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CMS Finalizes Physician Payment Sunshine Regulations

on Friday, 29 March 2013 in Health Law Alert: Erin E. Busch, Editor

In early February, the Centers for Medicare & Medicaid Services (CMS) issued regulations implementing the Physician Payments Sunshine Act, one of several Affordable Care Act mandates intended to create additional transparency in the health care market. 


The Sunshine Act requires manufacturers of drugs, devices, biological, and medical supplies covered by Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP) to report payments or other transfers of value made to physicians and teaching hospitals. CMS will post this data on a publicly accessible website. Manufacturers and group purchasing organizations (GPOs) are also required to disclose certain ownership and investment information to CMS. 


The final rule establishes procedures for submitting annual reports to CMS and incorporates a delay in the implementation schedule in order to give manufacturers and GPOs additional time to prepare for required disclosures. Entities covered by the Sunshine Act must begin collecting data by August 1, 2013, and will report data for August through December 2013 to CMS by March 31, 2014. The agency must release data by September 30, 2014.


Outside of certain narrow circumstances, drug and device manufacturers operating in the United States generally must report all transfers of value to physicians and teaching hospitals, including transfers unrelated to covered products. Failure to report as required by the Sunshine Act subjects the violator to civil monetary penalties of up to $150,000 annually, or up to
$1 million annually for intentional violations.


CMS defines a “covered product” as one for which payment is available under Medicare, Medicaid, or CHIP and which requires a prescription or premarket approval by or notice to the Food and Drug Administration (FDA). Payment is considered “available” whether made individually for the specific item or as part of bundled payment—e.g. the hospital inpatient prospective payment system. Over-the-counter prescription drugs and medical devices that do not require premarket approval or notification to the FDA are excluded from this definition.


“Covered recipients” include any teaching hospital that receives Medicare payments for indirect medical education (IME), direct graduate medical education, or psychiatric hospital IME, as well as doctors of medicine and osteopathy, dentists, podiatrists, optometrists, and chiropractors. Physician residents and bona fide employees of drug or device manufacturers are not covered.


Manufacturers are not required to report transfers of items valued at less than $10, so long as the aggregate amount transferred to a given covered recipient does not exceed $100 annually. Items worth $10 or less which are provided at events open to the public are exempt from disclosure and do not need to be tracked. Any item worth more than $10, however, must be tracked.


Educational materials that directly benefit patients or are intended for patient use are exempt from reporting. CMS indicated in the final rule that while this category is meant to be interpreted broadly, it is not without limits. Wall hangings and anatomical models which are intended to be used with patients are not subject to disclosure; journals and textbooks meant for physician use are not included, even though such use may eventually benefit patients.


Other items excluded from reporting are discounts and rebates; in-kind items provided for charity care; product samples; certain short-term loans of covered devices; and items or services provided as part of a contractual warranty.


Although the Sunshine Act does not place a reporting obligation on health care providers, the greater transparency it creates may expose providers and hospitals to increased risk under fraud and abuse laws, federal regulations on conflicts in clinical research, and patient injury lawsuits involving medical device or drug safety. Providers who are covered recipients should prepare to respond to manufacturers and GPOs to confirm receipt of payments, transfers of value, and ownership and investment interests. In addition, covered recipients should review their internal compliance policies to ensure that existing procedures identify impermissible conflicts of interest and adequately manage conflicts. 


Whitney C. West

Read the Full Newsletter: Health Law Advisory March 29, 2013

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