Physician Payment Sunshine Act
Posted on July 25, 2012 | Comment (1)
By Jane Hyatt Thorpe and Teresa Cascio
Drug companies and medical device manufacturers commonly collaborate with physicians when developing or modifying drug or devices. These collaborations may include consulting arrangements in which physicians provide input and guidance related to drug or device development, participation in clinical trials testing the efficacy and effectiveness of the drug or device, or educational programs to train and teach physicians about the benefits of a new drug or in the case of a medical device, how to use the device effectively. In return for their services and expertise, physicians often receive payment or other items of value such as an honorarium and/or travel expenses. These financial relationships between manufacturers and physicians, while largely beneficial, raise concerns about conflicts of interest as physicians’ treatment decisions may be improperly influenced by their financial relationship with a manufacturer. There is also concern in the industry that these types of arrangements are used to disguise illegal kickbacks (i.e., providing money or other items of value in return for prescribing a particular drug or using a particular medical device). To avoid any real or perceived conflicts or kickbacks from these arrangements and to ensure that patients and consumers are aware of these arrangements when making healthcare decisions, Congress included the Physician Payment Sunshine Act in the 2010 Affordable Care Act.
Changes made by the Affordable Care Act, Public Law No. 111-148, § 6002
- Overview. The Sunshine Act requires “applicable manufacturers” to annually report “payments or transfers of value” (“payments”) made to “covered recipients” (i.e., physicians and teaching hospitals). The reports must include the following types of information: the name and address of the recipient, the amount and type of value transferred (e.g., cash, stock, services), and the purpose of the payment (e.g., consulting fees, gift). If a manufacturer makes a payment to a covered recipient’s designee, the manufacturer must disclose the name of the covered recipient when submitting their report as well. Manufacturers and Group Purchasing Organizations (GPOs) also must annually report information regarding physician (or immediate family member) ownership of the manufacturer or GPO. Reported physician (or immediate family member) ownership information must include the amount of the investment and the value of the ownership. The reports do not need to include information about ownership and investment interests in publicly traded securities or mutual funds.
- Manufacturers and GPOs. The Act defines “applicable manufacturer” to include any manufacturer of drugs, devices, biologicals, or medical supplies covered by Medicare or Medicaid that operates within the United States. GPOs are organizations that purchase or facilitate the purchase of Medicare or Medicaid covered drugs, devices, biologicals, or medical supplies while operating in the United States.
- Covered Recipients. The Act defines the term to include physicians and teaching hospitals. The term does not include physicians employed by manufacturers.
- Payments or Transfers of Value. The term refers to “a transfer or anything of value,” but does not include indirect transfers made through a third party if the manufacturer does not know the identity of the recipient.
- Exclusions. Manufacturers do not have to report the following payments or transfers of value: (1) transfers of value less than $10 so long as the aggregate yearly amount does not exceed $100; (2) product samples intended for patient use rather than resale; (3) educational materials intended for patient use; (4) trial loans of Medicare or Medicaid covered devices that do not exceed 90 days; (5) items or services provided pursuant to a warranty so long as the warranty terms appear in the device purchase or lease agreement; (6) transfers made to a covered recipient when they are a patient; (7) discounts and rebates; (8) dividends or profits from an investment in a publicly traded security or mutual fund; (9) “in-kind items used for the provision of charity care”; (10) payments by an applicable manufacturer for its employees’ health care through a self-insured plan; (11) transfers of value for non-medical services provided by a covered recipient that hold a license for such non-medical services; and (12) transfers of value to physicians for services provided in regards to legal proceedings.
- Penalties. Manufacturers and GPOs are liable for $1,000 to $10,000 in civil monetary penalties for each payment or ownership interest they fail to report. Knowing failures to report will result in penalties between $10,000 and $100,000 per violation. Annual liability may not exceed $150,000 for regular violations and $1,000,000 for knowing violations.
- Submission of Information. The U.S. Department of Health and Human Services (HHS) Secretary must create procedures for submitting information.
- Public Availability. The HHS Secretary must publish the payment and ownership information on a website in a form that is searchable, downloadable, and understandable by the public. The published information must include information such as the names of the reporting manufacturers and covered entities, the name and address of the covered recipient, and the amount of value transferred. The HHS Secretary must give manufacturers, GPOs, and recipients 45 days to review and correct the information before publishing the information on the website. However, this review period may not prevent the HHS Secretary from meeting the applicable publishing deadline.
