For drug companies and medical equipment makers, the Sunshine Act could mean some dark days ahead as they struggle with cost, complexity, and even legal risks.
The provision, known more formally as the Physician Payment Sunshine Act, requires manufacturers of drugs, medical devices, biologics, and medical supplies that are covered under Medicare, Medicaid, or a state health insurance program to report payments to physicians (including dentists, optometrists, and chiropractors) and teaching hospitals on an annual basis to the Department of Health and Human Services.
Companies must submit full reports to Centers for Medicare & Medicaid Services by March 31, 2014, and the data is expected to be publicly available by the end of September 2014. Covered entities face fines of $150,000 for failing to report accurate information; $1 million if they knowingly file a false report to CMS.
Although annual reports are still months away from being filed and made public, data collection begins on Aug. 1. The fast-approaching start date has led to some last-minute questions and concerns. Manufacturers are “struggling to get their systems in place,” says Michaeline Daboul, CEO of MMIS, a provider of a software-as-a-service solutions for the healthcare industry.
Among the burdens placed on companies is the cost of compliance. CMS estimates the total cost for Sunshine Act compliance to be approximately $269 million in year one, and roughly $180 million each year going forward. That estimate breaks down to about an average of $200,000 per year, per company, a figure likely to escalate as staff and technology are expanded to meet demands.
Keeping track of payments and “transfers of value,” is also no easy task given the mere $10 threshold established by CMS.
CMS released proposed templates for the required disclosures a few months ago, and earlier this month, published updated documents, Daboul explains. Because of those changes, many information service providers “are having a very hard time modifying their systems.” One form, for example, includes 66 fields. “These are massive excel spreadsheets,” Daboul says.
When you think about bringing pizza for an in-service educational program, that is one transaction—bringing that pizza, Daboul explains. However, if there are 10 physicians it turns into 10 transactions and those transactions may have to be filled out into those spreadsheets manually. “That is a nightmare, even for a small company,” she says.
Even at this late date, CMS' reporting requirements may still change, says Sarah Canberg, manager of regulatory and compliance services for Porzio Life Sciences.
“They are calling them updated, but they are not calling them final,” she says of current documentation. “It's a little unclear to us. They are final in the sense that the language on the Open Payments Website says this is what you should use for filing. But, in our review, we found there are still clarifications that need to be made. There are still inconsistencies.”
In some respects, the Sunshine Act falls into the category of “be careful what you wish for.”
Mike Bell, CEO of R-Squared, a compliance software firm that has developed a solution for Sunshine compliance, explains that it was the emergence of state-mandated disclosures several years back and the proliferation of Corporate Integrity Agreements (CIAs) with disclosure requirements that set the stage for the national effort.
“On the horizon there are more unknown requirements. The scope of what needs to be captured and reported will continue to get larger.”
—Sarah Canberg,
Manager of Regulatory and Compliance Services,
Porzio Life Sciences
“The prospect of having to deal with a differing law in every jurisdiction, especially when territories can cross over state lines, is untenable,” he says. That led the industry to “want more of a federal blanket,” and the growing number of life sciences companies with CIAs taking the stance that, ‘If I have to do it, I want everybody else to have to do it too.'”
The “blanket” approach of the Sunshine Act, however, didn't replace the patchwork state laws, in some instances, it only added to them and compounded disclosure requirements. The resulting burden, Bell says, hits companies in the medical device space the hardest, because they tend to have less resources and were the less prepared, as most state laws have traditionally only applied to pharmaceutical companies, notable exceptions being Vermont and Massachusetts. Making matters worse, these companies now also need to contend with international disclosure requirements. France is expecting manufacturers to produce data on June 1.
Some companies are learning that they may have “grossly underestimated the magnitude of these projects” as they gear up for nationwide data collection, he says.
“These types of transactions, relationships, and transfers of value occur throughout the entirety of the product life cycle, from pre-clinical to post-commercialization,” Bell says. “CMS is even saying they want disclosures in the context of animal research.”
Sunshine Act fallout is already having an effect on longstanding business partnerships with doctors and third-party vendors.
For example, companies seeing an increasing reluctance by physicians to participate in company-sponsored events based upon the new reporting requirements, says Judith Waltz, partner with Foley & Lardner and former co-chair of the law firm's Life Sciences Industry Team. “This may relate to concerns about how their participation will be viewed by patients, or to the increasing prevalence of institutional policies that limit or even preclude involvement in any activity that might be viewed as a conflict of interest for clinical decision making,” she says.
If this trend continues, “it could result in some significant constrictions on future research and clinical discussion of existing drugs.”
