply for sale or distribution in the US (or US territory); or (2) under common ownership with such an entity and that provides support to such entity with respect to the activities described above, or with respect to marketing, promotion, sale, or distribution of a covered drug, device, biological, or medical supply for sale or distribution in the US.

CMS proposes that common ownership exist where the same entity or entities directly, or indirectly, own any portion of two or more entities. CMS requests comment on an alternative definition of common ownership, such as a minimum 5 percent ownership threshold. CMS proposes that entities under common ownership that individually meet the definition of an applicable manufacturer outlined in (1) must report separately. Entities under common ownership where only one entity meets the definition outlined in (1) may report separately or together as one applicable manufacturer. So long as manufacturer meets the above definition with respect to one covered drug, device, biological, or medical supply, CMS proposes to require the manufacturer to report all payments or transfers of value made to a covered recipient.

CMS defines a "covered drug, device, biological, or medical supply" as any drug, device, biological, or medical supply for which payment is available (either separately or as part of a composite payment rate) under Medicare, Medicaid, or the Children's Health Insurance Program. CMS proposes to include only those drugs and biologicals that require a prescription and only devices and supplies that require premarket approval by, or notification to, the Food and Drug Administration ("FDA").

The transparency reports will disclose payments or transfers of value from applicable manufacturers to covered recipients. A "covered recipient" refers to a physician under section 1861(r) of the Social Security Act (the "Act") or a teaching hospital that receives indirect medical education ("IME"), direct graduate medical education, or psychiatric hospital IME payments. Manufacturers are responsible for identifying covered recipients. To aid this process, CMS proposes that manufacturers use the National Plan & Provider Enumeration System to identify physicians, and CMS will annually publish a list of hospitals that qualify as teaching hospitals.

Manufacturers must report all payments or transfers of value to a covered recipient, regardless of whether the covered recipient specifically requested the payment. Payments or transfers of value made to a physician through a group practice should be reported under the name of the physician as the covered recipient.

The ACA sets forth several types of payments excluded from the reporting requirements, including, transfers of value of less than $10 (unless the aggregate annual amount exceeds $100), product samples, educational materials that benefit patients, discounts and rebates, in-kind items used for the provision of charity care, and items or services provided under a contractual warranty.

Reports on Physician Ownership and Investment Interests

The second type of report required under the proposed rule encompasses ownership and investment interests held by physicians or their immediate family members in applicable manufacturers and applicable GPOs, along with payments or transfers of value to such physician owners or investors. CMS proposes to define applicable GPOs as any entity operating in the U.S. or a U.S. territory that purchases, arranges for, or negotiates the purchase of a covered drug, device, biological, or medical supply for a group of individuals or entities (and not solely for use by the entity itself). This definition covers traditional GPOs and entities that purchase drugs or devices for resale or distribution, such as physician-owned distributors.

Ownership or investment interests include direct or indirect ownership through debt, equity, or other means, and include stock, stock options, partnership shares, LLC memberships, loans, and bonds. Manufacturers will be required to submit one report covering payments or transfers of value (the first transparency report) and another report covering physician ownership and investment interests (the second transparency report). However, CMS proposes that if an ownership interest is reported under the first transparency report, a manufacturer need not duplicate such disclosure under the second transparency report.

Report Submission and Correction

Citing the opposing needs of manufacturers/GPOs (who need flexibility in collecting and submitting the large amounts of new data) and regulators (who need standardization to aggregate the data and make it publicly available) CMS is proposing a system for the submission of data and seeking comment from stakeholders on both the benefits and burdens of its suggested approach. While the ACA requires manufacturers to begin collecting the reportable information beginning January 1, 2012, this requirement will not be enforced until CMS has released the final rule, thus delaying the data collection requirement by at least several months. CMS notes that manufacturers may begin collecting this information voluntarily.

Prior to Submission

In an effort to ease the post-submission data review process and facilitate early resolution of conflicts between manufacturers/GPOs, covered recipients, and physician owners or investors, CMS is recommending that manufacturers/GPOs conduct a "pre-submission review," whereby any necessary data corrections can be made prior to submission. Specifically, CMS suggests that manufacturers/GPOs provide each covered recipient and/or physician owner or investor with a draft of the information that the manufacturer/GPO plans to report to CMS, prior to submitting the data to CMS.

