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The long-awaited Physician Payment Sunshine Act final rule has been issued, as well as responses from the Centers for Medicare & Medicaid Services (CMS) to over 350 public comments submitted in response to the proposed rule. The final rule was published in the Federal Register on February 8, 2013.

 Click here to view the final rule.

The Physician Payment Sunshine Act, which was passed as part of the Affordable Care Act in 2010, is intended to promote transparency of physician ownership and investment interests in health care manufacturers and group purchasing organizations (GPOs). Applicable manufacturers and GPOs will be required to annually report certain financial relationships with physicians, their immediate family members and teaching hospitals for the preceding year. CMS will then post the information on a public webpage which will be searchable and will have the ability to download content.

Who is required to report?

Entities that fall within the definitions of “applicable manufacturer” or “applicable group practice organization” will be required to report financial relationships. The GPO reporting requirements apply to an entity that operates in the United States and purchases, arranges for or negotiates the purchase of a covered drug, device, biologic or medical supply for a group of parties, and not solely for the entity itself.

The final regulations apply the manufacturer reporting requirements to any entity that operates in the United States and is engaged in the production, preparation, compounding, propagation, or conversion of a drug, device, biological or medical supply available under Medicare or Medicaid. Entities under common ownership with a manufacturer and providing “necessary or integral” assistance or support to the manufacturer relating to the product are also covered as manufacturers. The regulations establish a low threshold for common ownership, which is defined to include direct or indirect ownership of at least five percent of two entities by the same individuals or entities.

The final rule clarified that a covered drug, device, biologic or medical supply is one that requires a prescription to be dispensed or for which the FDA requires a premarket approval or notification. The final rule provided further explanation surrounding the definitions of applicable manufacturers. For example, hospitals, hospital-based pharmacies and laboratories that manufacture covered products solely for use within the entity or by the entity’s patients are not “applicable manufacturers” under the final rule. Compounding pharmacies that meet particular criteria are also excluded from the definition. The final rule also carved out, subject to specific criteria, certain manufacturers of the raw materials used to make covered products, as well as those that do not hold the FDA approval or license for the product.

Reporting obligations

Manufacturers will be required to annually report direct and indirect payments or other transfers to physicians (other than the manufacturer’s bona fide employees) and teaching hospitals. Manufacturers will also need to report any payments or transfers that are made to third parties at the request of or on behalf of a physician or teaching hospital.

In addition, manufacturers and GPOs must report all ownership and investment interests held by physicians or immediate family members of physicians. Required information includes investment amounts, the value and terms of each ownership or investment interest, payments to each physician, and background information regarding each physician investor or owner.

The proposed rule was criticized by some for establishing onerous reporting requirements, particularly for manufacturers that only make a small number of covered products. CMS revised the requirements so that if a manufacturer receives less than 10 percent of its gross revenue from covered products during the previous year, then the manufacturer is only required to report payments associated with the covered products. In order to meet this exception, the manufacturers will be required to attest that less than 10 percent of their gross revenue came from covered products. Despite public comments that voiced disagreement with the proposed rule, the final rule still requires manufacturers that do not meet the specific exceptions to report all payments or transfers of value, not just those associated with a covered product.

The final rule provides guidelines for manufacturers to determine the values to be reported, and includes the option for manufacturers to provide contextual information about the payment that would be disclosed on the public webpage. The final rule and its commentary also provide clarifications regarding the payments excluded from the reporting requirement. For example, payments made at the request of or designated on behalf of a physician are still reported and attributed to the physician. However, if the physician does not accept payment and does not request that the payment get directed to another individual or entity, then it does not need to be reported. Physicians who have historically directed that consulting fees or honoraria be directed to a charity will see the payments attributed to them, under the category of charitable contribution, on the CMS public webpage.

It is important to note, that while physicians and other covered recipients will have the opportunity to review their individual data the manufacturer electronically submits, if there is a dispute regarding such information it still may become public if it is not corrected during the review and correction period. It will be important for physicians and other covered recipients to review the data in order to try to resolve the issues prior to the public disclosure. Covered recipients may also want to consider negotiating the right to review data prior to the manufacturer’s submission to CMS into future agreements with manufacturers, in order to avoid the disclosure of potentially inaccurate information. Further, once the data is published and the dispute resolved, it cannot be modified until the following year.

Timeframe for reporting

Reports must be filed annually, with each report reflecting payment, ownership and investment information for the previous calendar year. Given the delay in issuing the final rule, manufacturers and GPOs will have until August 1, 2013 to begin collecting information, and then must report the information to CMS by March 31, 2014, with the initial annual report limited to the period from August 1, 2013 through December 31, 2013.

Payment, ownership and investment information for subsequent calendar years will need to be reported by the 90th day of the following calendar year. Manufacturers will have 180 days to begin complying with the data collection and reporting requirements upon a product becoming covered under the regulations.

Penalties and expenses

The penalties for failure to comply with the new regulations can be up to $150,000 per year, and up to $1 million for knowing violations. While CMS stated that it does not have empirical data to estimate the financial benefit of the Physician Payment Sunshine Act, CMS estimates it will cost all manufacturers a total of over $205 million dollars in the first year to establish the infrastructure and staff support necessary to implement the final rule.

Action steps

The final rule provides clarifications and detail lacking in the proposed rule, but there are still further implementation steps that CMS will need to take, including provision of the templates needed for manufacturers to report data. Manufacturers have been preparing implementation since the proposed rule was issued in late 2011, but the clarifications made by CMS necessitate a review of efforts up to this point in light of the revisions in the final rule. Manufacturers and GPOs will need to determine the applicability of the final regulations to their business, and that they have access to the information that must be reported. Covered recipients, including physicians, will need to determine whether or not their information may be disclosed and if so, that they are given the opportunity to review the data to ensure it is an accurate depiction of their relationships with industry.

For more information on the Physician Payment Sunshine Act and developing effective internal mechanisms to collect and appropriately report the information to CMS, please contact:

Bridget K. Cougevan

216.348.5842

bcougevan@mcdonaldhopkins.com

Rick L. Hindmand

312.642.2203

rhindmand@mcdonaldhopkins.com

Healthcare Practice

McDonald Hopkins has a large and diverse healthcare practice, which is national in scope. The firm represents a wide variety of healthcare providers, facilities, vendors, technology companies and associations. Our diverse experience enables us to give our clients a unique perspective on the issues that may confront them in the rapidly evolving healthcare environment.

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