- Research and Development. Manufacturers must report payments made pursuant to their research and development efforts. However, the Act permits the HHS Secretary to delay such reporting until the earlier of (1) the date the FDA approves the product under research and development; or (2) four years after the transaction. Information regarding payments or transactions of value made for research and development purposes will remain confidential until the HHS Secretary publicly publishes the information.
- Preemption. The Act preempts state laws that impose identical payment reporting requirements on manufacturers, but does not preempt state laws that (1) impose reporting requirements on manufacturers that differ from the ACA requirements; (2) require manufacturers to report the payment information expressly excluded by the ACA; (3) impose reporting requirements on entities that do not qualify as “applicable manufacturers” or “covered recipients”; or (4) require reporting to a government entity for public health purposes (e.g. surveillance, investigation).
- Reports. The HHS Secretary must submit annual reports to Congress containing aggregate payment and ownership information as well as a summary of enforcement actions taken in response to noncompliance. The HHS Secretary must also provide states with an annual summary of payment and ownership information pertaining to covered entities located within their borders.
- Reporting and Publication Dates. Manufacturers and GPOs must submit their initial reports by March 31, 2013 and thereafter on the 90th day of each subsequent year. The HHS Secretary must publish the information on the Internet by September 30, 2013 and June 30th of each following year.
The Centers for Medicare & Medicaid Services (CMS) released a proposed rule for the implementation of the Physician Payment Sunshine Act in December 2011. CMS has not yet finalized these rules, but has announced that manufacturers and GPOs do not need to collect information before January 1, 2013. CMS anticipates releasing the final rule by the end of 2012.
- Classifying payments. Manufacturers must classify the type of payment made to physicians or teaching hospitals, but this may be a difficult task as payments may fall into multiple categories. CMS proposes to allow manufacturers to voluntarily file a confidential explanation of their classification choices along with the data. This explanation may protect manufacturers from allegations of noncompliance, but it will increase their administrative burden. Additionally, differing classification choices among manufacturers could compromise efforts to aggregate or derive conclusions from the data.
- Privacy. The Act does not require CMS to release the identity of physician family members that have an ownership or investment interest in a manufacturer or GPO. CMS recognizes that such family members have an interest in keeping their identity private, but are considering publishing this information in an effort to further transparency. CMS should carefully consider the comments to the proposed rule so that the final rule properly balances these privacy and transparency interests.
- Data Correction and Disputes. Physicians will only have 45 days to challenge reported information before CMS publishes the information on the website. This period may not provide enough time for manufacturers, GPOs, and physicians to resolve disputes about the accuracy of the information. If the parties cannot resolve their dispute, CMS proposes to publish the information as provided by both the manufacturer or GPO and physician and use the physician’s version when aggregating totals. This proposal would lend transparency to the dispute, but use of the physician information when aggregating might undermine the soundness of the data.
- Third Party Payments. Members of the medical community have expressed their concerns that drug manufacturers are sponsoring continuing medical education programs as a means of marketing their products to physicians. Regardless of the drug manufacturers’ intent, such accusations exemplify the “appearances of impropriety” that the Sunshine Act seeks to illuminate. However, the Act’s definition of payment could create a loophole for reporting such sponsorship, as manufacturers only need to report indirect payments to third parties if they are aware of the identity of the recipient. Manufacturers could conceivably argue that sponsoring an educational seminar does not give them knowledge of the attendees that would qualify as recipients. CMS addresses this potential loophole in the proposed rule by stating that manufacturers are aware of the recipient’s identity “if the applicable manufacturer has actual knowledge of, or acts in deliberate ignorance or reckless disregard of, the identity of the covered recipient.” Whether third party payments remain an issue depends on whether CMS finalizes this proposal.
- Cost. Complying with the Sunshine Act requirements will cost manufacturers, GPOs, and physicians an estimated $ 224 million during the first year and an estimated $163 million thereafter. These costs could dampen business growth and innovation because manufacturers may have to direct monies towards compliance rather than product development.
Authorized Funding Levels
There is no authorized funding for the Sunshine Act.
