As part of the Patient Protection and Affordable Care Act (“PPACA”) signed into law in March 2010, Congress included the Physician Payment Sunshine Act (the “Act”). The purpose of the Act is to shed light on the financial arrangements between physicians, drug makers and medical device companies. Under the legislation, drug, medical device, biological and medical supply manufacturers covered by Medicare, Medicaid or the Children’s Health Insurance Program along with group purchasing organizations (“GPO’s”) are required to track and report payments of anything of value greater than $10 (including ownership and investment interests) made to physicians and teaching hospitals.1 PPACA also requires the disclosure of any financial or ownership interests that physicians or their immediate family members have in the applicable manufacturers or GPO’s. The Act does not prohibit such arrangements but merely requires disclosure.
Initially the law required compliance with data collection requirements by January 1, 2012 but the Centers for Medicare and Medicaid Services (“CMS”) has delayed the collection of the required data until January 1, 2013. CMS was initially required to implement final reporting procedures by October 1, 2011 but then published its proposed regulations only in December 2011. Thereafter, a 60 day public comment period ensued. CMS sought clarification from the public concerning the costs to organizations in following the rules and the time required to prepare for the rules.
CMS’ proposed rules provide that a manufacturer that sells or distributes at least one covered drug, device, biological or medical supply in the United States must report on all payments or transfers of value given to covered recipients even if unrelated to a covered product. In addition, the proposed rules apply to any manufacturer whose product is sold or distributed in the United States regardless of where the company is located or operates. The proposed rule defined an “applicable manufacturer” to include an entity engaged in the production, preparation, propagation, compounding or conversion of a covered drug, device, biological or medical supply for sale or distribution in the United States. The definition includes entities with common ownership with an entity which assists or supports such entity to produce, prepare, propagate, compound or convert a covered drug, device, biological or medical supply for sale or distribution in the United States. Common ownership as defined includes parent companies, subsidiaries and brother or sister companies although CMS is considering a 5% ownership requirement.
The information required to be collected under the Act’s proposed rule includes the name and business address of the covered recipient; specialty and NPI for physician covered recipients; amount, date, form and nature (i.e. the reason for the payment) of each payment or transfer of value; name under which the product is marketed or the scientific name if no market name; whether the payment or transfer is subject to delayed publication because it was furnished under a research or development agreement, or clinical investigation; and whether the payment or transfer of value was provided to a physician with an ownership interest or investment in the applicable manufacturer.
CMS received hundreds of comments ranging from universities, business interests to consumer groups. Comments raised concerns that the proposed rules were too ambiguous creating an administrative burden to comply, failed to clearly specify which manufacturers were covered, and required greater guidance on reporting responsibilities and disclosures requirements for payments under the law. One sticking point is whether or not third-party payments to physicians must be disclosed. The proposed rules require the reporting of any payment or transfer provided to a covered recipient through a third party, regardless of whether there is common ownership in the third party if the applicable manufacturer is aware of the identify of the covered recipient.
In its announcement, CMS declared that in order to properly review the comments received and allow affected the affected parties time to prepare for their future reporting obligations, data collection for those required under the Act have been extended until January 1, 2013 although CMS did state its intention to release the final rules sometime in 2012.
Failure to comply with the Act carries civil penalties ranging from $1,000 to $10,000 for each payment or transfer of value to a maximum of $150,000. Penalties for knowing violation of the Act range from $10,000 to $100,000 for each violation and a maximum annual amount of $1 million for companies that knowingly fail to follow the Act. Left unanswered is the extent that the Act preempts state disclosure laws. The proposed rule provides that preemption of state laws began as of January 1, 2012 prior to the publication of final regulations with respect to the disclosure of information covered by the Act. However, state law will not be preempted by information not covered by the Act including, for example, any prohibitions on the giving/receipt of gifts from medical supply and drug makers.
1The reporting requirements apply if the aggregate value of payments exceeds $100 in a calendar year even if each individual payments is less than $10. There are additional exceptions in the Act including product samples, educational materials, a transfer to a covered recipient under the Act that is also a patient, among others.