CMS Proposes Important New Updates to the Sunshine Act’s Open Payments Program

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The Centers for Medicare & Medicaid Services (CMS) released its proposed 2022 Physician Fee Schedule rule (Proposed Rule) on July 13, 2021. Included in the rule are several proposed updates to the CMS Open Payments Program, which implements the U.S. Physician Payments Sunshine Act.[1] The proposed rule is available here.  A few key highlights:

  • Most of the agency’s proposed revisions to the Open Payments program are intended to provide clarity and more comprehensive information for the public with respect to provider relationships with the pharmaceutical, medical device, and biologics industries.  This includes a proposed requirement to disclose certain contextual information for all Teaching Hospital-related payments.
  • CMS also proposes a definition of “physician-owned distributor,” or POD.  The preamble to the original 2013 rule implementing the Sunshine Act affirmed that PODs are a form of group purchasing organization (“GPO”) subject to the law’s reporting requirements, but did not define the term “physician owned distributor.”[2] CMS acknowledges in the Proposed Rule “confusion about whether PODs are required to report” and clarifies that PODs are in fact required to report payments to and ownership interests of covered recipients.  As such, CMS proposes a definition of the term “POD.”

    The proposed definition of “POD”, which CMS includes only in the regulatory language at the end of the Proposed Rule, broadly covers applicable medical device manufacturers (i) with 5% physician ownership or (ii) that compensate a physician owner with “a commission, return on investment, profit sharing, profit distribution, or other remuneration directly or indirectly derived from the sale or distribution of devices by the manufacturer.”[3] The agency does not indicate what constitutes “other remuneration directly or indirectly derived from the sale or distribution of devices.” If an entity qualifies as a POD, the Proposed Rule would require it to self-identify in any Open Payments reporting as such.

    This definition is open to a potentially expansive interpretation that could cover more entities than intended. Privately-held medical device manufacturers that provide any form of compensation to a physician owner should pay particular attention.  First, this could require a manufacturer that would not consider itself to be a physician-owned distributor to identify as such, creating a distorted view of the apparent number of PODs in the industry.  Second, there is heightened risk in self-identifying as a POD, despite CMS’s note in the proposed definition that the term is exclusive to Open Payments and not other laws (like the Anti-Kickback Statute or the Anti-Kickback Statute safe harbors).  In fact, DOJ recently has ramped up its enforcement of the fraud and abuse laws against PODs, whose ownership structures and business models have posed increased risks and challenges under the Anti-Kickback Statute. For example, see the Asfora matter and related DOJ settlement with Medtronic.

We summarize the Open Payments-related provisions of the Proposed Rule in the chart below. Comments on the proposed Open Payments updates are due to CMS by 5 pm EST on Monday, September 13, 2021.

 Topic  Proposal

Physician-Owned
Distributors (PODs)

  • First, CMS’s proposed new definition of POD is found solely in the regulatory language at the end of the Proposed Rule.[4] Under the agency’s proposal, a physician-owned distributorship is:
    • An entity that meets the definition of “applicable manufacturer” or “applicable GPO”;

      AND
    • Meets at least one of the following:
      • Has a minimum of 5% direct or indirect ownership or investment interests held by a physician or a physician’s immediate family member (calculated as 5% of the total dollar value of all ownership in the entity as of December 31 of the preceding calendar year — or the latest date ownership was held);

        OR
      • A physician or a physician’s immediate family member receives compensation from the manufacturer or GPO in the form of a commission, return on investment, profit sharing, profit distribution or other remuneration directly or indirectly derived from the sale or distribution of devices by the manufacturer or GPO in which the physician or physician’s immediate family has ownership.
        • This latter part of the definition, if read broadly, could implicate some privately-held medical device manufacturers[5]  and may require self-identification as a POD “whether or not the physician has a controlling interest in the reporting entity.”  For instance, CMS continues, this could be “a silent partner whose only role is to provide capital and is not involved in the company’s operations would still meet requirements for reporting.” See 86 Fed. Reg. at 39335-36. 
  • The agency adds:
    • If a company under common ownership with a POD reports on a consolidated report, the company must only register as a POD if it meets the 5% ownership test across all entities in the report.
    • It does not matter if the physician has a controlling interest in the reporting entity. If the entity meets the 5% reporting test, the entity must identify as a POD.
    • Indirect ownership interests must also be reported.
    • CMS makes clear that entities that meet the definition of POD must self-identify as such when they register and when they file reports.
Teaching Hospitals
  • CMS proposes to add a mandatory “context field” for teaching hospital-related disclosures, requiring disclosure of additional information to better identify the payment, such as check or electronic wire numbers and hospital department.[6]

CMS notes that teaching hospitals have complained that the Open Payments disclosures do not contain sufficient information to identify and verify the reported payments or transfers of value. Teaching hospitals indicated that they must dispute the payment in order to obtain sufficient additional documentation to verify the payment. Accordingly, CMS is requiring the addition of contextual information for each teaching hospital-related disclosure. 

