United States: CMS's Final "Sunshine" Rule: Implications For Research

Last Updated: February 20 2013
Article by Robyn S. Shapiro and Julie Rusczek

On February 1, 2013, the Centers for Medicare and Medicaid Services (CMS) released its long-awaited final rule (Final Rule) implementing Section 6002 of the Patient Protection and Affordable Care Act (ACA), commonly known as the "Physician Payment Sunshine Act" (Sunshine Act or Act).1The Sunshine Act was included in ACA to enhance disclosure and transparency of financial arrangements among physicians, teaching hospitals, and manufacturers of certain products (federally reimbursable drugs and biologicals as well as covered medical devices and medical supplies), and thereby reduce the risk of inappropriate financial incentives interfering with medical judgment and patient care. The Final Rule details requirements for processing and reporting payments by pharmaceutical, device, biological, and medical supply "applicable manufacturers"2 to physicians and teaching hospitals that are "covered recipients."3The Final Rule also sets forth requirements for reports of ownership and investment interests held by physicians and their immediate family members in applicable manufacturers and group purchasing organizations, as well as payments and other transfers of value to such physician owners and investors. Data collection requirements will first apply on August 1, 2013; data must be reported by March 31, 2014; and CMS will release the reported payment and ownership information on a public website by September 30, 2014.

The Final Rule makes a number of important changes to the proposed rule's provisions relating to research. The discussion below highlights these changes and significant implications of the Final Rule for entities engaged in research.

Reportable Research-Related Payments

The Final Rule clarifies the definition of the "research" category utilized for payment reports and for identifying payments eligible for delayed publication. In CMS's December 19, 2011, proposed rule implementing the Sunshine Act (Proposed Rule), "research" meant bona fide research activities, including clinical investigations, which are subject to both a written agreement or contract between the applicable manufacturer and the organization conducting the research and a research protocol. This definition of "research" left open a number of questions.

For example, since pre-clinical research and medical device clinical research often do not require a research protocol, would payments related to those activities be outside the "research" category – and, therefore, ineligible for delayed payment publication applicable only to "research" payments?  If there is a chain of research-related agreements linking the applicable manufacturer with the covered recipient instead of a single agreement between the applicable manufacturer and the covered recipient (e.g., one agreement between an applicable manufacturer/research sponsor and a contract research organization, and another between the contract research organization and a site management organization, and another between the site management organization and the teaching hospital/research site), would payment be outside the "research" category?

The Final Rule states that research is "a systematic investigation designed to develop or contribute to generalizable knowledge relating broadly to public health, including behavioral and social sciences research. This term encompasses basic and applied research and product development."4  In addition, the Final Rule provides that if a payment falls within the "research" definition, it need only be subject to a written agreement or contract or a research protocol, and that the written agreement may be comprised of an unbroken chain of agreements that link the applicable manufacturer with the covered recipient. With these Final Rule modifications, it is clearer that the "research" payment category includes both (a) pre-clinical and medical device research, and (b) research arrangements involving series of agreements linking the research sponsor to the research site.

Some commenters sought to limit the required reporting of research-related payments in various ways, but for the most part, the Final Rule does not adopt those limitations. For example, CMS rejected the notion, urged by some, that reporting of research-related payments should be limited to direct research payments.5 CMS also rejected the suggestion that there should be no reporting requirements with respect to payments to principal investigators who are licensed physicians but do not regularly treat patients.

In commentary to the Final Rule, however, CMS did note one circumstance in which research-related transfers of value need not be reported.  In the Commentary, CMS clarified that transfer of material (such as a protein) to a researcher/covered recipient for early-stage discovery collaboration (preceding the development of a new product) need not be reported because, at that stage, the transferred material does not have independent value.

Research Payment Reports

The Final Rule makes significant changes to the method for reporting research payments. Under the Proposed Rule, applicable manufacturers would have been responsible for reporting both "direct research" payments (e.g., those paid by an applicable manufacturer directly to a physician principal investigator) and certain "indirect research" payments (e.g., those paid by an applicable manufacturer to a clinic research site, which would, in turn, pay its employed physician serving as principal investigator, as long as the applicable manufacturer was aware of the physician's identity). The payments (whether direct or indirect) would have been reported individually under the name and National Provider Identifier of the physician serving as principal investigator. And for both direct and indirect research payments, the applicable manufacturer would have reported the entire amount for each research payment (whether the payment was made to the physician principal investigator or the clinic research site), rather than the specific amount that was provided to the physician. In the case of a research payment made by an applicable manufacturer to a teaching hospital covered recipient that, in turn, paid a physician principal investigator, the full payment amount would have been reported both as a direct research payment for the teaching hospital, and an indirect research payment for the physician principal investigator.

