Shedding More Light on the Sunshine Act

Drug companies and medical device manufacturers have now had one full month to digest the new data-gathering requirements of the Physician Payment Sunshine Act and, if the constant issuing of guidance from healthcare regulators during that time is any indication, it's not going well.

Companies still don't have a good grasp of exactly what transactions need to be reported. They struggle with how to report indirect payments to doctors and hospitals that are carried out through third parties. And many are still faltering under the sheer volume of data that they are required to collect and report.

“It is not surprising at all that so many companies are struggling with how to comply with the Sunshine Act,” says Sarah Crotts, a healthcare lawyer for law firm Womble Carlyle. “Even though many of the larger pharma manufacturers have been disclosing their payments for years, the vast majority of them have only had to track and report payments on a small scale, if at all.”

The Sunshine Act, which took effect on Aug. 1, requires manufacturers of drugs, medical devices, and other medical supplies that are covered under Medicare, Medicaid, or a state health insurance program to begin collecting data on any payment, gifts, or “transfers of value” given to physicians—including dentists, optometrists, and chiropractors—and teaching hospitals on an annual basis and report it to the Centers for Medicare & Medicaid Services (CMS). 

Medical industry manufacturers must report all transfers of value that are over $10, or those that total more than $100 annually. For a large drug company the exercise can result in millions of data points, complicating the task of tracking all the data and reporting it accurately.

“The new law requires thousands of applicable manufacturers to track hundreds of millions of transactions for tens of thousands of healthcare providers working on thousands of clinical trials,” Tim Immel, chief product officer for Clinverse, a cloud-based financial management and payment solutions provider for the healthcare industry, said during a recent Webcast on the Sunshine Act.

Medical companies continue to face challenges with how to go about aggregating such vast amounts of data. Traditionally, many companies have been capturing this data on an ad hoc or manual basis across different operating divisions and different departments.

Figuring out what systems they already had in place and whether they needed to add on additional capabilities, or develop new systems where gaps may exist was a “huge undertaking,” says Sarah Crotts, a healthcare attorney for law firm Womble Carlyle.

Adding to those compliance challenges is that most third-party vendors still don't offer the granular-level type of data-capturing capabilities that the Sunshine Act demands. While many solutions exist, “they're not necessarily built for the Sunshine Act,” said Tina Fan, director of management consulting firm Acquis.

Questions, Anyone?

On top of the data challenges that drug and medical companies are still struggling with, questions remain concerning actual implementation of the Sunshine Act—many related to exactly what transactions must be reported. To help answer some of these questions, CMS has issued several rounds of guidance over the last few weeks to clarify what should be reported and the format it should be reported in.

CMS published a new User Guide, for example, on its Open Payments Website, including “definitions, descriptions, screenshots, tables, tools, and tips,” designed to help medical companies better understand and comply with the Sunshine Act. The guide provides insight on how to collect and report payments so that medical companies can get a better idea of the types of data that CMS wants reported and the format for those reports.

“The more questions that everyone submits, the more guidance that we can all take advantage of.”

—Sarah Crotts,

Healthcare Lawyer,

Womble Carlyle

Although the current guide focuses on data collection, CMS has indicated that the guide in its completed form additionally will cover guidance on registration, submission and attestation, disputes and resolution, audits, and non-compliance penalties and appeals. In addition, CMS has also published a series of fact sheets tailored to each covered entity.

As part of its continued effort to assist medical device makers with implementation of the Sunshine Act, CMS also added a series of frequently asked questions on its Website. CMS said that it will continue to update the FAQ section as new questions arise.

“The more questions that everyone submits, the more guidance that we can all take advantage of,” said Crotts. Keep in mind, however, that the time lapse between when a question is submitted and when it's published takes about four to six weeks, she said.

Indirect Payments

The majority of questions that medical industry manufacturers raise when it comes to reporting requirements under the Sunshine Act have to do with indirect payments. “Indirect payments are the most confusing aspect of reporting,” said Crotts. “It's extremely difficult to figure out whether a payment is an indirect payment that is of a type that is reportable, because not all indirect payments are reportable.”

According to CMS, indirect payments are payments or other transfers of value that a manufacturer makes through a third party to a physician or teaching hospital. By giving a payment to a third party, the manufacturer is effectively “instructing, directing, or causing those funds to be funneled to a covered recipient,” Douglas Brown, director of CMS's Division of Health Informatics and Systems, said during an Aug. 8 CMS Open Payments Webinar.

One common area of confusion, however, is determining under what circumstances the manufacturer—as opposed to the third party that received the payment—directed the course of the payment.

