CMS Issues Final Physician Payment Sunshine Act Regulations

by Perkins Coie

On February 1, 2013, the Centers for Medicare and Medicaid Services (CMS) published the long-awaited final regulations implementing the Physician Payment Sunshine Act (Act or Sunshine Act). The Sunshine Act requires drug, medical device, biological and medical supply manufacturers to track and report, for publication by CMS, payments made to physicians and teaching hospitals. The Act also requires manufacturers and group purchasing organizations (GPOs) to disclose for publication by CMS any ownership or investment interests that physicians or their immediate family members have in those entities. The Act is designed to shed light on potential conflicts of interest that could affect treatment decisions and health care costs.

Applicable manufacturers and GPOs must begin collecting data on August 1, 2013 and electronically submit reports to CMS by March 31, 2014 (and the 90th day of each subsequent calendar year). CMS will publish the data on a public website by September 30, 2014 or within 90 days of the last day for data submission after the first year. CMS estimates the cost to manufacturers and GPOs of complying with the Act will be approximately $269 million in the first year and $180 million annually thereafter.


Manufacturers subject to the Sunshine Act include any entities “operating in the United States” that produce or prepare at least one drug, device, biological or medical supply covered under Medicare, Medicaid or the Children’s Health Insurance Program (CHIP). The final regulations clarified a number of issues with respect to which manufacturers are covered by the Act:

  • Manufacturers are subject to the Act if they have a physical location within the United States or conduct activities in the United States (including selling a product), either directly or through a legally authorized agent.
  • Distributors and wholesalers that hold the title to a covered drug, device, biological or medical supply are also subject to the Act. 
  • Entities that only manufacture materials or components, which are not themselves covered products, are not subject to the Act, unless they are under common ownership with an applicable manufacturer and provide assistance or support to the manufacturer. 
  • Applicable manufacturers are generally required to report all payments and transfers of value, exceeding $10, to covered recipients (physicians and teaching hospitals) even if the payments are not related to a covered drug, device, biological or medical supply. However, applicable manufacturers whose total gross revenues from covered drugs and devices is less than 10% of total gross revenue during the fiscal year preceding the reporting year are only required to report payments and transfers of value that are related to one or more covered drugs, devices, biologicals or medical supplies.
  • Applicable manufacturers with separate operating divisions that do not manufacture a covered drug, device, biological or medical supply (such as animal health divisions) are only required to report payments relating to those separate divisions if the payments are related to covered drugs, devices, biologicals or medical supplies.

Common Ownership

Entities under common ownership that provide assistance or support to applicable manufacturers also must comply with the Sunshine Act. Assistance and support is defined as providing a necessary or integral service to the production, preparation, marketing, sale or distribution of a covered product.

  • Common ownership is defined as the same individuals or entities, directly or indirectly, owning 5% or more of the total ownership of two or more entities. This includes, but is not limited to, parent corporations, direct and indirect subsidiaries and brother or sister corporations.
  • Entities under common ownership may report payments made to covered recipients either by filing separate reports on behalf of each entity or by filing a consolidated report.

Covered Drug, Device, Biological or Medical Supply

A covered drug, device, biological or medical supply is one for which (1) payment is available under Medicare, Medicaid or CHIP and (2) requires a prescription to be dispensed (in the case of a drug or biological) or premarket approval by or notification to the Food and Drug Administration (FDA) (in the case of a device or medical supply that is a device). Manufacturers have a grace period of 180 days following a product becoming covered to begin complying with the data collection and reporting requirements.

Covered Recipients

Covered recipients include all physicians (unless employed by manufacturers) and teaching hospitals that receive Medicare payments for indirect medical education (IME), graduate medical education or psychiatric hospital IME. The Sunshine Act defines physicians as doctors of medicine and osteopathy, dentists, podiatrists, optometrists and chiropractors who are legally authorized to practice by the state in which they practice. Non-physician prescribers (i.e., nurse practitioners), residents and non-healthcare departments of universities affiliated with teaching hospitals are not covered recipients.

Payments or Other Transfers of Value

For each payment or other transfer of value, manufacturers are required to report (1) the covered recipient’s name, primary business address, specialty, National Provider Identifier and state professional license number (if a physician), (2) amount, (3) date, (4) form (cash, in-kind items, stock or dividends), (5) nature of payment, and (6) the related covered product (if applicable). The nature of payment must fall into one of the categories specified in the Act, which include consulting fee, 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, speaking fee, grant, and space rental or facility fee.