 Medicare, Medicaid, Children’s Health Insurance Programs; Transparency Reports and Reporting of Physician Ownership or Investment Interests 76 Fed. Reg. 78742 (Dec. 19, 2011).
 Gardiner Harris, Crackdown on Doctors Who Take Kickbacks (Mar. 3, 2009), http://www.nytimes.com/2009/03/04/health/policy/04doctors.html.
 Patient Protection and Affordable Care Act § 6002, 42 U.S.C. 1320a-7h (2010).
 § 6002; 42 U.S.C. 1320a-7h(a).
 § 6002; 42 U.S.C. 1320a-7h(e)(1)-(2).
 The Sunshine Act also applies to manufacturers and GPOs located within one of the United States’ territories, commonwealths, or possessions. Id.
 § 6002; 42 U.S.C. 1320a-7h(e)(6).
 § 6002; 42 U.S.C. 1320a-7h(e)(10).
 § 6002; 42 U.S.C. 1320a-7h(b).
 § 6002; 42 U.S.C. 1320a-7h(c).
 § 6002; 42 U.S.C. 1320a-7h(c)(E).
 § 6002; 42 U.S.C. 1320a-7h(d)(3).
 § 6002; 42 U.S.C. 1320a-7h(d)(1)-(2).
 § 6002; 42 U.S.C. 1320a-7h(a)-(d).
 Medicare, Medicaid, Children’s Health Insurance Programs; Transparency Reports and Reporting of Physician Ownership or Investment Interests 76 Fed. Reg. 78742 (Dec. 19, 2011); Centers for Medicare & Medicaid Services, Information on Implementation of the Physician Payments Sunshine Act, THE CMS BLOG (May 3, 2012), http://blog.cms.gov/2012/05/03/information-on-implementation-of-the-physician-payments-sunshine-act/.
 72 Fed. Reg. at 78748.
 Id. at 78752.
 Id. at 78755.
 Charles Fiegl, Organized medicine seeks more latitude to challenge industry gift reports, AMERICAN MEDICAL NEWS (Mar. 12, 2012), http://www.ama-assn.org/amednews/2012/03/12/gvsa0312.htm.
 Larry Husten, Ray of Light for the Physician Payment Sunshine Act, FORBES (Dec. 22, 2011) http://www.forbes.com/sites/larryhusten/2011/12/22/ray-of-light-for-the-physician-payment-sunshine-act/; Daniel Carlat, Diagnosis: Conflict of Interest, N.Y. TIMES (June 13, 2007) http://www.nytimes.com/2007/06/13/opinion/13carlat.html?_r=1; 72 Fed. Reg. at 78751.
 72 Fed. Reg. at 78761.
- "Establish the requirements for suspending payments to providers and suppliers based on credible allegations of fraud in Medicare and Medicaid;
- "Establish the authority for imposing a temporary moratorium on Medicare, Medicaid, and CHIP enrollment on providers and suppliers when necessary to help prevent or fight fraud, waste, and abuse without impeding beneficiaries’ access to care.
- "Strengthen and build on current provider enrollment and screening procedures to more accurately assure that fraudulent providers are not gaming the system and that only qualified health care providers and suppliers are allowed to enroll in and bill Medicare, Medicaid and CHIP;
- "Outline requirements for states to terminate providers from Medicaid and CHIP when they have been terminated by Medicare or by another state Medicaid program or CHIP;
- "Solicit input on how to best structure and develop provider compliance programs, now required under the Affordable Care Act, that will ensure providers are aware of and comply with CMS program requirements."
- Private entities generally measure performance and make incentive payments at the physician-group level rather than at the individual-physician level. Physician organizations favor this approach.
- Private entities use nationally endorsed performance metrics and noted the need for a standardized set of metrics across all payers. Physician organizations concur that a standardized set of metrics would be less administratively complex.
- Most private entities in GAO's study provide financial incentives tied to meeting absolute benchmarks--fixed performance targets--or a combination of absolute benchmarks and performance improvement. Physician organizations prefer incentives tied to absolute benchmarks over those based on how physicians perform relative to their peers. Physician organizations also favored incentives that reward improvement because baseline levels of performance vary.
- While private entities' incentive payments vary in size and in method, private entities typically provide such payments within 7 months of the end of the performance measurement period. Physician organizations stated that financial incentives should be distributed soon after the measurement period to have the greatest effect on performance.