CMS Issues Physician Payments Sunshine Act Final Rule
On Feb. 1, 2013, the Centers for Medicare and Medicaid Services (CMS) issued the long-awaited final rule implementing Section 6002 of the Patient Protection and Affordable Care Act, also known as the Physician Payments Sunshine Act (Sunshine Act). The Sunshine Act requires applicable manufacturers of covered drugs, devices, biological and medical supplies to annually report all payments or other transfers of value to physicians and teaching hospitals. The Sunshine Act also imposes certain reporting requirements on applicable manufacturers and applicable group purchasing organizations (GPOs) regarding the ownership or investment interests in such entities held by physicians or their immediate family members.
Due to the delay in issuance of the final rule, CMS has delayed the data collection requirements, originally set to begin on Jan. 1, 2012, until Aug. 1, 2013. The first reports will cover the period from Aug. 1, 2013 until Dec. 31, 2013. These reports are due to CMS by March 31, 2014. The annual aggregate, searchable reports will be available to the general public on the CMS website by June 30 of each year, starting on June 30, 2014.
I. Key Definitions
The Final Rule made slight modifications and provided several clarifications to the definition of an "applicable manufacturer." Under the Final Rule, "applicable manufacturer" is defined as an entity that is operating in the United States that is:
(1) Engaged in the production, preparation, propagation, compounding or conversion of a covered drug, device, biological or medical supply; or
(2) Under common ownership with an applicable manufacturer that provides assistance or support to the applicable manufacturer with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological or medical supply.
CMS defined "operating in the United States" as "having a physical location within the United States, or otherwise conducting activities within the United States or a territory, possession, or commonwealth of the United States." The Final Rule narrowed the applicability of the Sunshine Act to foreign manufacturers by making clear that foreign entities that may contribute to the manufacturing process of a covered drug, device, biological or medical supply, but have no business presence in the United States are not included as "applicable manufacturers." CMS made clear, however, that entities that have operations in the United States cannot circumvent the reporting requirements by making payments to covered recipients through a foreign entity that has no operations in the United States. CMS also stood by its position that entities that hold Food and Drug Administration (FDA) approval, licensure or clearance for a covered drug, device, biological or medical supply are applicable manufacturers even if they contract out the actual manufacturing of the product to another entity.
Exclusions from the definition of "Applicable Manufacturer"
CMS clarified that hospitals, pharmacies and laboratories that produce or manufacturer materials and products solely for their own use or use by their patients are excluded from the definition of applicable manufacturer. Wholesalers or distributors that do not hold the title of a covered product will not be subject to the reporting requirements, unless they are under common ownership with an applicable manufacturer and provide assistance and support with respect to a covered drug, device, biological, or medical supply.
It is important to note that, generally, once an entity is determined to be an "applicable manufacturer", ALL payments or other transfers of value to physicians or teaching hospitals must be reported to CMS even if the payment or transfer of value relates to an item that is not itself a covered drug, device, biological or medical supply.
CMS noted, however, that it was sensitive to applicable manufacturers whose primary business is not the production of covered drugs, devices, biological or medical supplies. For these reasons, CMS clarified that for an "applicable manufacturer" that receives less than 10 percent of its total gross revenue from covered drugs, devices, biological or medical supplies during the previous fiscal year, such applicable manufacturer is only required to report payments or other transfers of value specifically related to covered drugs, devices, biological or medical supplies. Additionally, if an applicable manufacturer does not manufacture a covered drug, device, biological, or medical supply except pursuant to a written agreement to manufacture the covered product for another entity, does not hold the FDA approval, licensure or clearance for the product and is not involved in the sale, marketing or distribution of the product, then the manufacturer is only required to report payments or other transfers of value related to the covered product.
CMS made clear that "common ownership" includes any portion of two or more entities that are owned by the same individual, individuals, entity or entities, directly or indirectly (including, but not limited to, parent companies, subsidiaries and brother/sister corporations). CMS finalized the five percent threshold of common ownership. CMS also provided additional clarification on how the agency would interpret"assistance and support" in the common ownership analysis, since only entities under common ownership providing "assistance and support" for the listed manufacturing activities need to report. CMS defined "assistance and support" as being "necessary and integral to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or other distribution of a covered product." CMS provided the example of an entity under common ownership which produces the active ingredient for a covered drug and provides it to the applicable manufacturer for inclusion in the final product; this would be necessary to the manufacturing of the product, since the applicable manufacturer could not produce the drug without the active ingredient but the provision of human resources or other administrative duties may not be providing "assistance and support." In the Final Rule, CMS also provided additional flexibility for applicable manufacturers to report separately or together depending on their internal structure.
