Forecast for the Physician Payments Sunshine Act Partly Cloudy

November 1, 2012

On August 14, 2012, four life science trade associations¹ sent a letter to Centers for Medicare and Medicaid Services (CMS) Acting Administrator, Marilyn Tavenner, encouraging the CMS to “promptly publish the final rule implementing the Physician Payments Sunshine Act, section 6002 of the Affordable Care Act of 2010, following complete and thoughtful consideration of comments submitted by stakeholders on the proposed rule.”² One wonders if the authors of the public letter were feeling a little cheeky when they requested this “prompt” action. Unless it is an IRS auditor knocking on your door, rarely is government action swift. Waiting for the final implementing rule of this Act has been like waiting for an agreement to be reached on the veracity of global warming. This article sets out some of the expectations associated with the Act.

About the Act

When the Patient Protection and Affordable Care Act passed in March 2010, it contained section 6002, the Physician Payments Sunshine Act (“Sunshine Act” or “Act”). The law requires medical device and pharmaceutical manufacturers, among others, to report to Health and Human Services (HHS) any “payment or transfer of value” made to teaching hospitals or to physicians.³ Information must be included about the amount and date of the payment, how payment was effectuated, and the type of payment (e.g., consulting fee, gift). These entities also must submit information regarding the ownership or investment interests held by physicians or their immediate family members. The Sunshine Act sets out that manufacturers owe their first reports for the 2012 reporting period on March 31, 2013. Once this information is gathered and submitted, CMS is statutorily obligated to post the reported information on a public website and to report it annually to Congress and each state. According to CMS, the Sunshine Act “will provide important transparency […].”⁴

Special Forum

The deadline to draft final regulations implementing the Act was October 1, 2011, and HHS passed that burden to CMS.⁵ On March 24, 2011, CMS held a Special Open Door Forum — teleconference only — to discuss the Act and its parameters. The agenda for the forum set out six areas where CMS requested input:⁶

1. Should CMS broaden the scope of “forms of payment”? The Act specifically lists what payment forms must be reported: “cash or cash equivalent; in-kind items or services; stock, a stock option, or any other ownership interest, dividend, profit, or other return on investment.”⁷ CMS wanted input on whether it should require reporting of additional types of “payments” and, if so, which ones and why.

2. Should CMS broaden the scope of “nature of payment”? Again, the Act delineates fourteen “natures of payment.” These consist of “consulting fees, compensation for services other than consulting, honoraria, gift, entertainment, food, travel (including specified destinations), education, research, charitable contribution, royalty or license, current or prospective ownership or investment interest, direct compensation for serving as faculty or speaker for a medical education program, and grant.” CMS requested input as to whether it should consider additional natures and why.⁸

3. Should CMS broaden the reporting categories? Besides the “forms” and “natures” of payments, CMS advised that additional informational categories could be required.

4. Should CMS broaden the reporting requirement of ownership or investment interest? Although the Act already requires reporting of ownership interests by physicians and their immediate family members, CMS inquired whether it should require more information on this topic and why.

5. Should CMS broaden its disclosure to consumers? The Act sets out that data gathered on forms of payments, natures of payment, and ownership interests be publically posted. CMS wanted to know what other types of “background information on industry-physician relationships” it could provide to consumers.⁹

6. Reporting. CMS queried in which electronic form the data should be submitted and how reporting errors could best be rectified.

The theme of the two-hour forum seemed to focus on how wide a net to cast rather than actually how to cast it. Meanwhile, October 1, 2011, came and went without any implementing regulations. The deadline did not pass by unnoticed, however, and Democratic Senators Charles E. Grassley and Herb Kohl — authors and sponsors of the Act — wrote a public letter inquiring about the delay.¹⁰ They noted that the “Act was developed after numerous investigations and hearings revealed that large sums of money were going to physicians for sometimes questionable purposes.”¹¹ Mr. Grassley and Mr. Kohl also noted, however, that manufacturers were supposed to have “adequate time to comply” and that is why the October 1, 2011, deadline had been established. Stating the obvious, the senators wrote that the “deadline for establishing procedures has passed and there has not been, to our knowledge, adequate consultation with either industry representatives or consumer advocates.”¹² They also noted their concern that this “lack of timely guidance” would prove “burdensome and costly.”¹³

Proposed Rule

Whether due to pressure brought to bear or something else, finally, on December 19, 2011, CMS published a proposed rule¹⁴ implementing the Sunshine Act.¹⁵ The 93-page rule sets out, among many other things, that covered entities can incur civil monetary penalties for the failure to comply with the reporting requirements (capped at $150,000 annually for unintentional omissions and capped at $1,000,000 for intentional omissions). Despite that admonition, and despite the fact that the Act itself requires reporting for 2012 by March 31, 2013, CMS issued a press release just a few days before the formal publication of the rule proposing that data collection not begin until the issuance of final regulations.¹⁶