  • There are 14 exclusions from the reporting obligations, including payments or transfers of value less than $10 (unless the total annual value exceeds $100), product samples, educational materials that directly benefit patients, discounts (including rebates), short-term loans of covered devices and personal transactions.
  • Indirect payments or other transfers of value made through a third party do not have to be reported when manufacturers are unaware of the identities of covered recipients. Manufacturers cannot act in deliberate ignorance or reckless disregard and must report indirect payments when the identities of the recipients can be easily ascertained.
  • When a meal is supplied to physicians in a group setting, the per person value of the meal must be reported for physicians who actually partook in the meal.
  • Buffet meals, snacks, soft drinks or coffee made generally available to all participants of a large-scale conference or similar large-scale event need not be reported.

Ownership and Investment Interest

Manufacturers and GPOs must report direct and indirect ownership or investment interest of physicians and their immediate family members. For ownership or investment interests held on or after August 1, 2013, manufacturers and GPOs must report (1) the owner’s or investor’s name, primary business address, specialty, National Provider Identifier and state professional license number (if a physician), (2) dollar amount of the interest, and (3) value and terms of the interest.

  • Ownership or investment interest in a publicly traded security or mutual fund, interests that arise from retirement plans, stock options received as compensation (until exercised) or unsecured loans subordinated to credit facilities need not be reported.
  • Manufacturers and GPOs do not need to report the name or relationship for an immediate family member holding an ownership or investment interest but may instead report aggregate interests across multiple family members.
  • Manufacturers and GPOs also do not have to report indirect ownership or investment interests if they are not aware of those interests, but they cannot act in deliberate ignorance or reckless disregard of such knowledge if it is available to them.

Research and Delayed Publication

Manufacturers must report payments and other transfers of value to physicians or teaching hospitals for research conducted pursuant to a written agreement or contract or a research protocol. Manufacturers must separately report research payments in a special template that captures, among other things, the total amount of the research payment, the name of the entity that received the payment and the principal investigator. Research is broadly defined to encompass both basic and applied research and product development, including pre-clinical research, FDA Phase I-IV research and investigator-initiated investigations. Payments or other transfers of value for research purposes may be eligible for delayed publication for up to four years.

Report Submission and Assumptions Document

Manufacturers and GPOs with reportable payments or interests must electronically submit the required reports to CMS. The reports must include an attestation by the chief executive officer or another company officer that the information reported is timely, accurate and complete to the best of his or her ability. Reports for 2013 are due on March 31, 2014. No extensions for submission will be granted and late data will be considered a failure to report and may be subject to penalties.

Review and Dispute Process

Manufacturers, GPOs, covered recipients, and physician owners and investors will have at least 45 days to review, dispute and correct reported information before it is posted online. To be corrected before publication, manufacturers and GPOs must notify CMS of resolved disputes and any changes to the data no later than 15 days after the end of the 45-day period. Until corrected, payments or other transfers of value or ownership or investment interests that are under dispute will be marked as “disputed” and include only the manufacturer’s or GPO’s reported information.


Violators of the reporting requirements will be subject to civil monetary penalties, capped annually at $150,000 for failure to report and $1 million for knowingly failing to report.

Practice Pointers

Data collection of reportable payments will begin on August 1, 2013. In advance of that date, manufacturers need to take steps to determine whether they are covered under the Act and, if so, develop a system of tracking reportable data. Manufacturers that may be affected by the Act should review with counsel the following threshold issues in determining how the Act will affect them and developing a system for accurate reporting: 

  • Determine whether the company is subject to the Act based either on a physical location in the United States or otherwise conducting activities in the United States.
  • Determine if any of the products being manufactured include “covered drugs, devices, biological, or medical supplies” that will trigger the reporting requirements under the Act.
  • If the company is subject to the Act, analyze financial data to determine whether the gross revenue from the covered products is less than 10% of the company’s total gross revenue. If so, only payments related to the covered products will be reportable. If not, all payments to covered recipients will need to be tracked and reported. 
  • Determine whether companies are commonly owned for purposes of the Act. If so, management needs to determine whether a consolidated report will be filed or whether each entity will file separately. 
  • Companies should review what payments have historically been made that would be reportable under the Act and determine whether any payments should be discontinued prior to the August 1, 2013 date when tracking begins. 
  • Companies need to set up a system in advance of August 1, 2013 that will identify which employees will be responsible for the tracking and reporting of payments and what steps will be taken to insure the accuracy of the information.
  • Companies should determine whether they have the necessary information about recipient physicians, including National Provider Numbers and state professional licenses to identify the recipients as required by the Act.
  • Companies should obtain the list of teaching hospitals subject to the Act, which CMS will publish annually at least 90 days before the beginning of the reporting year. 
  • Companies should review whether their payments are related to research and may be eligible for delayed publication under the Act. If so, relevant data must still be collected and reported, but will not be made public until a later time.
  • Manufacturers and GPOs need to review available records to determine if there are any reportable ownership interests by physicians or their family members.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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