Covered Drug, Device, Biological, or Medical Supply
CMS finalized, in large part, the proposed definition and added slight clarification to the definition by replacing "composite payment rate" with "bundled payment" to avoid confusion. Therefore, under the Final Rule, a "covered drug, device, biological or medical supply" is defined as a drug, device, biological or medical supply for which payment is available under Medicare, Medicaid or CHIP either separately or as a part of a bundled payment (through the inpatient prospective payment system, outpatient prospective payment system and other prospective payment systems) and which requires a prescription to be dispensed (in the case of a drug or biological) or premarket approval by or notification to the FDA (in the case of a medical device or supply that is a device).
A "covered recipient" is defined as:
(1) a physician (which includes doctors of medicine and osteopathy, dentists, podiatrists, optometrists and licensed chiropractors) other than an employee of an applicable manufacturer and teaching hospitals; and
(2) teaching hospitals (those institutions that receive Medicare graduate medical education (GME) payments).
CMS has stated that it will publish annually (90 days before the beginning of the reporting year and for the first year, 90 days prior to the start of data collection), a list of those entities it deems to be teaching hospitals to relieve some of the burden on applicable manufacturers in determining which hospitals qualify as teaching hospitals.
CMS clarified that residents (including residents in medicine, osteopathy, dentistry, podiatry, optometry and chiropractic) will not be required to be reported for purposes of this regulation. The Final Rule also confirmed that non-physician prescribers are not included in the definition of "physician" but noted that, to the extent applicable manufacturers make payments or other transfers of value to non-physician prescribers to be passed through to a physician, these payments would be considered indirect payments to the physician and would be required to be reported under the name of the physician.
Additionally, in order to correctly identify the covered recipients, CMS made clear that applicable manufacturers are required to report the National Provider Identifier (NPI) of covered recipients. The applicable manufacturer must show that it made a good faith effort to obtain the NPI which includes, but is not limited to, specifically requesting an NPI from the physician, checking the National Plan & Provider Enumeration System (NPPES) database, and calling the NPPES helpdesk. Additionally, the Final Rule contains an additional requirement for identifying physicians not contained in the proposed rule. CMS will require applicable manufacturers to also report the State(s) and appropriate State professional license number(s) for at least one (but multiple will be accepted) State where the physician maintains a license for all physician covered recipients, regardless of whether the applicable manufacturer has identified the NPI for the physician covered recipient or not. CMS used the discretion granted in Section 1128G of the Act to add this additional reporting requirement as it believes that this additional requirement will greatly improve data accuracy.
II. Content Requirements of the Report
For each payment or transfer of value, applicable manufacturers are required to report the name (first, middle initial and last), business address (which shall be the physician's primary practice location), specialty (including specialty name and code as identified in the provider taxonomy list on the NPPES), NPI, State and State license number (as described above), amount of payment, date of payment, brief contextual information for each payment or other transfer of value (this is permissive, not required), the associated covered drug, device, biological or medical supply (including, for drugs and biological the National Drug Code (NDC) and for devices and medical supplies the name under which it is marketed or the therapeutic area or product category), form of payment, nature of payment and the name of the entity paid (if not provided to the covered recipient directly). CMS also made clear that if the payment ismade at the request of or designated on behalf of the covered recipient, it still must be reported to the covered recipient.
For purposes of the form and nature of payment categories, CMS reiterated that applicable manufacturers should break down the payments or other transfers of value to make sure that payments go into the most appropriate category. For example, to the extent that travel and food are included in a consulting arrangement with a physician, the applicable manufacturer should break down the payment into three separate amounts (travel, food and consulting) and report the information accordingly. CMS also stated that with regard to the appropriate nature of payment category, if payment could fit in multiple categories, applicable manufacturers have flexibility to select the category that best describes the payment, in accordance with their own documented methodology (and included on the assumptions document). CMS, however, noted that this should not be used to bundle payments of separate categories into a single payment.
Additionally, CMS provided clarification on several requirements of the form and nature of payment requirements including, most notably, clarifications on the reporting of stock and stock options, addition of space rental and facility fees, meals, continuing medical education conferences and research payments. First, CMS broke the form of payment category of "stock, stock option, or any other ownership investment interest, dividend, profit or other return on investment" into two categories ("stock, stock options and other ownership interests" and "dividends, profits and other returns on investment"). Next, CMS added space rental and facility fees as an additional nature of payment category.