In the sixty-day comment period following publication of the proposed rule, more than 300 comments made their way to CMS. In May 2012, CMS — apparently still overwhelmed by the task before it, as well as by the concerns expressed by manufacturers and physicians — attempted to soothe those impacted entities by noting that it remained “committed to addressing the valuable input received during the comment period, and to ensuring the accuracy of the data collected.”¹⁷ CMS further offered some leeway by noting that it would not require data collection before January 1, 2013. It also optimistically noted that it “intends to release the final rule later this year.”¹⁸

Roundtable

On September 12, 2012, the United States Senate Special Committee on Aging held a roundtable to discuss the Act.¹⁹ Per Mr. Kohl, they convened the roundtable to discuss “how best to make the Sunshine law a reality and to ensure that CMS is listening to the questions and concerns these groups [meaning industry, physicians, patient advocates] are bringing to the table.”²⁰ Senators Grassley and Kohl expressed frustration at the inability of CMS to provide a timetable for implementation. According to Mr. Grassley, CMS’s response was “incomplete and very uninformative. There was no explanation for the delay and no indication of an expected completion date.”²¹ When pressed further for details as to when a final rule could be expected, CMS’s Niall Brennan responded, “Certainly we do hope to get the final rule out as soon as possible and hope to build in an appropriate period of time for manufacturers and covered recipients to get ready to collect the data, and we certainly hope that some of that data collection would occur in 2013.”²²

Hope springs eternal. Yet here we are in October 2012, and we still await a final rule. And the clock is ticking. At this time it is anyone’s guess when the final rule will be issued. What is a manufacturer to do? As even Senator Grassley noted at the roundtable, manufacturers cannot just go to Best Buy to purchase the software necessary to collect, record, and report the required data.²³ Further, even if manufacturers attempt to make efforts now to comply with the Act, which some are doing, what if they guess wrong on what will ultimately be required? It is no small wonder that industry associations are antsy about having a final rule in place “promptly.” For now, manufacturers can only wonder and wait.

[1] Advanced Medical Technology Association (AdvaMed), Biotechnology Industry Organization (BIO), Medical Imaging & Technology Alliance (MITA), and Pharmaceutical Research and Manufacturers of America (PhRMA).

[2] See <http://www.bio.org/sites/default/files/Trade%20Association%20Sunshine%20Letter%20to%20CMS%20 Aug%2014%202012%20FINAL.pdf>.

[3] Excluded from the reporting requirements are certain “payments” such as product samples, dividends, or rebates. A question for a later article (or court opinion) concerns the preemption effect of the Sunshine Act on those states’ laws that set different disclosure requirements. See, e.g., West Virginia Code 5A-3C-13 (disclosure of advertising costs); District of Columbia Code 48-833.01 (disclosure of marketing costs).

[4] See <http://blog.cms.gov/2012/05/03/information-on-implementation-of-the-physician-payments-sunshine-act>.

[5] See <http://www.policymed.com/2011/10/physician-payment-sunshine-act-cms-misses-deadline-creating-confusion.html>.

[6] See <http://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/downloads/032411SODFTransparencyReports.pdf>.

[7] Id.

[8] CMS specifically queried whether it should specify “types” of consulting in its definitions. See <http://www.cms.gov/ Outreach-and-Education/Outreach/OpenDoorForums/downloads/032411SODFTransparencyReports.pdf>. This could be problematic were the definition to include litigation consulting. For example, if a manufacturer consults with a non-testifying physician in litigation — a relationship generally considered confidential — the CMS final rule could overrule that confidentiality and require disclosure.

[9] Id.

[10] See <http://www.grassley.senate.gov/about/upload/ Grassley-Kohl-CMS.pdf>.

[11] Id.

[12] Id.

[13] Id.

[14] See <https://s3.amazonaws.com/public-inspection.federalregister.gov/2011-32244.pdf>.

[15] See <http://blog.cms.gov/2012/05/03/information-on-implementation-of-the-physician-payments-sunshine-act/>.

[16] See <http://www.cms.gov/apps/media/press/release. asp?Counter=4220>.

[17] See <http://blog.cms.gov/2012/05/03/information-on-implementation-of-the-physician-payments-sunshine-act>.

[18] Id.

[19] See <http://aging.senate.gov/hearing_detail.cfm? id=337599&>.

[20] See <http://medicaldesign.com/engineering-prototyping/regulatory/Sunshine-Act-Senate-convened-roundtable-raises-issues-calls-on-CMS-for-action-0918>.