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The Physician Payment Sunshine Act is Here — Are you Ready for Full Disclosure?

The Physician Payment Sunshine Act is here!

(September 9, 2013):  Effective August 1, 2013, the Physician Payment Sunshine Act requires that health care providers participating in federal healthcare programs  report certain payments and other forms of remuneration to the Centers of Medicare and Medicaid Services (CMS).

These reports must specify payments and items of value received from manufacturers of drugs, medical devices, and biologicals covered by the federal healthcare programs. Perhaps most importantly, by September 30, 2014, these disclosures will be made publicly available over the Internet.  In light of these events, it is essential that health care providers fully understand both the purpose and the ultimate impact of the Sunshine Act.

I.  Background of the Physician Payment Sunshine Act:

The Medicare Payment Advisory Commission (MedPAC) is an independent Congressional agency established by the Balanced Budget Act of 1997[1].  Its purpose is to advise the United States Congress on issues affecting the federal Medicare program.  In this capacity, it advises Congress on payments to private health plans that participate in Medicare and provide care under Medicare’s traditional fee-for service program.  MedPac also analyzes access to care, quality of care, and other issues that may arise affecting the federal healthcare program.

In 2009, MedPAC recommended that Congress enact a new regulatory program to make financial reporting and documentation more widely available to the public.  That same year, the Institute of Medicine (IOM), an independent, non-profit non-governmental organization that provides national advice on issues including health care and medicine, also suggested implementing a national disclosure program for payments to health care providers and prescribers.

Given these recommendations, as well as other strong sources of information on conflicts of interest that could potentially affect treatment decisions, Congress proceeded with legislation establishing a national disclosure program and provided the implementing requirements along with it.  Introduced independently, the legislation ultimately failed.  Nevertheless, the Physician Payment Sunshine Act eventually was enacted as Section 6002 of the Patient Protection and Affordable Care Act.[2]  To the healthcare industry, this piece of legislation is otherwise known as “the Physician Payment Sunshine Act” or “OPEN PAYMENTS.”

II.  Purposes of the Physician Payment Sunshine Act:

The Sunshine Act will help shine light on the financial dealings of medical manufacturers and create a more transparent environment with regards to information between healthcare providers and outside interests.  Specifically, the Act will require manufacturers of drugs, medical devices, biological, and medical supplies covered by Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP) to report to CMS payments or other transfers of value they make to physicians and teaching hospitals.

CMS recognizes that relationships among physicians, teaching hospitals, and healthcare manufacturers can contribute to the design and delivery of life-saving drugs and devices. However, payments from manufacturers to physicians and teaching hospitals can also lead to conflicts of interests.  And while financial ties alone do not reflect inappropriate relationships among these entities, CMS strongly believes that the new law is necessary to prevent potential problems.  Thus, the purpose of the Sunshine Act is to:

  • Encourage transparency of reporting financial ties;
  • Reveal the nature and extent of relationships;
  • Prevent inappropriate influence on research, education, and clinical decision-making;
  • Avoid conflicts of interest that can compromise clinical integrity and patient care; and
  • Minimize risk of increased health care costs.

The Sunshine Act will achieve these objectives through three main provisions:

  • First, applicable manufacturers of covered drugs, medical devices, biological products, and medical supplies must report payments and transfers of value to physicians and teaching hospitals to CMS.     
  • Second, applicable manufacturers and group purchasing organizations (GPOs) must report to CMS certain ownership information and investment interests held by physicians and their immediate family members. 
  • Third, applicable GPOs must report to CMS payments or other transfers of value made to physician owners or investors if they held ownership or an investment interest at any point during the reporting year.

CMS will then collect this data annually, aggregate it, and publish it on a public website.  To ensure data accuracy – and to protect their interests – physicians will have a minimum of 45 days to review their reports and challenge any information before it becomes public.  Physicians will also be able to challenge any report that may be false, inaccurate, or misleading.

Overall, the goal is to increase patient safety.  “You should know when your doctor has a financial relationship with the companies that manufacture or supply the medicines or medical devices you may need,” said Peter Budetti, M.D. CMS deputy administrator for Program Integrity. “Disclosure of these relationships allows patients to have more informed discussions with their doctors.”  The OPEN PAYMENTS program will act as a national resource for healthcare beneficiaries, consumers, and providers to know more about the relationships among physicians, teaching hospitals, and industry.

