Health Care: As Sunshine Act Deadlines Approach Physicians and Hospitals Should Prepare for Transparency in Their Financial Relationships with Industry (7/14)

by Bond Schoeneck & King PLLC

On September 30, 2014, in accordance with the Federal Sunshine Act (the Sunshine Act), the Centers for Medicare and Medicaid Services (CMS) will publically disclose payments and "other transfers of value" by pharmaceutical, device, biotech, and medical supply companies to physicians and teaching hospitals.1 Disclosure will cover payments for a wide array of purposes including consulting, speaking engagements, advisory board service, travel and clinical research as well as physician ownership and investment interests in manufacturers and group purchasing organizations. With the date for Sunshine Act disclosure rapidly approaching, teaching hospitals and physicians must grapple with review of the information reported about them and prepare for unprecedented public transparency in their financial relationships with life science companies and manufacturers.

The Sunshine Act Final Rule (the Final Rule) sets forth detailed requirements about which payments and ownership interests are covered by the Sunshine Act and how they must be reported.2 Physicians and teaching hospitals should carefully review the information reported by manufacturers about them to CMS during the review period that closes on August 27, 2014. By that date, physicians and teaching hospitals must formally initiate a dispute to correct any inaccuracies in the reported data in order to assure that resolution of the dispute and corrections to the data are disclosed on September 30, 2014.

Equally important, health care providers should conduct a review and analysis of the reported data to assess the legal and reputational risks presented by public disclosure. Sunshine Act data potentially poses risks related to broad areas of medical and institutional practice, ranging from fraud and abuse and research compliance to professional and institutional conflicts of interest, quality of care, and executive compensation. Prior disclosure of information about industry payments to physicians under corporate integrity agreements and state disclosure laws has garnered significant press attention. Through risk assessment, health care providers should, therefore, anticipate how payments from manufacturers will be seen through the lens of the press, prosecutors, and their patients.

Sunshine Act Reporting and Disclosure

Defining Covered Manufacturers. Under the Sunshine Act, manufacturers of a drug, device, biological, or medical supply for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program (Covered Products) that operate in the United States or in a United States territory, possession or commonwealth are "applicable manufacturers" and must comply with the Act’s reporting obligations. Over-the-counter medications and biological products and medical devices that do not require premarket approval by the Food and Drug Administration (FDA) are not Covered Products under the Act. Applicable manufacturers were required to send Sunshine Act data to CMS by March 31, 2014 for the 2013 reporting period which extended from August 1, 2013 to December 31, 2013.3

Defining Covered Recipients. Applicable manufacturers must report payments they make to "physicians" and "teaching hospitals" (Covered Recipients). Under the Sunshine Act, physicians include doctors of medicine and osteopathy, as well as dentists, podiatrists, optometrists, and licensed chiropractors. As set forth in the Final Rule, a "teaching hospital" is any hospital that receives direct or indirect graduate medical education payments from Medicare. CMS has posted a list of hospitals deemed Covered Recipients on its website.4

Payments, Transfers of Value and Physician Investment Interests. With few specified exceptions, applicable manufacturers must report all remuneration to physicians and teaching hospitals, above $10 per payment or $100 in the aggregate for a calendar year. Specifically, applicable manufacturers must report to CMS:

  • the name of the physician or teaching hospital to which the payment was made;
  • the business address of the physician or teaching hospital, and for physicians, the physician’s specialty and National Provider Identifier;
  • the amount and date(s) of the payment;
  • a description of the form of the payment, i.e., cash, in-kind items, services, stock, stock option, or any other ownership interest, dividend, profit, or return on investment;
  • a description of the nature of the payment (e.g., consulting fee, travel); and
  • if the payment is related to marketing, education, or research specific to a particular Covered Product, the name of the product, or for medical supplies the product category.

Applicable manufacturers must report payments by the "nature" of the activity using the following categories: (1) consulting fees; (2) compensation for services other than consulting; (3) honoraria; (4) gift; (5) entertainment; (6) food; (7) travel; (8) education; (9) research; (10) charitable contribution; (11) royalty or license; (12) current or prospective ownership or investment interest; (13) compensation for serving as a faculty or as a speaker for noncertified or nonaccredited CME; (14) compensation as a faculty or speaker at certified or accredited CME; (15) grant; or (16) space rental or facility fees for events held at a teaching hospital site. Certain payments to physicians or teaching hospitals such as product samples for patient use and in-kind items provided as charity care to patients are excluded from the reporting obligation.

Payment to Third Parties. Payments by applicable manufacturers to third parties, such as professional associations, disease advocacy organizations, and public relations firms that are passed on to or used for the benefit of physicians or teaching hospitals must also be reported and disclosed, if the applicable manufacturer is "aware" of the identity of the recipient. Payments provided to a physician through a physician practice group should be reported and disclosed solely as a payment to the physician(s) who is the intended recipient.

Research Payments. For each research payment to a physician or teaching hospital, applicable manufacturers must report, among other information: (1) the name of the entity or individual who received the payment; (2) the name of the study; (3) the name of any related Covered Product; and (4) the total payment amount. The Sunshine Act allows a delay for public disclosure of payments for product development and research for a potential new medical technology, drug, device, biological, or medical supply or new application of an existing product until approval, licensure, or clearance of the Covered Product by the FDA, or four calendar years, whichever is earlier. Public disclosure will only be delayed, however, if the applicable manufacturer advises CMS of the applicability of delayed disclosure.

