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Sunshine Act Mandates Public Reporting of Payments by Drug, Medical Device and Medical Supply Manufacturers to Physicians

06.07.2011

The Physician Payment Sunshine Act, enacted into law as part of the Health Care Reform package in 2010, will require the tracking and reporting to the government of payments made on or after January 1, 2012 by drug, medical device and medical supply manufacturers to physicians and teaching hospitals.  Manufacturers will be required to file with the government annual reports reflecting payments made in the prior calendar year.  The first set of reports, for the calendar year 2012, will be due on March 31, 2013. The new requirements are very broad in scope, applying, with certain exceptions, to any payments or transfers of value of $10 or more.  The Sunshine Act will also require the annual disclosure of any financial or ownership interest that physicians (or their immediate family members) have in manufacturing companies and “applicable group purchasing organizations” ("GPOs") that purchase, arrange for the purchase or negotiate the purchase of drugs or medical supplies.  Under the new law, companies that fail to submit the required information are subject to civil fines ranging from $1,000 to $100,000 for each violation, up to a maximum annual fine of $1 million for companies that knowingly fail to report payments or ownership interests.  The Sunshine Act also requires that the secretary of Health and Human Services ("HHS") establish a website that will make the reported information readily available to the public no later than September 30, 2013.  In recent years, the Office of Inspector General ("OIG") of HHS has investigated numerous companies that allegedly used consulting agreements or other payments to physicians to influence medical decision making.  The Sunshine Act will undoubtedly cause renewed focus on any financial relationships between manufacturers and health care providers.  Manufacturers of drugs, medical devices and medical supplies should carefully scrutinize any payments to, or consulting agreements with, health care providers to ensure that they do not run afoul of the federal anti-kickback statute.

Payments and Transfers of Value   

    • The new reporting requirements apply to manufacturers of drugs, devices, and biological or medical supplies that are reimbursable under Medicare, Medicaid or the Children’s Health Insurance Program.  The reporting requirements also apply to an affiliate of a manufacturer if it is under common ownership with the manufacturer and if the affiliate provides assistance and support services to the manufacturer with respect to a reimbursable drug, device or supply. 
    • The statute applies to payments or transfers of value to physicians, as well as teaching hospitals.  Physicians who are employed by the applicable manufacturer are excluded. 
    • All payments and transfers of value must be reported, with the following exceptions:  
    • A transfer of anything less than $10, unless the aggregate value of items transferred in a year exceeds $100 
    • Product samples that are not intended to be sold and are intended for patient use 
    • Educational materials that directly benefit patients or are intended for patient use 
    • The loan of certain medical devices for a period not to exceed 90 days, to permit evaluation of the device by the recipient 
    • Items or services under a contractual warranty 
    • A payment or transfer of value to a physician who is a patient 
    • Discounts and rebates 
    • In-kind items used for the provision of charity care
    • A dividend or other profit distribution from, or ownership or investment interest in, a publicly traded security or mutual fund 
    • Payments for the provision of health care to employees under a manufacturer’s self-insured plan 
    • Payments or transfers of value solely for nonmedical professional services
    • Payments or transfers of value for services of a physician with respect to a civil, criminal or administrative matter
    • The required reports, filed electronically with the government, must include the following information for each reported payment or transfer of value: 

          • The name of the recipient 
          • The business address of the recipient and, for each physician who is a recipient, the specialty and National Provider Identifier of the physician 
          • The amount of the payment or other transfer of value 
          • The date on which the payment or transfer of value was provided to the recipient 
          • A description of the form of payment or transfer of value (e.g., cash or cash equivalent, in-kind services, stock, etc.) 
          • A description of the nature of the payment or transfer of value (e.g., consulting fees, honoraria, gift, research, etc.) 
          • If the payment or transfer of value is related to marketing, education or research specific to a drug, device or supply, the name of the drug, device or supply 
          • Any other categories of information that the secretary of HHS deems appropriate 

Physician Ownership

Manufacturers and GPOs must report the following information regarding any ownership interest or investment interest held by physicians or the immediate family members of physicians: 
    • The dollar amount invested by each physician holding an ownership or investment interest 
    • The value and terms of each such ownership or investment interest 
    • Any payment or transfer of value provided to a physician holding such an ownership or investment interest 
    • Any other information regarding the ownership or investment interest that the Secretary of HHS deems appropriate 
    • A physician's ownership or investment interest in a publicly traded security or mutual fund is exempt from these reporting requirements. 

Penalties 

    • Failure to file a timely report is subject to a civil monetary penalty of not less than $1,000 but not more than $10,000 for each payment, transfer of value or ownership interest not reported, up to a maximum total penalty of $150,000 per annual submission. 
    • "Knowingly" failing to submit information required in a timely manner is subject to a civil monetary penalty of not less than $10,000 but not more than $100,000 for each payment, transfer of value or ownership interest not reported, up to a maximum total penalty of $1 million per annual submission.

Publication 

    • No later than September 30, 2013, and on June 30 of each calendar year thereafter, the information submitted by the applicable manufacturers and GPOs for the preceding calendar year will be made available to the public through a format that is “searchable and is in a format that is clear and understandable.” 
    • The Sunshine Act provides for the delayed publication of payments and value transfers that are made pursuant to certain product research or development agreements and clinical investigations.

Implementation 

    • By October 1, 2011, the secretary of HHS is required to establish and publicize the procedures for manufacturers and GPOs to submit the required information.

Preemption of State Laws 

    • A number of states, including California, Maine, Massachusetts, Minnesota, Nevada, Vermont, West Virginia and the District of Columbia, have statutory requirements that either restrict payments to health care professionals or impose disclosure requirements.
    • The Sunshine Act will preempt any state statutes or regulations mandating reporting of the same type of information with respect to payments or transfers of value received on or after January 1, 2012.  The Sunshine Act will not, however, preempt state statutes or regulations imposing different or more stringent reporting requirements.

Practice Tips 

    • The Sunshine Act should serve as a wake-up call to drug, medical device and medical supply companies regarding any payments to, or consulting agreements with, health care providers.  In recent years, the OIG has scrutinized consulting agreements and other payment arrangements with physicians and brought enforcement actions against companies when the consulting agreements or payments appeared to run afoul of the anti-kickback statute.  The Sunshine Act will place renewed focus on the legitimacy of such payments or consulting agreements. 
    • The new law will result in the public disclosure of even nominal payments or transfers of value made by drug and medical device and supply manufacturers to physicians and teaching hospitals.  Prior to January 1, 2012, companies need to reassess their practices to determine whether some payments or transfers of value, even if relatively nominal, should be discontinued to avoid negative publicity that may result from such payments. 
    • Companies need to ensure that they are already in compliance with existing state disclosure and reporting requirements. 
    • The Sunshine Act will place a substantial administrative burden on manufacturers to satisfy reporting requirements.  Manufacturers need to be planning the policies, procedures and IT infrastructure they will need to capture and comply with the requirements of the Sunshine Act.
    • The Sunshine Act is focused on companies that manufacture covered drugs, devices, and biological and medical supplies and that operate in the United States.  The Sunshine Act also applies to “any entity which is engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply.”  The Sunshine Act leaves open a number of questions, including, for instance, whether companies that are not manufacturers, but are developing products that are intended for license to or are licensed by manufacturers, have a reporting obligation under the Sunshine Act.  Ongoing review by counsel is recommended as HHS and the courts provide more guidance as to the scope of the Sunshine Act.

©2011 Perkins Coie LLP