The Sun Shines on Payments from Drug Companies to Anesthesiologists and other Physicians

"Physicians’ relationships with the pharmaceutical industry should be transparent and focused on benefits to patients."  (Jeremy A. Lazarus, MD, President, American Medical Association, Statement on Final Physician Payment Sunshine Act Rule, February 1, 2013.)

“You should know when your doctor has a financial relationship with the companies that manufacture or supply the medicines or medical devices you may need. Disclosure of these relationships allows patients to have more informed discussions with their doctors.” (Peter Budetti, MD, JD, CMS Deputy Administrator for Program Integrity, quoted in Rule Increases Transparency in Health Care, press release, February 1, 2013.)

Have you ever received a consulting fee, a meal, a textbook, a mug or a pen set from a drug company or a device manufacturer?  If the value of the item was more than $10, it would likely be reportable to a new registry under the Physician Payment Sunshine Act and the final regulations (“Final Rule”) published by CMS on February 1, 2013.  The Final Rule was published after a lengthy delay to allow CMS to analyze more than 350 comments it received in response to the Proposed Rule, which was published in December 2011.

The Sunshine Act, which was passed as Section 6002 of the Affordable Care Act in 2010, requires certain manufacturers of covered drugs, devices, biological and medical supplies to report annually all payments and other transfers of value to physicians and teaching hospitals.  In addition, any ownership or investment interests physicians or their family members have in the manufacturers must be disclosed to CMS. The agency will post most of the information on a public website.  The Act is a pure disclosure statute; it does not prohibit any of the payments.

The first reports under the Sunshine Act will cover the period from August 1 through December 31, 2013.  They are due by March 31, 2014.  CMS plans to release the data by June 30, 2014, and annually thereafter.

The “applicable” manufacturers, as the rule calls them, are (1) entities “engaged in the production, preparation, propagation, compounding or conversion of a covered product” or (2) entities under common ownership with an ‘applicable manufacturer’ that provide assistance or support with respect to “the production, preparation, propagation, compounding or conversion of a covered product.”  Excluded are certain hospitals, hospital-based pharmacies or laboratories that manufacture a covered product solely for use within the facility or by its patients. Foreign manufacturers that have no business presence in the United States are also excluded. 

“Covered products” encompass any drug, device, biological, or medical supply for which payment is made under Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP), either separately (such as through a fee schedule or formulary) or as part of a bundled payment (for example, implantable devices under the hospital inpatient or outpatient prospective payment systems.  For drugs and biologicals, the term covers only prescription drugs and biologicals; for devices, the term covers devices that require premarket approval or notification to the FDA.

The physicians who are “covered recipients” include doctors of medicine and osteopathy, dentists, podiatrists, optometrists and chiropractors—except for employees of applicable manufacturers, and residents.  Nurse anesthetists and other allied health professionals are not considered physicians for the purpose of the Sunshine Rule.

The statute itself defines the form of payments and other “transfers of value” that must be reported:

• Cash or a cash equivalent.
• In-kind items or services.
• Stock, a stock option, or any other ownership interest, dividend, profit, or other return on investment.
• Any other form of payment or other transfer of value.

In addition to listing the forms of payments subject to reporting, the statute identifies the reportable payment categories by their nature: 

• Consulting fees.
• Compensation for services other than consulting.
• Honoraria.
• Gift.
• Entertainment.
• Food.
• Travel (including the specified destinations).
• Education.
• Research.
• Charitable contribution.
• Royalty or license.
• Current or prospective ownership or investment interest.
• Direct compensation for serving as faculty or as a speaker for a medical education program.
• Grant.
• Any other nature of the payment or other transfer of value.

There are important exceptions to this list, starting with payments or other transfers of value of less than $10.  If the total annual value exceeds $100, however, the payments are reportable.  Educational materials that directly benefit patients or that are intended for patient use, product samples and discounts or rebates are all exceptions.

In the discussion accompanying the Final Rule, CMS explained several of the items on the above list in detail.  First, “charitable contribution” is a category to be used only if no other category fits the transfer and if the contribution is not in exchange for any service or benefit.  Thus, if a physician provides consulting services to an applicable manufacturer but requests that his payment be made to a charity, this would be reported as a consulting fee rather than a charitable contribution.  Second, CMS spelled out a methodology for attributing a portion of a group meal to the physicians who partook of the meal, and clarified that buffet meals or snacks at conferences in settings where it would be difficult to identify the people who actually partook in the food would not need to be reported.  Third, compensation for speaking at an accredited or certified CME program is not reportable where the applicable manufacturer does not select or pay the physician speaker directly (and other conditions). 

CMS provided additional guidance on consulting fees, entertainment, travel and lodging, “gifts,” education, honoraria, and several other categories.  Of particular note, the Final Rule created an exception providing that manufacturers do not need to track or report items under $10 (such as note pads and lip sticks) given out at conferences or similar large-scale events, and events open to the public.  In case any issue arises in the future regarding the reportability of a particular “transfer of value,” the parties should consult the discussion in the Final Rule.  Payments made for research benefit from a special template as well as a special rule delaying publication of the report for four years or until FDA approval under certain circumstances.

The Sunshine Act also requires applicable manufacturers and group purchasing organizations (GPOs) to report annuallyownership and investment interests held directly or indirectly by physicians and their immediate family members.  Failure to provide timely, accurate and complete data may subject the manufacturer or GPO to civil monetary penalties (CMPs) of not less than $1,000 for each unreported payment, capped annually at $150,000 for failure to report, and $1,000,000 for knowing failure to report. Reporting is not necessary for ownership of publicly-traded stock, options and ownership interests received through compensation programs, or ownership interests that the manufacturer or GPO does not know about.

The Act imposes requirements on applicable manufacturers and GPOs only—not on physicians.  Physicians have the right to dispute payments reported to CMS, but only to have the dispute noted if the manufacturer does not correct the report within 60 days of the initial submission.  CMS will not arbitrate or adjudicate any disputes.  There will be a 45-day pre-publication window during which physicians who register with CMS can access the information submitted regarding their payments and ownership interests. 

We will watch for guidance from CMS on how physicians might register, review and, if necessary challenge their information.  As soon as we know more, we will bring the details to your attention.