In December 2011, the Centers for Medicare and Medicaid Services (CMS) published its much-anticipated proposed rule, “Transparency Reports and Reporting of Physician Ownership or Investment Interests.” The proposed rule would implement Section 6002 of the Affordable Care Act, also known as the Sunshine Act, which is codified at section 1128G of the Social Security Act (the Act). The proposed rule was published in the Federal Register on December 19, 2011.
The proposed rule would require all applicable manufacturers of drugs, devices, biologicals, or medical supplies covered by Medicare, Medicaid or the Children’s Health Insurance Program (CHIP) to annually report certain payments or transfers of value given to physicians or teaching hospitals. It would also require applicable manufacturers and applicable group purchasing organizations (GPOs) to annually report certain physician ownership or investment interests. In addition, the proposed rule would implement significant penalties for failure to report the required information. CMS is seeking comments on a substantial number of issues in the proposed rule, including proposed definitions, exclusions, and reporting requirements. Comments are due no later than 5:00 pm, February 17, 2012.
What Must Be Reported:
Any payments or other transfers of value made in the preceding year by an applicable manufacturer to a covered recipient must be reported by the applicable manufacturer to the Secretary of Health and Human Services (HHS) in the manner required under the statute and implementing regulations. This would include instances where a covered recipient requests that a payment or transfer of value be provided to another individual or entity. It would not, however, include payments or transfers of value made indirectly, through a third party, where the applicable manufacturer is unaware of the identity of the covered recipient.
In addition, the Act requires applicable manufacturers and applicable GPOs to report information regarding each ownership or investment interest held by a physician owner or investor, or his/her immediate family member(s).
Exclusions From Reporting:
The Act excludes several types of payments and transfers of value from the reporting requirements. The exclusions include:
- Transfers of value less than $10, as long as the aggregate amount transferred to a covered recipient does not exceed $100 in a calendar year;
- Product samples that are intended for patient use and not to be sold;
- Educational materials that directly benefit patients or are intended for patient use;
- The loan of a covered device for 90 days or less for evaluation of the device;
- Items or services provided under a contractual warranty;
- Transfers of anything of value when the covered recipient is a patient and not acting in his/her professional capacity;
- Discounts and rebates;
- In-kind items for charity care;
- Dividends or other profit distributions from ownership or investment interest in a publicly traded security or mutual fund;
- Payments under a plan for health care to employees of an applicable manufacturer who offers a self-insured plan;
- Transfers of anything of value to a non-medical professional who is also a covered recipient if such transfer is solely for non-medical professional services; and
- Transfers of anything to a covered recipient who is a physician if solely for the services of the covered recipient with respect to a civil or criminal action or an administrative proceeding.
Proposed Definitions:
Applicable Manufacturer: The proposed definition of an applicable manufacturer is intentionally broad, and applies to manufacturers that produce a covered drug, device, biological, or medical supply for sale or distribution in the United States or one of its territories, possessions or commonwealths, regardless of where such covered drug, device, biological, or medical supply is actually produced or where the manufacturer is located or incorporated. The proposed definition also includes entities that hold Food and Drug Administration (FDA) approval, licensure, or clearance for a covered drug, device, biological, or medical supply, even if the actual manufacturing of such product is contracted out to another entity. CMS is seeking comment on this definition.
Under the proposed regulations, an applicable manufacturer would also be an entity under common ownership with an entity described above if it provides assistance or support to such entity with regard to “the production, preparation, propagation, compounding, conversion, marketing, promotion, sale or distribution of a covered drug, device, biological, or medical supply for sale or distribution in the United States” or one of its territories, possessions, or commonwealths. The proposed rule would define common ownership as owning any portion of two or more such entities; however CMS seeks comment on this proposed definition, including whether a minimum percentage threshold (e.g. 5 percent) is more appropriate.
If two entities are under common ownership, and each of them meets the requirements of the above first definition of applicable manufacturer, CMS proposes that the entities report separately in accordance with the Act. If, however, only one of such entities meets the above first definition of an applicable manufacturer, and the other entity is required to report as a function of its common ownership, CMS proposes that the entities can choose whether to report together.