Under the Final Rule, applicable manufacturers will report research payments separately from payments made to covered recipients for other purposes, using a separate reporting template in which a single research payment will be reported once, as a single interaction.  The report will include the name of the entity (regardless of whether it is a covered recipient) that received the payment for research services – whether directly or indirectly through a contract research organization or site management organization – as well as the name(s) of the principal investigator(s). The payment amount is to include the aggregated amount of any payments for services and materials included in the written agreement or research protocol (e.g., diagnostics; exams; laboratory expenses; time spent by professionals performing the research and managing the study; and the provision of study drugs, devices, biological and medical supplies, or other in-kind items), and it is not to include payments to non-covered recipients that are not passed on to covered recipients (e.g., payment for a non-covered recipient to travel to a meeting).  Other elements to be included in the applicable manufacturer's report (in addition to the total research payment amount) are name of the study, and name of the related covered drug, device, biological, or medical supply.  The context of the research also may be included. This revised template should facilitate a clearer understanding of the nature of the research funded or supported by the applicable manufacturer as well as the research relationship among physician PIs, research institutions, and applicable manufacturer sponsors.

In addition, the Final Rule facilitates simplified reporting for pre-clinical research (i.e., laboratory and animal research carried out prior to human subject trials). For pre-clinical research, applicable manufacturers need only report the name of the research institution, name of the principal investigator and total amount of payment; the associated product and study name need not be reported.

The Final Rule also provides that for physician covered recipients paid not by the applicable manufacturer, but by a third party (e.g., where a physician principal investigator is employed by a hospital, to which payment is provided by an applicable manufacturer research sponsor), research payments will be listed separately from all other payments provided to the physician covered recipient; and for teaching hospitals, research payments will be listed separately from other payments to the hospital.  These changes should help to reflect the fact that research payments do not necessarily (and most often do not) represent personal payments to the physician researchers.

Timing of Payment Report Publication

The Final Rule allows for delayed website publication of certain research payments or other transfers of value under a product research or development agreement. Research payments eligible for this delayed publication include payments in connection with (a) research on or development of a new drug, device, biological, or medical supply, or a new application of an existing drug, device, biological or medical supply; or (b) clinical investigations6 regarding a new drug, device, biological or medical supply. If a payment is eligible for delayed publication, it must be reported to CMS on the first reporting date following the year in which it occurs, but CMS will not post the payment until the first annual publication date after the earlier of (i) the date of the FDA's approval, licensure or clearance of the covered drug, device, biological, or medical supply; or (ii) four calendar years after the date the payment was made. The applicable manufacturer must indicate on its research report to CMS whether a payment is eligible for payment delay. Also, the Final Rule clarifies that submitted information eligible for delayed publication will be considered confidential and will not be subject to disclosure under the federal Freedom of Information Act (5 U.S.C. § 552) or any similar federal, state or local law until the date the information is posted to the website.

Dispute Resolution

Under the Act, applicable manufacturers and covered recipients must have an opportunity to review submitted data for a period of at least 45 days prior to the data being made available to the public. Under the Final Rule, if a covered recipient disputes payments or transfer of value, the applicable manufacturer may take an additional 15 days to resolve the dispute, after which it may submit updated data to CMS to finalize its data submission.  If the dispute cannot be resolved by the parties involved, the original data submitted by the applicable manufacturer is published, but is marked as disputed.

Remaining Questions and Concerns

While the Final Rule addressed some of the complexities of payment reporting in the research context, significant challenges, concerns, and unanswered questions remain:

Will the definition of "applicable manufacturer" chill early research and development?  Under the Final Rule, the definition of "applicable manufacturer" includes entities "under common ownership" with an entity engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply, which provide assistance or support with respect to such activities. These entities must report payments or other transfers of value that are related to a covered drug, device, biological, or medical supply for which they provided assistance or support. "Under common ownership" means that the same entity or entities directly or indirectly own 5 percent or more total ownership of two entities, including parent corporations, direct and indirect subsidiaries, and sister corporations. In arrangements where a start-up company engages in co-development activities with an established applicable manufacturer (e.g., the start-up provides the active ingredient for the established applicable manufacturer's final drug product) and the established applicable manufacturer has a 5 percent equity investment in the pre-commercial start-up, the pre-commercial start-up would be subject to reporting requirements. While the Final Rule would allow the two companies to file a consolidated report, the reporting burdens may nevertheless dissuade such co-development efforts.