There are numerous gray areas in the Act to deal with because “none of this has been tested yet,” says Alyce Katayama of the law firm Quarles & Brady. For example, final regulations don't say whether giving a physician an artificial knee to use for demonstration purposes in his office is considered a transfer of value. “They don't get that specific, so it is going to be trial and error, especially in the first year,” she says. “There is no way they could anticipate all the different interactions.”
How corporate sponsorships should be reported is another concern, Waltz says. CMS clarified that they would limit required reporting to situations where the corporate sponsorship or donation was in lieu of a payment to the physician for other reportable activities, such as situations where the physician says, “no need to pay me, but if you are so inclined you could donate to my favorite charity. “That donation would be reportable as one to the physician, even though he or she didn't actually receive it,” she says.
CMMS FACTSHEET
The following is a selection from a fact sheet the Centers for Medicare & Medicaid Services published to accompany a final rule implementing the “National Physician Payment Transparency Program: Open Payments.”
Research payments
Applicable manufacturers are required to report numerous types of payments to physicians and teaching hospitals. These are outlined in the statute and include categories such as consulting fees, food and beverages, and research payments.
In certain instances, research payments or other transfers of value made to a covered recipient by an applicable manufacturer under a product research or development agreement will be delayed from publication on the Website.
Publication of a payment or other transfer of value will be delayed when made in connection with research on or development of a new drug, device, biological, or medical supply, or a new application of an existing drug, device, biological, or medical supply; or clinical investigations regarding a new drug, device, biological, or medical supply.
Opportunity to review and correct information
The law requires CMS to provide covered recipients at least 45 days to review and dispute the information related to them that was submitted by applicable manufacturers and applicable GPOs. CMS will notify the covered recipients when the reported information is ready for review. Any disputed transfer of value will be resolved directly between the covered recipient and the relevant applicable manufacturer or applicable GPO.
In response to public comments requesting additional time to resolve disputes initiated late in the 45-day period, we have finalized a 15-day opportunity to resolve disputes before the information is published publicly, following the 45-day review and correction period.
State law preemption
Section 6002 of the Affordable Care Act also preempts any State or local laws requiring reporting of the same types of information regarding payments or other transfers of value made by applicable manufacturers to covered recipients. No State or local government may require the separate reporting of any information regarding a payment or other transfer of value that is required to be reported under this statute, unless such information is being collected by a federal, state, or local governmental agency for public health surveillance, investigation, or other public health purposes or health oversight.
Source: Centers for Medicare & Medicaid Services.
Yet another wrinkle, Canberg says, is that international requirements are just around the corner, imminent in the European Union and France.
“On the horizon there are more unknown requirements,” she says. “The scope of what needs to be captured and reported will continue to get larger.”
There may even be legal issues companies need to worry about. “They need to be careful that they are not in a position where they are actually disclosing Anti-Kickback or Stark Law violations,” Greg Smith, a lawyer at Womble Carlyle Sandridge & Rice, says.
The concern he, and others, have is that added scrutiny and disclosure could lead government investigators to parse reported data for such violations as the False Claims Act, imposed upon those found to have defrauded a federal program. An investigation into the Anti-Kickback Statute, for example, would look at many of the very same data points (food, entertainment, gifts, professional fees) that the Sunshine Act says must be made public. An investigation into the Stark Law's prohibition on Medicare referrals by doctors with a financial interest in the product or service they refer, could be triggered, even inadvertently, by red flags in a Sunshine Act disclosure.
“The worst situation you can be in is if you are actually disclosing a violation of an existing law,” Smith says. “When [manufacturers] do their internal audit and look at all their financial relationships with medical centers and physicians, it is going to raise some concerns and you may see some of those arrangements terminated before they have to start disclosure.”
If they haven't done so already, doctors and companies alike should conduct a comprehensive review of all their relationships and determine which are reportable, says Laura Miller Andrew, a partner in the healthcare practices of the law firm Smith, Gambrell & Russell.
To ensure that their data systems are equipped to handle both the new federal requirements as well as existing state-level demands, many companies will need to implement new technology and hire additional compliance personnel, Andrew says.
“They may have been doing state reporting on a manual basis or an ad hoc basis and the scope of it was manageable at that level,” Andrew says. “But now it's going to be nationwide and you really need to ensure that your systems are capable of capturing data at the time of the interaction and at a granular level.”
“Take a look across all the entity's different operating divisions and different departments and really go through how every single one of them has their activities touch physicians or hospitals,” says Sarah Crotts, an attorney with Womble Carlyle Sandridge & Rice who specializes in practice on regulatory compliance for hospitals, physician groups, and medical device manufacturers. “[Many manufacturers] are realizing that the ways they interact with physicians aren't always obvious, may be more frequent than anticipated, and that different types of relationships can cause trouble later. Make sure you have identified everything, because once the information becomes public, you can't take it back.”
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