As of August 1, 2013, pharmaceutical companies and medical device manufacturers are required to report to the federal government payments made to physicians under the Physician Payment Sunshine Act (PPSA).  The PPSA imposes no reporting requirements on the physicians who receive such payments; the reporting obligation rests only with the payor companies.  Moreover, such payments are not prohibited by the PPSA, but they will be compiled in a searchable data base and publicly available in the year following the payment.  A recent settlement by the Oregon Department of Justice (DOJ) goes far beyond the requirements of the PPSA in suggesting that physicians who receive payments from a medical device company have an obligation under the Oregon Unlawful Trade Practices Act (UTPA) to disclose the payments to patients in advance of treating patients with devices from the company.

Background Behind Oregon DOJ Settlement

The Oregon case involves two physicians who have entered into stipulated judgments with the Oregon DOJ to resolve allegations that they violated the UTPA by not informing patients that they were paid to train medical device salesmen while performing procedures to implant cardiac devices.  Medical device manufacturer Biotronik paid the physicians a training fee ranging from $400 - $1,250 per surgery when a trainee was present, which the state alleged violated the UTPA when the payment was not disclosed in advance to the patient.  According to media reports, Matthew Fedor, M.D. received more than $131,000 between 2007 and 2011 for training Biotronik employees during 257 surgeries, and  Kyong Turk, M.D. earned more than $97,000 between 2006 and 2009 for 126 surgeries.

Specifically, Oregon accused Drs. Fedor and Turk of having “misrepresented” their services as being “for the exclusive benefit of the patient” and “concealing” payments that created a potential “incentive” to use Biotronik defibrillators and pacemakers.  The state further alleged that Drs. Fedor and Turk “knew or should have known that these payments were something patients receiving Biotronik implants should know about, because they gave rise to an actual or potential conflict of interest that should have been disclosed.  [The doctors] also should have known that patients would want to know whether they were training subjects in a program to certify Biotronik sales representatives.” 

Under the stipulated judgments, each physician agreed to pay a $25,000 penalty and obtain written patient consent before receiving a payment from a drug or device manufacturer associated with that patient’s treatment.  The physicians also agreed not to permit any medical device salesperson who has not completed manufacturer training requirements to participate in surgeries without the patient’s written consent.  Finally, the physicians agreed to include a link on their practices’ websites to the PPSA payment database that will soon be available to the public, as required by Section 6002 of the Affordable Care Act.

New Enforcement Front Emerges on Physician Payments

Although the legal theories in the case remain untested, Oregon’s novel use of state consumer fraud laws may signal a new enforcement front in the crackdown on device and pharmaceutical manufacturer payments to physicians.  Here, a broadly worded consumer protection law was leveraged to extract civil fines and onerous affirmative disclosure obligations that far exceed what is specifically required by federal or state law. 

For example, under existing law, Biotronik is already required to disclose payments that Drs. Fedor and Turk receive for surgical training as of August 1, 2013 under the PPSA, and the payment data will be available to the public.  The state’s prosecution creates significant uncertainty, at least in Oregon, as to whether physicians can rely on PPSA payment reporting to defend against allegations about lack of transparency, and suggests that physicians may have to routinely disclose financial arrangements with third parties directly to patients in advance of treatment. 

 Practice Tips

  • The Oregon settlement should be a wake-up call for practitioners who receive payments from pharmaceutical or medical device manufacturers, particularly if, as in the Oregon case, payments are related to the number of procedures that are conducted. 

  • Practitioners should review with counsel the existing financial relationships they have with manufacturers to ensure the arrangements comply with applicable federal and state laws, including anti-kickback provisions.

  • Practitioners should also review existing practices with counsel to determine if affirmative disclosure of payments to patients may be optimal in order to minimize enforcement risk.

  • Although practitioners have no reporting obligation under the PPSA, they should communicate with pharmaceutical and device manufacturers to ensure the accuracy of the payment data that is being reported to the government.

© 2013 Perkins Coie LLP