CMS made clear that applicable manufacturers do not need to report any offerings of buffet meals, snacks or coffee at booths at conferences or other similar events where it would be difficult for applicable manufacturers to definitively establish the identities of the individuals who accept the offerings. Additionally, for meals in group settings, CMS will require applicable manufacturers to report the per person cost (not the per covered recipient cost) of the food or beverage for each covered recipient who actually partakes in the meals. In other words, CMS noted that applicable manufacturers should divide the total value of the food providedby the number of people who actually partook in the food and beverage including both covered recipients and non-covered recipients (such as support staff).
CMS also added an additional nature of payment category for serving as a faculty or speaker at an accredited or certified continuing education event. Therefore, there are now two nature of payment categories related to serving as a faculty or speaker at an education event, one for accredited or certified continuing education events and one for "compensation for serving as a faculty or as a speaker for an unaccredited and non-certified continuing education program." The Final Rule omits the "other" category from the nature of payment categories but, indoing so, CMS made clear that it does not mean to suggest that there are payments or other transfers of value that must not be reported but, rather, that the payment should be reported in the nature of payment category that most closely describes the payment.
Based on the comments received, in the Final Rule, CMS has defined research based on the Public Health Service Act definition which defines research as "a systematic investigation designed to develop or contribute to generalizable knowledge relating broadly to public health, including behavioral and social sciences research. This term encompasses basic and applied research and product development." CMS also clarified that to be research, it only needs to be subject to a written agreement or contract or a research protocol. Also, CMS made clear that it intends for applicable manufacturers to report payments if there is an unbroken chain of agreements (instead of a single agreement between the applicable manufacturer and the covered recipient) which link the applicable manufacturer with the covered recipient, including through agreements with a contract research organization (CRO) or site management organization (SMO).
Unlike in the proposed rule, CMS does not distinguish between direct and indirect research payments Instead, CMS finalized the requirement that a single research payment must be reported once as a single transaction, and must include the name of the individual or entity (regardless of whether it is a covered recipient) that received the research payment as well as the principal investigator(s). The applicable manufacturers must report research payments separately in a different template.
III. Disclosure of Physician Ownership and Investments Interests in Applicable Manufacturers and Applicable GPOs
Applicable manufacturers and applicable GPOs must report separately all ownership interests or investments interests, which includes both direct and indirect interests, held in the applicable manufacturer or applicable GPO by physicians and their immediate family members (which includes a spouse, natural or adoptive parent, child or sibling, stepparent, stepchild, stepbrother, or stepsister, father-, mother-, daughter-, son-, brother- or sister-in law, grandparent or grandchild and spouse of a grandparent or grandchild). The Final Rule makes clear that the requirement under this section applies to any physician including an employee of the applicable manufacturer or applicable GPO. CMS also made clear that stock options before they are exercised are considered compensation, rather than ownership or investment interests, so they are not required to be reported under this section. However, the stock options are required to be reported as a payment or other transfer of value under Section 1128G(a)(1) and 1128G(a)(2)(C) as described above.
IV. Penalties for Failure to Report
Any applicable manufacturer or applicable GPO that does not timely submit the information required by this rule will be subject to penalties in the amount of $1,000 to $10,000 per payment or other transfer of value or ownership or investment interest not reported as required, up to an annual maximum of $150,000. If the applicable manufacturer or applicable GPO knowingly fails to report the information required by this rule as required, then the penalties are increased to $10,000 to $100,000 per payment or other transfer of value or ownership or investment interest not reported as required up to an annual maximum of $1 million. These maximums are per applicable manufacturer. To the extent a consolidated report is filed for multiple entities, these maximums would be for each entity on the consolidated report. The Final Rule confirmed that an authorized representative for each applicable manufacturer and applicable GPO must submit a signed attestation from the CEO, CFO, Chief Compliance Officer or other officers designated by the entity. In the Final Rule, CMS has stated that in determining the amount of the penalty, it will consider the following:
1. the length of time the applicable manufacturer or applicable GPO failed to report;
2. the amount of the payment or other transfer of value or ownership/investment interest;
3. level of culpability;
4. nature and amount of information reported in error; and
5. degree of diligence exercised in correcting information reported in error.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.