Covered Drug, Device, Biological, or Medical Supply: The reporting requirements only apply to applicable manufacturers of a covered drug, device, biological, or medical supply. CMS proposes to adopt the definition of a covered drug, device, biological, or medical supply provided in the Act, which is any drug, device, biological, or medical supply for which payment is “available” under Medicare, Medicaid, or CHIP. Given the various methods under which payment may be made under these programs, however (e.g. fee-for-service, inpatient prospective payment system), CMS proposes to clarify this definition first by specifying that the phrase “for which payment is available”, would include any method of payment, whether separately, as part of a fee schedule, or as part of a composite rate such as the inpatient prospective payment system.
CMS further proposes to limit covered drugs and biologicals to those which by law require a prescription to be dispensed. CMS also proposes to limit the definition of covered devices and medical supplies to those which by law require premarket approval by or notification to the FDA. CMS seeks comments on its proposed limitations. Despite these limitations, however, CMS proposes that manufacturers that produce over the counter drugs or biologicals and at least one product that meets the definition of a covered drug, device, biological, or medical supply, would be required to report all transfers of value regardless of whether such transfer is associated with a covered drug, device, biological, or medical supply. Likewise, in the case where a manufacturer produces devices or medical supplies that are exempt from premarket notification requirements and at least one covered drug, device, biological, or medical supply subject to such requirements, all payments or transfers of value would be required to be reported.
Covered Recipients: CMS proposes to define covered recipients as physicians (including doctors of medicine and osteopathy, dentists, podiatrists, optometrists, and licensed chiropractors), or teaching hospitals. Absent a statutory definition of teaching hospitals, CMS proposes to define them as any institution that received indirect medical education payments, direct medical education payments, or psychiatric indirect medical education payments in the most recent year for which such information is available.
Applicable Group Purchasing Organization: Section 1128G(e)(1) of the Act defines an applicable group purchasing organization as a one “that purchases, arranges for or negotiates the purchase of a covered drug, device, biological, or medical supply, which is operating in the United States or” one of its territories, possessions, or commonwealths. CMS interprets this definition as not only GPOs that negotiate contracts for their members, but also entities that purchase covered drugs, devices, biologicals, or medical supplies for resale or distribution, such as physician owned distributors. CMS solicits comments on this proposed definition.
Ownership or Investment Interest: CMS proposes to define an ownership or investment interest in an applicable manufacturer or applicable GPO in the same manner as it is defined in the physician self-referral regulations. Specifically, the proposed definition would be a direct or indirect ownership or investment interest, including stock, stock options, partnership shares, LLC memberships, loans, bonds, or other financial instruments secured with an entity’s property or revenue, or a portion thereof. The definition would not include an ownership or investment interest in a publicly traded security or mutual fund, an interest arising from a retirement plan offered by the applicable manufacturer or applicable GPO to the physician or immediate family member, stock options and convertible securities given as compensation until exercised or converted, or an unsecured loan.
Reportable Information:
CMS proposes that the following information be reported for each payment and other transfer of value and physician ownership or investment interests:
- Name of applicable manufacturer or applicable GPO;
- For each covered recipient and/or physician owner:
- Name
- NPI
- Date, form and nature of each payment or other transfer of value
- Name of the associated covered drug, device, biological, or medical supply
- Name of the entity that received the payment/transfer of value if other than the covered recipient
- Whether the payment/transfer of value was provided to a physician holding ownership or investment interests in the applicable manufacturer
- Whether payment/transfer of value should be granted a delay in publication because it was made pursuant to a product research agreement, development agreement, or clinical investigation.
The following information must be reported for each ownership or investment interest:
- Name of applicable manufacturer or applicable GPO;
- For each physician owner or investor:
- Name
- NPI
- Specialty
- Practice location address
- Whether the ownership or investment interest is held by the physician or his/her immediate family member
- Dollar amount invested
- Value and terms of each ownership or investment interest
- For applicable GPOs only, any payments or transfers of value provided to the physician owner or investor, including: amount, date, form value and nature of the payment or transfer of value, and the name of the associated covered drug, device, biological, or medical supply.
CMS is seeking comments on these proposed data elements, and intends to finalize the data elements based on the comments received.
Nature of Payments:
The Act identifies the following categories for the nature of the payments or other transfers of value to be reported.
- Consulting fees, and compensation for services other than consulting fees
- Honoraria
- Gifts
- Entertainment
- Food
- Travel
- 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 payment/transfer of value as defined by the Secretary.
