Mark Langdon03.04.09
Regulatory Perspectives
Revised Sunshine Act Emphasizes Transparency
Mark Langdon
The drive toward transparency with respect to financial relationships between manufacturers and physicians continued with the introduction on Jan. 22 by Sens. Charles Grassley (R-Iowa) and Herb Kohl (D-Wis.) of the comprehensive Physician Payments Sunshine Act of 2009 (Sunshine Act).
This comes on the heels of the inauguration of President Obama and a Democratic administration that has made clear its intention to focus on transparency, the recent release of proposed regulations in Massachusetts relating to reporting obligations of manufacturers, and the announcement at the end of last year by the Advanced Medical Technology Association of a revised Code of Ethics on Interactions with Health Care Professionals that goes into effect July 1.
The Sunshine Act will have a profound impact on all orthopedic device manufacturers, as it seeks to impose significant disclosure requirements regarding financial relationships with physicians. In addition, information disclosed by manufacturers under the law would be made publicly available and reported annually both to Congress and to the states. Although the legislation still needs to be considered in the House, it seems inevitable that either the current version, or a slightly modified one, will see passage. Accordingly, manufacturers are well advised to ensure they have appropriate systems and policies in place to ensure compliance.
Disclosure of Payments, Other Transfers of Value
The hallmark provision of the proposed legislation is that manufacturers would be required to report annually to the federal government any“payment or other transfer of value” to a physician, physician medical practice or physician group practice. The first such disclosure would need to be made starting on March 31, 2011, with subsequent disclosures required to be made on the 90th day of each calendar year. The disclosure requirement is quite broad. It includes the following:
• Payments of cash or cash equivalents
• In-kind items or services
• Any ownership interests
• Consulting fees
• Compensation for services other than consulting
• Honoraria
• Gifts
•Entertainment
• Food
• Travel
• Education
• Research
• Charitable contributions
• Royalty or license fees
• Compensation for serving as a faculty or as a speaker for a continuing medical education program
• Grants
• Other payments as as determined by the federal government.
These mandatory reports also would be required to include information about the recipient, the value and date of the payment or transfer and a description of the payment or transfer. This includes information related to the specialty and the Medicare billing number of any physician who receives payments or other transfers of value from a manufacturer. The legislation also notes that information submitted by a manufacturer shall include the aggregate amount of all payments or other transfers of value provided by the manufacturer to covered recipients during the preceding year.
There is an exclusion in the law under which manufacturers would not be required to make reports with respect to any payment or transfer of value where the aggregate amount transferred to a covered recipient does not exceed $100 during the calendar year. In addition, the following information is not required to be submitted:
• Patient samples
• The loan of a device for a short-term trial period to permit evaluation
• Certain warranty items or services
• Certain transfers of value to patients
• Discounts and rebates
• In-kind items used for the provision of charity care
For payments to physicians furnished in connection with the development of a device, the legislation would establish a delayed reporting requirement.
Manufacturers would be required to report such payments, but not until the earlier of: (1) the date of U.S. Food and Drug Administration approval of the device; or (2) two calendar years after the date such payment was made. Notably,however, manufacturers could still be required to disclose sensitive information about financial arrangements associated with new product development.
Physician Ownership Disclosure Requirement
The Sunshine legislation also requires manufacturers to submit to the federal government certain information related to any ownership or investment interest (other than an interest in a publicly traded security and mutual fund) held by a physician (or an immediate family member of that physician) in the manufacturer during the preceding year, including the following:
• The dollar amount invested by each physician
• The value and terms of each interest
• Any payment or other transfer of value provided to a physician holding the interest
• Any other information the federal government deems appropriate
The legislation provides that this information must be reported starting on March 31, 2011, and on the 90th day of each calendar year beginning thereafter.
Penalties for Noncompliance
There are substantial penalties for noncompliance. Failure to comply with the reporting requirements will result incivil monetary penalties ranging from $1,000-$10,000 for each unintentional violation. With respect to knowing violations of the requirements, companies would be subject to fines of $10,000 to $100,000 per occurrence. The maximum annual fines are $150,000 and $1 million, respectively.
Preemption of State Disclosure Laws
The legislation provides that, effective Jan. 1, 2010, the law would pre-empt any state laws that mandate disclosure of payments or other transfers of value governed by the federal law. However, states would not be prohibited from enacting or enforcing disclosure laws that are more stringent than the proposed federal standard. Given the interest states have shownin legislating in this area, this leaves open the possibility that manufacturers could face a range of federal and state financial reporting and disclosure requirements in the future.
Proactive Steps
Though there still may be some lobbying and other efforts to modify certain provisions of the Sunshine legislation, it is becoming increasingly clear that some form of federal legislation mandating disclosure and reporting of financial relationships between manufacturers and physicians will pass and become law in the near future, and it is very likely that many of the core provisions of that law will be substantially similar to the ones highlighted above.
As noted, nearly every financial relationship involving an orthopedic physician will need to be captured and reported under the law.
Given the sheer volume of financial relationships many orthopedic device companies have with physicians, it can be a difficult task to ensure that all such arrangements and payments are properly tracked and monitored.
Accordingly, companies would be well advised to not wait until the act becomes law before they develop and implement internal systems designed to appropriately capture and report the payments and other transfers of value they make to physicians.
Presumably some companies have already adopted such systems, in light of the applicability of other state laws, although the federal legislation will be more far-reaching in scope.
Furthermore, and perhaps even more importantly, companies will need to ensure the underlying financial relationships are appropriate and compliant, as the public disclosure of such arrangements carries with it the potential for increased enforcement risks.
Mark Langdon is an attorney with the Washington, D.C., office of the law firm Sidley Austin LLP. He is a nationally recognized expert on healthcare compliance issues, with a particular focus on fraud and abuse and reimbursement matters. He can be reached at (202) 736-8162.