CMS Publishes Final Rule Implementing the “Sunshine Act” Regulations on Physician Ownership and Investment Interests

On February 8, 2013, the Centers for Medicare & Medicaid Services (“CMS”) published a Final Rule announcing the “National Physician Payment Transparency Program: Open Payments,” which is designed to implement the Affordable Care Act’s directive to increase public awareness of financial relationships between manufacturers of drugs, medical devices, biologicals and medical supplies and specified health care providers. 78 FED. REG. 9,458 (Feb. 8, 2013).

The Final Rule, which becomes effective on April 9, 2013, contains essentially two overlapping reporting obligations. The first requires drug and medical device manufacturers meeting the definition of an “Applicable Manufacturer” to submit annual reports beginning March 31, 2014 on certain payments or other transfers of value made to physicians and teaching hospitals. The second requirement provides that the Applicable Manufacturers and group purchasing organizations (“GPOs”) must disclose on an annual basis any ownership or investment interests held in such entities by physicians (or their immediate family members), in addition to reporting information on payments or other transfers of value made to such owners or investors.

Under the Final Rule, data collection efforts by the regulated industry must begin on August 1, 2013. The first annual reports will be due to CMS by March 31, 2014 and should include the data collected between August 1, 2013 and December of 2013. CMS is currently developing an electronic system to assist with the reporting process and anticipates that release of the data on a public website will occur by September 30, 2014. CMS also notes that the agency will be submitting annual reports to Congress and each State summarizing the aggregated information from each manufacturer and GPO during the preceding calendar year, as well as information on any enforcement actions taken and any penalties paid. The reports to Congress are due on April 1 of each year, beginning on April 1, 2014.

The following summary of the Final Rule, which is 71 pages in length, is not intended to be a comprehensive overview of all the provisions in the Final Rule, but highlights only those provisions which we believe will be of most interest to the regulated industry.

I. General Reporting and Publication Requirements

The general reporting and publication requirements are as follows:

  • Applicable Manufacturers will submit reports to CMS of payments or other transfers of value made to physicians and teaching hospitals. Both Applicable Manufacturers and GPOs will report information about ownership or investment interests held by physician owners or investors (or their immediate family members). To the extent an individual is both a “Covered Recipient” and a physician owner or investor, a specific payment or other transfer of value need only be reported once.
  • Prior to the posting of the collected data to a public website, CMS will provide a 45-day period for Applicable Manufacturers, GPOs, Covered Recipients and physician owners and investors to review and correct any reported information. An additional 15 days will be given to correct any data to resolve any disputes, after which the Applicable Manufacturer or GPO may submit and attest to the updated data to CMS to finalize the data submission. If a dispute cannot be resolved within the timeframe provided, CMS will move forward with publishing the most recent attested data (subject to the dispute) while the parties continue to work on a resolution, but will mark the data as disputed. No further account of the information will be published.
  • Reports should include the name, business address, specialty, State professional license number, and National Provider Identifier (“NPI”), if possible, for the physician. CMS notes that a good faith effort to obtain the NPI must be made, including, but not limited to, asking the physician, checking the National Plan & Provider Enumeration System (“NPPES”) database, and requesting assistance from the NPPES help desk. Notably, the physician’s NPI is required for data collection purposes, but CMS has noted that the NPIs will not be disclosed on the public website.

The Final Rule provides that indirect payments or transfers of value are subject to the reporting requirements. The Final Rule defines “indirect payments or other transfers of value” as those transfers made by the Manufacturer or GPO to a Covered Recipient through a third party (i.e., medical professional society or non-physician prescriber), where the Manufacturer or GPO 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. If a Manufacturer or GPO is not “aware” of or does not “know” the identity of the Covered Recipient (meaning, there is no actual knowledge, as well as no act in deliberate ignorance or reckless disregard of such identity), the indirect payment can be excluded from the reporting requirements. CMS acknowledges that there may

be situations where the involvement of the third party in the payment or transfer is intended to ensure that the identity of the Covered Recipient remains anonymous, but the Manufacturer would not be considered to be acting in deliberate ignorance or reckless disregard of a Covered Recipient’s identity.

II. Key Definitions

The Final Rule provides additional clarification on which entities will have a reporting obligation based on the statutory definitions.

A. Applicable Manufacturer

In the Final Rule, CMS provides guidance on the statutory definition of an “Applicable Manufacturer” (subsequently referred to in this Bulletin as “Manufacturer”) and finalizes the agency’s general position that reporting is required by any entity that holds Food and Drug Administration approval, licensure, or clearance for a covered product, as well as any entity that actually manufactures at least one covered product, regardless if that entity holds the FDA approval, licensure, or clearance for such product. CMS notes that the following entities are not considered Manufacturers:

  • Entities that only manufacture raw materials or components, which are not themselves covered products, unless there is common ownership with a Manufacturer;
  • Distributors or wholesalers (i.e., repackagers, relabelers, and kit assemblers) that do not hold title to any covered drug, device, biological, or medical supply, unless there is common ownership with a Manufacturer;
  • Hospitals, hospital-based pharmacies, and laboratories that produce or manufacture a covered product solely for their own use or use by their own patients; and
  • Pharmacies, including compounding pharmacies that meet all the following: (1) maintain establishments that comply with applicable local laws regulating the practice of pharmacy; (2) regularly engage in dispensing prescription drugs or devices upon prescriptions from licensed practitioners in the course of their professional practice; and (3) do not produce, prepare, propagate, compound, or convert drugs or devices for sale other than in the regular course of their business of dispensing or selling drugs or devices at retail to individual patients.

CMS notes that entities based outside of the United States that have operations (i.e., sell products) in the United States are subject to the reporting requirements, regardless of where the product is physically manufactured. Furthermore, such entities cannot circumvent the reporting requirements by making payments to Covered Recipients indirectly through a foreign entity that has no operations in the United States, if the entity operating in the United States is aware of the identity of the Covered Recipients.

CMS provides some leeway in limiting the reporting obligations under certain circumstances for some Manufacturers whose business models may not necessarily focus on covered products. However, CMS notes that, in most circumstances, Manufacturers of at least one covered product and any non-covered products will be required to report all payments or transfers of value to Covered Recipients, including those related to the non-covered products.

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