SZD Health Law Scan : Health Care Lawyers & Attorneys : Schottenstein Zox & Dunn Law Firm : Strategic Planning, Managed Care, Insurance : Columbus, Cleveland, Cincinnati, Central Ohio

An “applicable manufacturer” is a manufacturer operating in the United States (or a U.S. territory, possession or commonwealth) that is engaged in the production or preparation of a drug, biological product, device or medical supply covered under Medicare, Medicaid or SCHIP.

A “covered recipient” is a physician or a teaching hospital. However, covered recipients do not include physicians who are employees of the applicable manufacturer.

By Oct. 1, 2011, the Centers for Medicare and Medicaid Services (CMS) will issue regulations including procedures for submitting information and for making reported information available to the public.

Highlights of the Sunshine Act
Required disclosures. By March 31, 2013, each “applicable manufacturer” that provides a payment or other transfer of value to a “covered recipient” during 2012 must report the payment or transfer of value to the Secretary. Subsequent annual reports must be submitted by the 90th day of each calendar year.

Applicable manufacturers must submit the following information to the Secretary:

• Name and business address of the covered recipient and, in the case of a physician, the physician’s specialty and National Provider Identifier (NPI).
• Amount of each payment.
• Date of each payment.
• Description of the form of payment.
• Nature of payment (e.g., consulting fees, compensation for services other than consulting, honoraria, gift, entertainment, food, travel, education, research, charitable contribution, royalty or license, ownership or investment interest, direct compensation for serving as a speaker for a medical education program or grant).
• If the payment or other transfer of value is related to marketing, education or research specific to a covered drug, device, biological or medical supply, the name of that item.
• Any other information the Secretary may require by regulation.

By Sept. 30, 2013, and on June 30 of each calendar year beginning thereafter, the Secretary will make the reported information available through a searchable website. However, the Act permits delayed publication for payments made pursuant to certain product research or development agreements and clinical investigations.

Ownership transparency. By March 31, 2013, and on the 90th day of each calendar year beginning thereafter, applicable manufacturers must submit to the Secretary certain information regarding any ownership or investment interest held by a physician (or an immediate family member of such physician) in the applicable manufacturer during the proceeding year.

Excluded transactions. The Sunshine Act exempts 13 types of transfers from its reporting requirements. For 2012, an applicable manufacturer is not required to disclose a transfer of value which is less than $10, unless the aggregate amount transferred to the physician or teaching hospital during the calendar year exceeds $100. Annual increases to these thresholds will reflect increases to the consumer price index. Other exemptions include patient educational materials, in-kind items used for charity care, items provided under a warranty and dividends from publicly traded securities.

Penalties. Any applicable manufacturer that fails to submit required information will be subject to a civil monetary penalty ranging from $1,000 to $10,000 with annual penalties not to exceed $150,000. However, for knowingly failing to submit the required information, the applicable manufacturer is subject to a civil monetary penalty ranging from $10,000 to $100,000 with annual penalties not to exceed $1 million.

Pre-emption. The Sunshine Act only preempts state laws requiring an applicable manufacturer to disclose or report the type of information required to be disclosed under the Sunshine Act.

Impact on physicians
Interactions between physicians and industry are a fundamental component of translating research into innovative medical advances that improve patient care. However, these interactions are subject to increasing scrutiny because of their potential to influence physicians’ medical judgment.

The Sunshine Act does not prohibit payments to physicians and teaching hospitals but is intended to provide greater transparency in their relationships with life science companies. The Act’s transparency is consistent with a broad trend to increase transparency found in various state laws, institutional conflict of interest policies and industry codes of conduct.

Public disclosure of payments from applicable manufacturers is expected to have a significant impact on industry relationships with physicians.

• Fuel for industry critics. Physicians may become reluctant to participate in research and education activities when the physicians’ fees are subject to public disclosure. Disclosure may subject the physicians to public scrutiny and media reports implying financial relationships with industry compromise physicians’ medical independence. For example, in Massachusetts, pharmaceutical and medical device manufacturers must disclose certain financial transactions with health care providers. In November 2010, the disclosed information was first made publicly available. The next day, a Boston Globe article identified physicians who received payments and the amount and source of their payments and highlighted the physicians’ malpractice histories, state licensure issues and professional conduct. The article also emphasized that “[p]ayments to physicians have come under scrutiny because of critics’ concerns that the money influences doctors to prescribe newer and more expensive medications, helping to drive up the cost of health care.”
• Hospital reaction. Health care institutions may react to the Sunshine Act by adopting internal policies that restrict physician interactions with life science companies. For example, leading academic medical centers have strengthened their conflict of interest policies to prohibit promotional speeches for pharmaceutical companies and to restrict outside pay for senior officials who sit on the board of pharmaceutical or biotechnology companies. These institutions fear that perceived conflicts of interest undermine the credibility not only of the individual who has the financial relationship, but also the institution the individual represents.
• Anti-kickback/False claims data. From a civil and criminal liability standpoint, the public disclosure of financial relationships will provide a new source of data to assist government enforcement officials in identifying payments that potentially violate state or federal anti-kickback statutes or induce false claims. Governmental officials will analyze the disclosed data to determine whether fees are illegal inducements to physicians for using or recommending manufacturers’ products. Therefore, payments to physicians and teaching hospitals from applicable manufacturers must be for legitimate services and be consistent with fair market value of such services. Additionally, physicians should document that they actually provided the services for which they were paid.
• Consistency with 1099. Physicians must ensure that the publicly disclosed information matches the IRS Form 1099 that reports the value of the items or services physicians receive.

In conclusion, prior to Jan. 1, 2012 (when manufacturers must begin tracking payments under the Sunshine Act), physicians and teaching hospitals should carefully review their relationships with pharmaceutical, biological product, medical supply and medical device manufacturers to ensure that their payments from these industries can withstand scrutiny from the public and government enforcement agencies.