Pharmaceutical and medical device manufacturers (as well as group purchasing organizations “GPOs”) have a major compliance challenge ahead — the Physician Payment Sunshine Act regulations.  The Sunshine Act requires drug and device manufacturers and GPOs to report to HHS/CMS any “payment or other transfer of value” to physicians and teaching hospitals.

The Payment Sunshine Act reporting is scheduled to start on March 31, 2014, for the period of August 1 to December 31, 2013.  All information required by the Sunshine Act will be published by CMS on a public website.

The term “payment or other transfer of value” is very broadly defined with a very low threshold.  Anything over $10 with certain exceptions must be reported. The failure to report may result in monetary penalties, the amount which varied depending on whether the failure to report is “knowing.”

The final regulations which were issued in February 2013 have done little to clarify a host of issues as to the application of the reporting requirements.  CMS has issued a number of Fact Sheets applicable to types of manufacturers; three Frequently Asked Questions to clarify a number of issues; and CMS has posted templates for reporting forms.

Drug and device manufacturers have to report detailed information about a “covered recipient,” including the doctor’s name, specialty, business address, National Provider Identifier, state professional license number(s), amount of payment, date of payment, form of payment, name of the related drug or device, any indirect payments to other entities, and an optional statement of the circumstances.

Payments or other transfers of value include: consulting fees, compensation for services including speaking at an event other than a continuing education program, honoraria, food and beverages, entertainment, traveling, education, research, charitable contributions, royalty or license payments, investment interest, grants, office space rental or facility fees.

HHS is wrestling with a number of issues which reflect the broad application of the statute and regulations. Questions have been raised as to the reporting obligation for payments made at certified and accredited Continuing Medical Education programs, payments for clinical research, food and beverages at group functions, medical textbooks, medical journals, and a host of practical questions relating to a variety of items which drug and device companies may provide to physicians.

Prosecutors will have an important source of information for enforcement of the federal Anti-Kickback statute which prohibits the exchange of anything of value to induce (or reward) the referral of federal health care program business. See 42 U.S.C. § 1320a-7b.  Investigators can review the payment information to review suspect arrangements and launch investigations.

Anti-Kickback investigations often begin from relator claims under the False Claims Act or HHS – Office of Inspector General inquiries and audits.  Whistleblowers will now have access to data which can corroborate their claims.  HHS-OIG investigators will be able to use data analytics to spot “suspicious” transactions and relationships.  And criminal prosecutors will have the ability to generate leads and corroborating evidence for criminal kickback schemes.

All of these risks are separate and apart from those which can arise from a failure to comply with the reporting requirement (called the “open payment” system).  Enforcement of the reporting requirement itself could lead to civil penalties.