Reporting Physician Ownership Interests. In addition to reporting payments made to physicians and teaching hospitals, applicable manufacturers as well as group purchasing organizations (GPOs) must report certain ownership and investment interests held by physicians or their immediate family members in the applicable manufacturer or GPO. Required disclosures include stock (excluding interests held in a publicly traded security or mutual fund), stock options (other than those received as compensation until exercised), partnership shares, limited liability company memberships, and loans or other financial instruments secured by a portion of the entity’s property or revenue.

Reviewing Reported Data and Initiating Disputes. From July 14 through August 27, 2014, physicians and teaching hospitals can review the data on payments and ownership interests reported about them by manufacturers, and initiate a dispute about the data to seek a correction. Covered Providers can review their data by registering in the CMS Enterprise Identification Management portal and the Open Payments system on the CMS website.5 In a "review and dispute" process, physicians and teaching hospitals can affirm or dispute the data submitted by manufacturers. They must work directly with the manufacturer reporting the data to seek to resolve the dispute. CMS will not arbitrate disputes about the reports; if a dispute cannot be resolved by the parties, CMS will disclose the payments as reported by the applicable manufacturer, but will mark the payments as "disputed." Physicians and teaching hospitals can also initiate disputes from August 28 through September 11, 2014. However, CMS has indicated that the resolution for disputes initiated after August 27 may not appear on the information disclosed on September 30, 2014.

Assessing the Risks of Transparency

Sunshine Act disclosure presents an array of legal and regulatory risks for physicians and hospitals. Information reported about payments to Covered Recipients as well as physicians’ investment and ownership interests may trigger investigation of potential violations of the anti-kickback statute (AKS), False Claims Act (FCA), and the Stark Law. Health care providers can anticipate that prosecutors will use data released under the Sunshine Act together with data mining of other databases, including Medicare and Medicaid claims data, to seek a correlation between payments to health care providers and practice patterns in order to target investigations and pursue potential violations.

  • The Anti-Kickback Statute. Federal and state anti-kickback statutes bar the offer, provision or receipt of remuneration of any kind, directly or indirectly, to an individual or entity to induce or in exchange for the referral of goods or services which are funded by the federal government or a state health care program (e.g., Medicare or Medicaid).6 Payments or other transfers of value to physicians for speaking, travel, consulting, and other services may violate the AKS if any one purpose of the payment is to induce physicians to prescribe medication or use a device or medical supply paid for by Medicare or Medicaid.
  • Heightened False Claims Act Exposure. The False Claims Act imposes liability for knowingly presenting a false claim for payment to the federal or state government.7 Section 6402 of the Patient Protection and Affordable Care Act links AKS and FCA violations by establishing that any claims submitted to federal health care programs that result from a kickback also violate the FCA, with potential penalties up to three times the amount of each claim submitted and $11,000 per claim.8 Treatments deemed unnecessary can also trigger FCA liability as well as regulatory concerns about the quality of care.
  • Stark Law Exposure. The Stark Law prohibits physicians from referring Medicare beneficiaries to entities in which they, or their immediate family members, have a financial relationship, for certain services, including clinical laboratory services, physical and occupational therapy, durable medical equipment, prosthetic devices, and parenteral and enteral nutrients, unless an exception to the law applies.9 Public disclosure of physician investment or ownership interests in pharmaceutical, medical device, and medical supply companies will create a road map for Stark enforcement.
  • Risks Arising From Research Payments. For institutions bound by the Final Rule promulgated by the United States Department of Health and Human Services on conflicts of interest in research (the Final Conflicts Rule), the Sunshine Act will provide an independent database for regulators to determine compliance with the Final Conflicts Rule. While the Sunshine Act delays the release of information about research payments at the election of applicable manufacturers, the Act will disclose far more information about payments by applicable manufacturers than the Final Conflicts Rule. The Sunshine Act poses distinct compliance risks for hospitals and physicians who do not receive federal research funding and are therefore not subject to the Final Conflicts Rule. In particular, industry-funded research has been the target of increasing oversight by federal and state regulators, focused on compliance with the AKS and financial incentives that present a direct conflict of interest or risk to the interests of research participants.
  • Institutional Conflicts of Interest. The Sunshine Act will disclose for the first time payments by industry to teaching hospitals. Institutional financial interests arising from payments by applicable manufacturers can take a number of forms: equity in non-publicly held companies, royalty payments, research and non-research grants, funding for continuing medical education, gifts, and financial interests held by individuals in a position to influence purchasing or research decisions at the institution. Payments by manufacturers to executives, department chairs, and other physicians in senior positions may present risks related to conflicts of interest as well as reputational risks. In New York State, where both government and media attention have focused on compensation for executives of not-for-profit providers, Sunshine Act disclosure may contribute to already intensive public scrutiny.

Preparing for Disclosure

Hospitals and physicians should carefully review information reported to CMS during the review period that closes on August 27, 2014 to assure that the data is accurate. Just as important, health care providers should prepare for Sunshine Act public disclosure by assessing the legal and reputational risks that disclosure poses to them, recognizing government’s mounting reliance on transparency as a key enforcement tool.

1  Patient Protection and Affordable Care Act, Pub. L. No. 111-148, §6002, 124 Stat. 119 (2010) (hereinafter PPACA).

2  42 C.F.R. §403.900 et seq.

3  Hospitals and hospital-based entities, such as pharmacies, that manufacture a product solely for use by the hospital or the entity’s patients are not covered by the Act as manufacturers. Entities under common ownership with an applicable manufacturer that assist in the marketing, selling, or distributing a covered product in the United States must comply with the Sunshine Act.

4  See,

5  To register, see

6  42 U.S.C. §1320a-7b; N.Y.S. Soc. Services Law §366-d.

7  31 U.S.C. §3729(a).

8  PPACA §6402(f)-(h).

9  42 U.S.C. §1395nn. 42 U.S.C. §1395nn.

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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