III.  Important Dates of the Physician Payment Sunshine Act:

As many organizations encounter problems with the technology and implementation of several complex aspects of the Sunshine Act, it is important to keep in mind several key dates associated with the law:

  • August 1, 2013: The Sunshine Act and its data collection obligations take effect.
  • January 2014: CMS will launch an online portal for physicians to sign-up to receive notice when their financial disclosures will be available for review and correction.
  • By March 31, 2014:  Applicable manufacturers and GPOs making payments or transfers of value to physicians and/or teaching hospitals must report to CMS the required data components that they have collected for August through December 2013.
  • Between June and August 2014: CMS will provide physicians access to their consolidated financial disclosures for the prior calendar year.
  • By September 30, 2014:   CMS will make most of the data provided by physicians’ reports available to the general public online.

IV.  Who Must Report:

Those applicable manufacturers and GPOs covered under the Act must register with CMS during the registration period each year.  Furthermore, the law mandates that applicable manufacturers of at least one covered drug, device, biological, or medical supply must report all payments or other transfers of value provided to covered recipients.  This reporting requirement must be made regardless of whether any particular payment or other transfer of value was actually made in relation to a covered drug, device, biological, or medical supply. CMS has defined “applicable manufacturers” to include those that:

  • Operate in the United States (meaning that they have a physical location within the U.S. or otherwise conduct activities in the U.S., either directly or through a legally-authorized agent); AND either
  • Produce, prepare, propagate, compound, or converse of at least one covered drug, device, biological, or medical supply; OR
  • Operate under common ownership with an applicable manufacturer and provide assistance or support to the applicable manufacturer in the manufacturing, marketing, promotion, sale, or distribution of a covered drug, device, biological, or medical supply

“Covered recipients” comprise physicians (except for those physicians who are bona fide employees of the applicable manufacturer reporting the payment) and teaching hospitals.  While these entities are not required to submit any data for OPEN PAYMENTS, CMS strongly encourages their participation to ensure the accuracy of the data submitted.

Physicians include those legally authorized to practice in professions such as doctors of medicine, osteopathy, dentistry and dental surgery, podiatry, optometry, and chiropractic medicine.

Teaching hospitals include those hospitals that received payment for Medicare direct graduate medical education (GME), inpatient hospital prospective payment system (IPPS) indirect medical education (IME), or psychiatric hospitals IME programs during the last calendar year for which such information is available to CMS.  CMS has published a “teaching hospital list” that contains all hospitals that the agency has recorded as receiving a payment(s) under a Medicare direct GME, IPPS IME, or psychiatric hospital IME program during the latest fiscal year.  This list will act as a vital resource to assist applicable manufacturers in determining if they are required to report payments or other transfers of value made to a hospital.

V.  Physician Payment Sunshine Act Reporting Requirements:

CMS has provided applicable manufacturers with data collection templates to use in reporting and characterizing payments or other transfers of value.  These data collection templates are used for general payment data collection (non-research),  research payment data collection, indirect payments provided to covered recipients through a third party, and ownership and investment interest data collection.

CMS has also clarified various reporting criteria to assist applicable manufacturers in the reporting criteria.  Since manufactures must report payments and “transfers of value” made directly to physicians and teaching hospitals, CMS requires manufacturers to describe how the recipient received the payment.  Manufacturers must clarify whether the payment was made as cash or cash equivalent, in-kind items or services, or stock, stock option(s), or any other ownership interest, dividend, profit, or other return on investment. In addition, manufacturers must explain the nature of the payment or transfer of value. There are 14 possible categories including, for example, consulting fees, grants, research, honoraria, and charitable contributions. In addition to direct payments, manufacturers must report certain payments and transfers of value that are made indirectly to a physician or that are made to a third party as requested by a physician or designated as being made on behalf of the physician.

As to the requirements related to ownership interests, the report must indicate the dollar amount invested, the value, and terms of ownership or investment interest, and any payment provided to physician owner or investor. However, certain ownership interests, such as securities that may be purchased on terms generally available to the public and that are listed on a public stock exchange where quotations are published on a daily basis, are not included as reportable ownership interests.

Furthermore, the law outlines which payments or other transfers of value may be excluded from the reporting requirements. For instance, certain certified and accredited continuing medical education (CME) payments are exempt from disclosure, while payments to Physicians in Fellowship training are not.  The law also excludes product samples that are not intended to be sold and are intended for patient use, discounts (including rebates), loans of medical devices for under short-term trial periods, not exceeding 90 days, to permit evaluation of the covered device by the covered recipient, and many more.