Publication Delays
  • CMS proposes to eliminate the ability for applicable manufacturers and GPOs to delay payments disclosed as “General Payments.”[7]

CMS noted that many research-related payments are being disclosed as “General” and then flagged for delayed publication. But, CMS cannot identify the related research program or clinical study, because this information is not required for the General Payment report. CMS proposes, therefore, to eliminate the ability to delay General Payments from publication and only permit publication delay of payments disclosed as “Research Payments.”

CMS takes care to note that reporting entities may be hesitant to include payments in connection with a specific research study, because these payments may not be outlined in the research agreement. CMS cites the example of paying for an airline ticket for a physician to conduct research. The agency clarifies that current requirements would require that these types of payments — even if not directly outlined in the research agreement – are disclosed as research payments.

Short Term Equipment Loans
  • CMS proposes clearer limits on reporting of short-term equipment loans.[8]

Currently, the Open Payments program does not require reporting on short-term equipment loans – meaning the loan of a covered device to allow for a limited evaluation of the device. If a loan period exceeds 90 days, a manufacturer must report the loan as a payment or transfer of value to the recipient. CMS proposes to clarify that its 90-day limit means 90 cumulative days throughout the course of a calendar year. 

Ownership Category
  • CMS proposes to remove the “Ownership” nature of payment category.[9]

CMS notes that entities can report ownership by covered recipients in two ways. First, entities can submit an ownership record. Second, entities can submit a general record with an “Ownership” nature of payment category. The agency notes four reasons for the proposal: (a) the statute requires special rules for ownership interest reports, and this information is not captured under the general payment category; (b) the statute requires special rules for ownership interest reporting (ex: dollar amount invested and value of interest), and this information is not identified under the general payment category; and (c) to create a “cleaner and more consistent data set.”

Other Updates
  • No Report Deletions: CMS proposes to limit entities’ ability to delete previously disclosed payments.[10]

CMS notes a lack of existing controls around entities’ ability to delete previously disclosed payment records in the Open Payments system. Accordingly, CMS proposes to prohibit entities from removing, deleting, or otherwise altering records in the Open Payments system unless (a) an error in the information is discovered or (b) the record is otherwise believed to meet existing exceptions for reporting that were previously unknown.

  • Annual Recertification: CMS proposes to allow non-reporting entities to submit annual recertifications.[11]

CMS notes that many non-reporting entities want to be able to recertify regularly to the agency that they do not have any payments or transfers of value to report. But, recertification was previously only available to entities with reportable payments. Accordingly, CMS proposes to allow non-reporting entities to recertify annually on a voluntary basis.

  • Updated Contact Information: CMS proposes to require companies that have not had reportable payments within the past two years to keep contact information updated in Open Payments.[12]

CMS notes that it has found many companies with out-of-date contact information, especially those with multiple years of no reportable payments


[1] See 86 Fed. Reg. 39104, 39333-37 (July 23, 2021).
[2] See 78 Fed. Reg. 9458 at 9493, 9512, and 9519 (Feb. 8, 2013).  The original rule defines GPOs as selling to a “group of individuals or entities.”  See 42 C.F.R. § 403.902.  Many PODs, however, only sell to one entity. This creates the so-called “GPO Loophole” that may explain many years of PODs’ absence from the Sunshine Act disclosures.
[3] See 86 Fed. Reg. at 39568 (proposed 42 C.F.R. § 403.902) (emphasis added).
[4] See id..
[5] CMS clarifies that “Ownership or Investment Interest” already excludes publicly traded securities.  The agency also proposes two new exclusions: (i) mere titular ownership and (ii) employee stock ownership programs that are qualified under IRS regulations. CMS states that, to be considered a physician owner, the owner must hold at least one active professional license in a U.S. state or territory.
[6] See 86 Fed. Reg. at 39568 (proposed 42 C.F.R. § 403.902). While CMS’s intention is clear, the agency’s proposed definition could be read broadly to include any privately-held medical device manufacturer that offers any type of remuneration to a physician owner.
[7] Id. at 39335.
[8] Id.
[9] Id.
[10] 86 Fed. Reg. at 39335.
[11] Id. at 39336.
[12] Id. at 39335.
[13] Id. at 39336-37.

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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