CMS proposes defining these categories according to their dictionary definitions, but also proposes some clarification with regard to certain definitions. With regard to food and beverage, these items would be subject to the $10 minimum threshold. In addition, recognizing the difficulty inherent in identifying which covered recipients might partake of food and beverage offered to a group, for example at a buffet served in a physician’s office, CMS proposes that applicable manufacturers report the cost per covered recipient, even if not all covered recipients actually partake of the meal. On the other hand, CMS is proposing that applicable manufacturers do not need to report buffet meals, snacks, or coffee offered at conference booths and similar events where it would be difficult to ascertain who may have accepted such offerings.
CMS also proposes to limit the research category to bona fide research activities such as clinical investigations subject to a written agreement and a research protocol, and proposes to distinguish between direct and indirect research. Direct research would include research for which payment or other transfer of value is being provided directly to a physician or teaching hospital by an applicable manufacturer. Indirect research would include research for which payment is made to a clinic, non-teaching hospital, or institution conducting the research, which in turn pays the principal investigator who is a physician covered recipient.
CMS proposes a broad interpretation of direct compensation for serving as a faculty or speaker for a medical education program category. Under its interpretation, this category would include all instances in which physician covered recipients would be paid to serve as speakers, not just those involving medical education programs. Alternatively, CMS is considering adding another category for non-medical education speaking engagements.
45-Day Review Period:
The Act requires the Secretary of HHS to allow applicable manufacturers, applicable GPOs, covered recipients and physician owners or investors an opportunity to review the reported date for a period of at least 45 days prior to publication in order to resolve any disputes in the data being reported. Any such disputes are to be handled between the parties, and at least one party involved would be required to report the dispute and any resolution thereof to CMS by the end of the 45-day review period. If the dispute cannot be resolved within the 45 days, CMS proposes to make both data available to the public and identify the data as contradictory. CMS is seeking comments on this proposal.
Delayed Publication:
In order to maintain the confidentiality of proprietary information relating to the development of new drugs, devices, biologicals and medical supplies, the Act provides for delayed publication of reportable payments or transfers of value made pursuant to product research or development agreements or clinical investigations. CMS proposes to limit the application of delayed publications to “relationships for bona fide research or investigation activities, which, if made public, would damage the manufacturers’ competitive and/or proprietary interests.” To achieve this limitation, CMS proposes that the statutory phrase “product research or development agreement” include a written statement or contract between the applicable parties and a written protocol, and would cover new drugs, devices, biologicals, or medical supplies as well as new applications of the same. CMS also proposes to limit the definition of clinical investigation to one which is memorialized in a written research protocol, and would apply only to clinical investigations of new drugs, devices, biologicals, or medical supplies, not new applications of existing drugs, devices, biologicals, or medical supplies. It should be noted that delayed publication does not mean delayed reporting; all payments or transfers of value subject to delayed publication must still be reported annually, and applicable manufacturers should indicate on their reports whether a payment or transfer of value should be granted delayed publication.
When to Report:
The Act requires that the first report be due on March 31, 2013, and CMS is considering a 90-day implementation period from the issuance of the final rule. In light of CMS’ delay in issuing these proposed regulations, however, CMS is seeking comment on whether 90 days is sufficient time for implementation.
Penalties:
Failure to submit the required information due to negligence or mistake could result in civil monetary penalties between $1,000 and $10,000 for each unreported payment or transfer of value, not to exceed $150,000 annually. A knowing failure to submit the required information could result in civil monetary penalties of $10,000 to $100,000 per unreported payment or transfer of value, not to exceed $1 million annually. As used in this context, “knowingly” has the same meaning as it is given in the False Claims Act. Moreover, civil monetary penalties could be imposed for untimely data submissions or the submission of incomplete or inaccurate information.
Comments:
CMS is seeking comments on a wide range of issues in this proposed rule, and in some instances will be basing its final interpretations on such comments. Given the breadth and potential burden of these reporting requirements, applicable manufacturers, applicable GPOs, covered recipients and physician investors would be advised to take advantage of this opportunity to comment on the proposed regulations.
For more information, contact Catherine Patsos at (212) 803-8193 or at cgpatsos@healthcarelawllc.com