Guidelines were also provided for allowances in retracting reports for revision.  In particular, CMS states that GPOs may “retract and resubmit an entire report, submit corrections to a group of records, retract a group of records, or append a group of records that were omitted from the original submission.”   The rule even requires that payments for promotional speaking be included in the reports, which CMS said can be reported as “compensation for services other than consulting” or “honorarium” for the nature of payment category.

VI.  Tracking Assistance:

CMS has provided free mobile applications (“apps”) to help implement the OPEN PAYMENTS program to assist physicians, applicable manufacturers, and applicable GPOs track most of the data necessary to successfully meet the reporting requirements. The mobile apps have been developed to target specific users.  For instance, there will be one mobile app for physicians to help ensure accuracy of information reported about them by manufacturers in the healthcare industry.  There will also be a mobile app for those applicable manufacturers and GPOs to assist them with the accuracy of their required reporting.

While these apps cannot be used to directly interact with CMS systems, CMS contractors, or used directly for data reporting to CMS or its contractors, they will be a vital tool to track transfers of value in real-time, as they occur throughout the year.  Entities covered by the Act will also be able to share user profiles and transfers of value information between physician and industry apps.

VII.  Audits and Penalties:

CMS will audit all submitted data to ensure its accuracy.  Notably, the Sunshine Act provides for statutorily authorized civil monetary penalties for failure to report payments or other transfers of value, or physician ownership or investment interests, including clarification of the instances when the penalties will be imposed.  The penalties against manufacturers or GPOs who fail to comply can be very severe.

Every report submission must meet three requirements: it must be “timely, accurate, and complete.”  If the report fails to fulfill these three conditions, the submitting manufacturer or GPO can incur a civil monetary penalty (CMP) ranging from $1,000 to $10,000 for each payment, transfer of value, or ownership or investment interest not reported, up to a maximum fine of $150,000. In addition, the penalty for each “knowing” failure ranges from $10,000 to $100,000, up to a max of $1,000,000.  Each CMP is aggregated separately, and a manufacturer or GPO could possibly be subject to a maximum penalty of $1,150,000.

VIII.  Costs and Benefits:

CMS forecasts that the changes implemented by this rule will have significant monetary costs, which CMS estimates to be about $269 million in the first year and $180 million annually thereafter.  As of now, monetary benefits are unable to be projected; nevertheless, CMS claims that the non-monetary benefits will be plentiful but difficult to quantify.  One example of a projected non-monetary benefit is increased transparency as to the extent and nature of relationships between physicians, teaching hospitals, and industry manufacturers.  These improvements will permit patients to make better informed decisions when choosing health care professionals and making treatment decisions, as well as deter inappropriate financial relationships which can sometimes lead to increased health care costs.  Additionally, increased transparency about the owners and investors in GPOs will allow purchasers to make better informed decisions and identify potential conflicts of interest with ordering physicians.

 IX.  Final Thoughts:

Disclosure alone is not sufficient to differentiate beneficial financial relationships from those that create conflict of interests or are otherwise improper.  Moreover, financial ties by themselves do not signify an inappropriate relationship.  Nevertheless, transparency will illuminate the nature and extent of relationships and will hopefully discourage the development of inappropriate ones.  In doing so, it will help prevent the increased and potentially unnecessary health care costs that can arise from such relationships.  It is in this way that the costs of the rule are worth the benefits.

Furthermore, while the penalties may appear to be somewhat extreme, they are only meant to punish those groups with malicious intentions that may have slipped through the cracks in the past.  As to the severity of these penalties, as well as their accumulative nature, the best advice we can give is to become informed about what to watch out for and learn the requirements as they are intended to be understood.  We strongly recommend that you acquire professional legal guidance on these matters to ensure that your understanding is correct and that the reports you plan to submit are appropriate.

Healthcare LawRobert Saltaformaggio is an Associate at Liles Parker, Attorneys & Counselors at Law.  Liles Parker is a boutique health law firm with offices in Washington, DC, Houston, DC, McAllen, DC and Baton Rouge, LA.  Our attorneys represent Physicians, Practice Groups and other health care providers around the country in connection with a full-range of health law statutory and regulatory matters and cases.   For a free consultation on these and other health law issues, give us a call.  We can reached at: 1 (800) 475-1906. 

[1] Pub. L. 105-33.


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