Summary

The final regulations implementing the Physician Payments Sunshine Act take effect April 9, 2013. Pharmaceutical manufacturers, group purchasing organizations, academic medical centers and physicians need to be ready to ensure compliance with the Act and the final regulations.

The final regulations implementing the Physician Payments Sunshine Act (the "Act") take effect April 9, 2013. The Act, which was part of the Patient Protection and Affordable Care Act, requires manufacturers of drugs, devices, biologics, or medical supplies covered by Medicare, Medicaid or CHIP to collect and report payments and other transfers of value to physicians and teaching hospitals. The Act also requires manufacturers and group purchasing organizations to disclose ownership or investment interests held by individual physicians or the physician’s immediate family members.

The proposed regulations were published in December, 2011 and, after receiving extensive comments, the Centers for Medicare and Medicaid Services ("CMS") published the final rule on February 8, 2013 (78 FR 9458) (the "Final Rule"). The Final Rule is set forth in Title 42, Part 403 of the Code of Federal Regulations.

The Final Rule requires manufacturers to begin collecting data on August 1, 2013 and to report the data to CMS by March 31, 2014 for the period from August 1 through December 31, 2013 and thereafter on a calendar year basis.

Generally, manufacturers must report all forms of remuneration to physicians and teaching hospitals above the de minimis amount of $10 per payment or $100 in the aggregate for a calendar year. The $10/$100 thresholds will be adjusted in subsequent years based upon the change in CPI, and CMS is required to publish the values for the next reporting year 90 days before the beginning of the reporting year.

The information that is required to be reported to CMS includes:

• the name of the covered recipient;
• address of the covered recipient;
• specific identifiers for physician covered recipients;
• the amount of payment or other transfer of value;
• date of payment or transfer of value;
• the form of payment or transfer of value; and
• the nature of payment.

As part of the Final Rule, CMS created seventeen (17) categories for "nature" of payment, and the manufacturer has the responsibility to select the category it deems most accurate to describe the nature of the payment. These categories are: consulting fees; compensation for services other than consulting; honoraria; gift; entertainment; food and beverage; travel and lodging; education; research; charitable contribution; royalty or license; current or prospective ownership or investment interest; compensation for serving as a speaker at an unaccredited continuing medical education course ("CME"); compensation for serving as a speaker at an accredited CME; grants; or, for teaching hospitals only, space rental or facility fees. In addition, there are additional provisions in the Final Rule governing research payments made by manufacturers, and manufacturers should start analyzing their relationships in preparation for the August 1, 2013 data collection start date.

CMS requires that each report filed must include an attestation by the reporting entity’s CEO, CFO, Chief Compliance Officer or other officer that the information reported is timely, accurate and complete to the best of his or her knowledge and belief. The Final Rule requires CMS to give manufacturers, GPOs, covered recipients, and physician owners and investors not less than 45 days to review and correct the compiled information prior to the CMS disclosure date.

Pharmaceutical manufacturers are well aware of the importance of ensuring federal and state compliance. The Act and the Final Rule impose another broad responsibility upon manufacturers and adds significant penalties for failure to comply. The Final Rule provides that a manufacturer or GPO that fails to timely, accurately or completely report the information required is subject to civil monetary penalties of not less than $1,000 but not more than $10,000 for each payment or transfer of value or ownership or investment interest not reported timely, accurately or completely not to exceed $150,000 for each annual submission. Knowingly failing to report information can result in civil monetary penalties of not less than $10,000 but not more than $100,000 for each instance, not to exceed $1,000,000 for each annual submission.

An intensive effort of staff and resources will be required by manufacturers and GPOs to ensure compliance, which should include a review of existing policies and procedures, creating a list of assumptions for the data submission process, internal auditing and monitoring activities to ensure compliance, and the communications and exchange of information with teaching hospitals and physicians, particularly those who were the beneficiaries of legal (but in excess of de minimis) payments from the company.

Teaching hospitals and physicians are also very familiar with the importance of sound compliance efforts. The CMS reports generated as part of the Act and the Final Rule could result in investigations against teaching hospitals and physicians related to alleged federal anti-kickback statute, False Claims Act or Stark law violations. Teaching hospitals should review their existing conflict of interest, disclosure, CME and non-CME speaker fee policies for their employed and affiliated physicians, and update them as needed to ensure compliance with the Act and to be prepared for the public comment and scrutiny that may result from CMS disclosures. Physician groups and individual physicians should also review their protocols with regard to interactions with pharmaceutical manufacturers and be prepared to deal with the questions or issues that may result depending upon the depth and extent of these professional relationships.

CMS believes approximately fifty percent (50%) of physicians are involved in transactions with manufacturers and GPOs covered by the Act, and that "the vast majority of teaching hospitals would have at least one financial relationship with an applicable manufacturer." CMS estimates the total cost in Year One of compliance for physicians and teaching hospitals to be over $63 million, and the ongoing annual costs for physicians and teaching hospitals to be approximately $34 million. The total Year One costs for manufacturers and GPOs is approximately $205 million, and the ongoing annual costs for manufacturers and GPOs is estimated to be approximately $146 million. It is important to note, however, that these are only cost estimates, obviously, and it will be very important for physicians, teaching hospitals, manufacturers and GPOs to dedicate sufficient staff and resources to ensure full compliance with the Act.

The Act and the Final Rule will inevitably highlight the legal relationships between pharmaceutical manufacturers and GPOs on the one hand, and teaching hospitals and physicians, on the other, with regard to their financial interdependence. Transparency can have many benefits and consequences. Everyone who could be affected should review the Act and the final regulations, update relevant policies and procedures, and be prepared for the questions that may arise once CMS starts its annual disclosures.

Saul Ewing can assist interested parties in preparing for and ensuring compliance with the Act and the Final Rule. You should contact the Saul Ewing attorney with whom you regularly work for assistance or you may contact Bruce D. Armon, author of this alert.

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Bruce D. Armon is the managing partner for Saul Ewing's Philadelphia office and is a partner in the health law and life sciences groups at Saul Ewing. Bruce provides regulatory and compliance counsel to parties in the health care delivery system, and frequently write about and speaks to interested audiences regarding health care legal subjects.