Report Submission

Applicable manufacturers/GPOs are statutorily required to submit their reports electronically to CMS on March 31, 2013 and on the 90th day of each calendar year thereafter. CMS is considering requiring that all manufacturers/GPOs register with the agency, even if they have no information to report. In doing so, the chief executive officer, chief financial officer, or chief compliance officer would be required to submit an attestation that the company had no reportable payments or transfers of value and/or ownership or investment interests during the previous calendar year. The stated purpose of this universal registration and attestation process would be to help CMS better understand the relationships within the industry, as well as encourage manufacturers/GPOs to perform a more thorough evaluation to determine if they have any reportable information.

Report Format

For each payment and other transfer of value, CMS is proposing that the following information be required:

  • name of applicable manufacturer or applicable GPO;
  • covered recipient's or physician owner's (as applicable)
    • name;
    • specialty (physician only);
    • business street address (practice location);
    • NPI (physician only);
  • amount of payment or other transfer of value in US dollars;
  • date of payment or other transfer of value;
  • form of payment or other transfer of value (e.g., cash, in-kind, stock, ownership interest);
  • nature of payment or other transfer of value (e.g., consulting fees, entertainment, food, travel, direct research, indirect research, charitable contribution, grant, compensation for serving as a speaker);
  • name of the associated covered drug, device, biological, or medical supply, as applicable;
  • name of entity that received the payment or other transfer of value, if not provided to the covered recipient directly;
  • whether the payment or other transfer of value was provided to a physician holding ownership or investment interests in the applicable manufacturer; and
  • whether the payment or other transfer of value should be granted a delay in publication because it was made pursuant to a product research agreement, development agreement, or clinical investigation.

For each physician ownership or investment interest, CMS is proposing that the following information be required:

  • name of applicable manufacturer or applicable GPO;
  • ownership or investment physician's
    • name;
    • specialty;
    • business street address (practice location);
    • NPI;
  • whether the ownership or investment interest is held by the physician or an immediate family member of the physician;
  • dollar amount invested;
  • value and terms of each ownership or investment interest; and
  • for applicable GPOs only; any payments or other transfers of value provided to the physician owner or investor, including the following (applicable manufacturers should report this information with their other payments or other transfers of value, and indicate that the covered recipient is a physician investor or owner):
    • amount of payment or other transfer of value in US dollars;
    • date of payment or other transfer of value;
    • form of payment or other transfer of value;
    • nature of payment or other transfer of value; and
    • name of the associated covered drug, device, biological, or medical supply, as applicable.

45-Day Review Period for Applicable Manufacturers, Applicable GPOs, and Covered Recipients

Section 1128G(c)(1)(C)(ix) of the Act requires CMS to give manufacturers/GPOs, covered recipients, and physician owners or investors the opportunity to review the data submitted for a period of at least 45 days prior to the data being made available to the public. After the submission due date has passed, CMS will aggregate the data and notify all applicable manufacturers/GPOs, covered recipients, and physician owners or investors about the review process, which will include the specific instructions for performing this review. CMS is proposing a few different plans for notifying covered recipients and physician owners or investors. One such plan requires manufacturers/GPOs to collect and report to CMS the contact information and preferred method of contact for each covered recipient or physician owner or investor.

CMS believes that it should not be actively involved in arbitrating disputes between manufactures/GPOs and covered entities, or physician owners or investors. For this reason, the agency is proposing that at least one of the entities involved in a dispute over reported data report to CMS the disputed payment or other transfer of value, or ownership or investment interest, and the results of that dispute by the end of the 45-day review period. When a dispute over the data cannot be resolved by the parties, CMS suggests that the individual payment be flagged as contested, but the data still be used in the aggregated totals for the physician, when necessary. Manufacturers/GPOs will, however, be allowed to review and correct final data submitted during the current and previous calendar years.

Public Availability

Under the ACA, CMS is required to publish reported payment and ownership data for CY 2012 on a publicly available website by September 30, 2013, and for each year thereafter, by June 30 for data from the preceding calendar year. Furthermore, the ACA stipulates that the website must be searchable, understandable, downloadable, and easily aggregated on various levels.