How will physician researchers and teaching hospital research sites respond to payment reports by applicable manufacturer research sponsors that they believe to be inaccurate?  Pursuant to the Final Rule, if a payment report dispute is not resolved within 60 days, only the applicable manufacturer's data will be included on the website.  In light of that fact, how can researchers and research sites make known their account of the transaction?

Will the burden and expense of the reporting requirements lead industry sponsors to reduce their support for research?  Will the public disclosure of payments received and the potential for negative reaction from the public discourage physicians and teaching hospitals from participating in research?

How will the Final Rule reporting requirements and reports be reconciled within the broader regulatory context governing clinical research and research relationships? Aside from the Final Rule, clinical researchers and research institutions are subject to multiple state and federal disclosure and conflict of interest requirements such as the NIH Final Conflict of Interest Rule.  The Final Rule adds yet another level of administrative burden, and possible confusion, for those involved in research.

Will the research payment reports be clearly understood by website end users? Research is complicated and time-intensive, and often includes large payment amounts that are spread across numerous activities and parties (e.g., for staff salaries, equipment, institutional review board fees, and, in the case of multi-site studies, for research services provided by allied clinical research investigators and sites). A report that simply notes an aggregate payment amount may not adequately elucidate the many budget components covered by the payment and the services provided in exchange for the payment. Section 403.904(c)(12) of the Final Rule does allow applicable manufacturers to provide brief contextual information for each payment or transfer of value, but in commentary, HHS noted that it "does not want this information to overburden users or significantly increase the data reported," so it will "limit the amount of data that can be reported in that field."

Will the burden and expense of the Final Rule be outweighed by its benefits?  HHS estimates that the total cost of implementing Final Rule provisions will be $269 million in the first year and $180 million annually thereafter. In commentary, the HHS stated: "We have no empirical ability to estimate the monetary benefits...[and]...nonmonetary benefits...are difficult to quantify." HHS also acknowledged that "financial ties alone do not signify an inappropriate relationship." The stated goal of the Final Rule is to discourage the development of inappropriate relationships among physicians, teaching hospitals, and industry manufacturers and help prevent unnecessary health care costs that can arise from such conflict. Time will tell whether the Rule can effectively and efficiently achieve that goal.


1. 42 U.S.C. § 1320a-7h.

2.The Final Rule defines "applicable manufacturer" as an entity that is operating in the United States and falls within one of the following categories:

(1)An entity that is engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply, but not if such covered drug, device, biological or medical supply is solely for use within the entity itself or by the entity's own patients. This definition does not include distributors or wholesalers (including, but not limited to, repackagers, relabelers, and kit assemblers) that do not hold title to any covered drug, device, biological or medical supply.

(2)An entity under common ownership with an entity in paragraph (1) of this definition, which provides assistance or support to such entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological or medical supply.

3.  "Physician covered recipients" include doctors of medicine and osteopathy, dentists, podiatrists, optometrists and chiropractors who are legally authorized to practice by the state in which they practice and are not employees of the applicable manufacturer that is reporting the payment. "Teaching hospital covered recipients" are institutions that received a payment under sections 1886(d)(5)(B), 1886(h) or 1886(i) of the Act – in other words, direct and indirect graduate medical education payments – during the most recent calendar year for which such information is available. CMS will publish a list of covered hospitals annually.

4.  42 C.F.R. § 493.902

5.  Under the Final Rule, indirect payments or other transfers of value provided to a covered recipient through a third party generally must be reported.  "Indirect payments or other transfers of value" refer to payments or other transfers of value made by an applicable manufacturer to a covered recipient through a third party where the applicable manufacturer requires, instructs, directs, or otherwise causes the third party to provide the payment or other transfer of value, in whole or in part, to a covered recipient. Such payments are excluded from the reporting requirement if the applicable manufacturer is unaware of the identity of the covered recipient. An applicable manufacturer is unaware of the identity of a covered recipient if the applicable manufacturer does not know the identity of the covered recipient during the reporting year or by the end of the second quarter of the following reporting year. To "know" means that the applicable manufacturer has actual knowledge of the information, acts in deliberate ignorance of the truth or falsity of the information, or acts in reckless disregard of the truth or falsity of the information.  Proof of specific intent to defraud is not required.

6. "Clinical investigation" means any experiment involving one or more human subjects, or materials derived from human subjects, in which a drug, device, biological, or medical supply is administered, dispensed or used.

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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