Consider this scenario provided by CMS on its FAQ Website:  A non-physician employee of a teaching hospital receives a transfer of value—such as a meal. Would that transfer of value need to be reported as a transfer of value to the teaching hospital?

The answer is no. Non-physician employees of a teaching hospital or a physician-owned practice are not covered recipients and, thus, payments or other transfers of value made to these non-physician employees generally do not need to be reported, CMS stated.

DIRECT AND INDIRECT PAYMENTS

Below are a few frequently asked questions from the CMS Open Payments Website concerning direct and indirect payments:

Are payments provided to a consulting firm or third party, whom in turn provide the payment (in whole or part), to a physician reportable under the Open Payments?

Yes, OPEN PAYMENTS requires reporting of both direct and indirect payments and other transfers of value provided by an applicable manufacturer or applicable group purchasing organization to a covered recipient. An indirect payment is a payment or transfer of value made by an applicable manufacturer, or an applicable group purchasing organization, to a covered recipient, or a physician owner or investor, through a third party, where the applicable manufacturer, or applicable group purchasing organization, requires, instructs, directs, or otherwise causes the third party to provide the payment or transfer of value, in whole or in part, to a covered recipient(s), or a physician owner or investor.

Are payments for medical research writing and/or publication included in reporting research payments?

Under OPEN PAYMENTS, a payment reported as research falls within a research payment category if it is subject to either: 1) a written agreement; 2) a contract; or 3) a research protocol. Payments for medical research writing and/or publication would be included in the research payment, if the activity (here, medical research writing/publication) was included in the written agreement or research protocol and paid as a part of the research payment.

To determine if an applicable manufacture (or applicable group purchasing organization) has met the $100 aggregate threshold for reporting small payments to a covered recipient or physician owner/investor, is it required to aggregate small payments or other transfers of value different across different nature of payment categories?

Yes. To determine if payments or other transfers of value exceed the $100 threshold and must be reported, applicable manufacturers and applicable group purchasing organizations must aggregate payments of less than $10 across multiple nature of payment categories. For example, if the applicable manufacturer provides a physician with multiple separate payments valued under $10 each and the cumulative amount of those separate payments exceeds $100 during the year (e.g. 6 hot dogs - $9 per hot dog, 3 sporting tickets - $9 per ticket, and 3 cab fares - $9 per cab), the threshold will have been met and these payments must be reported.

Source: CMS.gov.

Whether manufacturers must report certain payments depends on how it designates that payment. If a manufacturer provides a piece of equipment to a non-physician employee knowing the employee will pass that equipment along to a physician or teaching hospital for their use, “CMS would consider that to be an indirect transfer of value that must be reported,” said Crotts.

Another common cause of confusion when it comes to reporting requirements under the Sunshine Act involve situations where third parties ask manufacturers to provide a donation, grant, or funding of some type, when the purpose of the funds isn't clear. In that case, Crotts said the main question manufacturers should ask themselves when determining whether to report such a transfer of value is how that payment is being made.

If a manufacturer makes a general payment to a third party, for example, and has no input in how that money is spent, that's considered an “unrestricted” payment under the Sunshine Act and doesn't have to be reported.  On the other hand, if the manufacturer specified how it wanted the money spent—such as to sponsor a lunch—such a payment would be reportable.

The Sunshine Act does not replace the patchwork of state laws that exist, which “further complicate recording and reporting requirements,” said Fan. Complicating matters even further, manufacturers also will need to contend with international disclosure requirements. France, for example, has a Sunshine Act of its own, directing manufacturers to furnish full reports to the French National Medical Association as of June 1.

This particular reporting requirement caught many manufacturers off-guard, Crotts said, because they didn't see it as falling under the Sunshine Act. “It definitely goes to show how broadly CMS has interpreted the Sunshine Act and the complete volume of data you can expect to be submitting.”

Failure to accurately record this data can result in covered entities facing fines of up to $150,000 for each unreported transfer of value, whereas a knowing failure to report a payment could result in penalties as high as $100,000 for each transfer of value. The combined maximum total penalty manufacturers could face is $1.1 million. 

CMS requires that each report include an attestation by the reporting entity's chief compliance officer, or other senior-level officer. Companies must submit full reports to CMS by March 31, 2014.

Don't hold your breath waiting for any extension. Tony Salters, a spokesman for CMS, says the chance of the reporting requirements being delayed beyond that date is “not likely.”

Once this submission deadline has passed, CMS will aggregate the data and publish it on its Open Payments Website by the end of September 2014.