In the proposed rule, CMS suggests a data structure that includes all of the content from the submitted reports, less the following information:

  • whether the payment or other transfer of value was provided to a physician holding ownership or investment interests in the applicable manufacturer; and
  • whether the payment or other transfer of value should be granted a delay in publication because it was made pursuant to a product research agreement, development agreement, or clinical investigation.

The ACA also requires that the website include the following:

  • any enforcement actions taken under section 1128G of the Act for the previous year;
  • background or other helpful information on relationships between the drug and device industry and physicians and teaching hospitals; and
  • publication of information on payments or other transfers of value that were granted delayed reporting, as required under section 1128G(c)(1)(C) of the Act.

In addition to this information, CMS intends to clearly state on the website that "disclosure of a payment or other transfer of value on the website does not indicate that the payment was legitimate nor does it necessarily indicate a conflict of interest or any wrongdoing."

Delayed Publication for Payments Made Pursuant to Product Research or Development Agreements and Clinical Investigation

To maintain confidentiality of proprietary information, under section 1128G(c)(1)(E) of the Act, CMS will delay publication of payments (or other transfers of value) made pursuant to product research or development agreements or clinical investigations. To facilitate the authorized delay of publication of payments, CMS will require manufacturers to indicate on their reports whether or not a payment (or other transfer of value) should be granted a delay in publication on the public website. Request for delay in publication will be required for each reporting year until FDA approval, licensure, or clearance of the product, after which time, the manufacture must indicate in its next report that a delay is no longer required for that payment. Notably, any payment or other transfer of value automatically would be published after four years.

CMS further clarifies its interpretation of the statute and proposes "that payments or other transfers of value granted delayed publication are limited to relationships for bona fide research or investigation activities, which, if made public, would damage the manufacturers' competitive and/or proprietary interests."

Penalties

According to section 1128G(b) of the Act, Civil Monetary Penalties (CMPs) will be imposed upon manufacturers/GPOs that fail to report required information on a timely basis in accordance with the final regulations.

If an applicable manufacturer or applicable GPO fails to submit the required information, then the applicable manufacturer or applicable GPO may be subject to a CMP of at least $1,000, but no more than $10,000, for each payment or other transfer of value, or ownership or investment interest not reported as required. The maximum CMP with respect to each annual submission for failure to report is $150,000. For knowing failure to submit required information in a timely manner, an applicable manufacturer or applicable GPO will be subject to a CMP of at least $10,000, but no more than $100,000, for each payment or other transfer of value, or ownership or investment interest not reported as required. The maximum CMP with respect to each annual submission for a knowing failure to report is $1,000,000. The term "knowingly" is given the meaning from the False Claims Act, 31 U.S.C. 3729(b).

CMS will interpret a manufacturers'/GPOs' failure to include "accurate and complete" data as "failure to report information."

CMS proposes that the following factors be considered in determining the amount of the CMP:

  • the length of time the applicable manufacturer or applicable GPO failed to report, including the length of time the applicable manufacturer or applicable GPO knew of the payment or other transfer of value or ownership or investment interest;
  • the amount of the payment or other transfer of value or the value of the ownership or investment interest the applicable manufacturer or applicable GPO failed to report;
  • the level of culpability;
  • the nature and amount of information reported in error; and
  • the degree of diligence exercised in correcting information reported in error.

CMS is proposing that it, the Secretary of HHS, the OIG, or their designees be allowed to audit, evaluate, or inspect applicable manufacturers and applicable GPOs for their compliance with the submission of information required in section 1128G of the Act and this proposed rule. To enable an audit, evaluation, or inspection, manufacturers/GPOs will be required to maintain all books, records, documents, and other materials sufficient for a period of at least five years from the date the payment or other transfer of value or ownership or investment interest is published publicly on the website.

Based on the assumptions presented in the proposed rule, CMS anticipates that the total estimated burden of section 1128G of the Act for year 1 is 4,619,000 hours, at a cost of $224,360,000. For year 2 and annually thereafter, the total estimated burden is 3,372,000 hours, at a cost of $163,087,390. Annualized over 3 years, the total number of hours per year is 3,788,000 with a cost of $183,560,000.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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