Life Science Compliance Update

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May 11, 2010

Physician Payment Sunshine: The Road Ahead

The Regulation Policy Marketing Access (RPM) Report discussed how the Department of Health & Human Services (HHS) has a tough road ahead for implementing the Sunshine Physicians Payment Act, which passed with the health care reform package. Reporting the annual information about drug industry spending on promotion, education and research appears to be among the hardest tasks for the Obama administration.

The Secretary of HHS will be responsible for delivering to Congress a full picture of drug industry grants to doctors and health institutions by April 1, 2013, which “could be a very difficult deadline to meet,” for a few reasons.

First, because the law does not tell HHS who should do the reports, the agency needs to “find the right part of the bureaucracy to specialize in drug promotional spending.” This will likely require new staff, training, rules, procedures, testing, and oversight, among other things.

Second, RPM noted that getting a report to Congress on April 1, 2013 seems almost impossible considering HHS is supposed to receive the first full reports from manufacturers on gifts on March 31, 2013. HHS will also have to make a report on the same date regarding public disclosures of grants and payments to Congress. What makes this deadline even more unrealistic is that HHS must also report to Congress all instances where a manufacturer has been penalized for failing to report a payment.

Accordingly, the report from HHS may end up with a lot of names and data but relatively little useful information, something RPM has seen already with the size of the initial grant/payment reports on corporate websites like Eli Lilly & Co. and Pfizer Inc.

The HHS report is also “expected to be briefer, highlight service – using totals for each manufacturer (“aggregated for each applicable manufacturer”) and the penalty summaries to help flag offenders and provide an easier point of departure for oversight.” This process will also pose a problem for HHS because “current company disclosures tend to co-mingle expenditures for a range of functions from speakers bureaus to consulting to clinical research grants.” For example, RPM pointed to Pfizer, distinguishes the expenditures for those two functions but does not give a separate total for the different functions. (See “The Pink Sheet” April 26, 2010.)

Another problem facing HHS, is dealing with which office will set up the process to collect and redistribute the data, since no specific instruction or even clear hint was given from Congress. Even Senator Herb Kohl’s staff acknowledges that Congress “didn’t give HHS guidance on this or make known an intention.”

For now, HHS Office of the Inspector General (OIG) has been the de facto expert on the subject of drug industry spending on promotional activities, and already polices drug industry spending through investigations and the 16 existing corporate integrity agreements with pharmaceutical manufacturers. As a result, OIG is a “likely candidate” to take on the new function.

OIG will most likely be happy to take on this role since it will be another way for HHS to recover money to help defray the increases in government outlays for health care. But OIG will also have plenty of work to do back-checking over 450 corporate integrity agreements and following up on ongoing reporting that already conflicts with taking on new offenders. This will make the new gift report tough to balance.

Another problem is that OIG is not best suited for developing rules and procedures, which will be needed to enforce the gift provisions. Accordingly, while HHS is “not rushing to make any decisions on where the discretionary choices for fulfilling functions will go,” putting this on the backburner will only make sunshine reports harder for the future.  

HHS and OIG could also run into problems because the Sunshine Act will create confusion for states that already have laws in place. As William Mandell, Esq. recently highlighted, the federal disclosure provisions will impact the Massachusetts gift ban and reporting law significantly.  

Specifically, he noted that as of January 1, 2012, when companies must begin tracking their interactions reportable under the federal reporting system, federal law will preempt any state laws that require manufactures to disclose or report the same type of information that is reportable to HHS.

One problem however, is that the federal “Sunshine” reporting law does not totally preempt state reporting mandates. The federal law also does not preempt any state laws that require the disclosure or reporting of information that is not reportable to HHS or that cover a broader category of reporting parties or recipients than defined under federal law.

For example, the federal reporting system will not preempt any state laws that require the reporting of information that is exempt from reporting under the federal law (e.g. payments or transfers of value worth less than $10) but it will preempt state laws to the extent that they exempt payments or transfers of value worth $10 or more.

There is also no preemption of state laws that require reporting to federal, state, or local governmental Agencies for public health surveillance, investigation or other public health purposes or health oversight purposes. As a result, these limitations for states like Massachusetts require further analysis.


Since states like Massachusetts and Vermont have gift bans and codes of conducts and federal law does not, these prohibitions are not preempted by the Sunshine reporting system. This means that manufacturers and certain distributors must still adopt and comply with a compliance program and Marketing Code of Conduct, and submit them to the Massachusetts Department of Public Health (DPH).

This means that the gift limit, which is worth less than $100, or requirements for permissible consulting and other service relationships are not preempted. In addition, the federal law does not prohibit physicians in the state from participating on company speaker’s bureaus.

Federal law does not preempt requirements under the DPH regulations that require pharmaceutical manufacturers and distributors to:

- Comply with limitations and requirements on the use of non-patient identified prescriber data, including an “opt out” for physician and other prescribers on having their prescriber data used for marketing purposes; and


- Obligate all contracted speakers and consultants who serve on a formulary or clinical guideline committees to disclose their company relationship to the committee.

Massachusetts, and other states, will still be able to pass state laws prohibiting and regulating interactions between industry and health care providers that do not involve governmental or public disclosure without any level of federal preemption.

Accordingly, since reporting does not start until 2012, states with disclosure laws may continue to use them through calendar year 2011. So on July 1, 2010 (for the period July 1, 2009 through December 31, 2009) and on July 1, 2011 (for calendar year 2011) manufacturers and certain distributors are still required to disclose to DPH – for posting on its public website – the value, nature, purpose, and recipient of any sales and marketing activity payment, or other benefit, with a value of at least $50 to physicians, hospitals, nursing homes, and pharmacists.

DPH intends to review the first batch of data submitted on July 1, 2010, and have the Massachusetts public database go live sometime in the fall of 2010.

Companies are still required to pay an annual fee of $2,000 to DPH every July 1 through 2011. For 2012, preemption of the DPH filing fee “is not entirely clear.”


Starting in 2012, manufacturers will be required to track and report to HHS in their annual submissions the following data for each reportable payment or transfer of value:

1)    The name of the covered recipient

2)    The business address of the recipient; National Provider Identifier for physicians

3)    The amount of the payment/transfer of value

4)    Dates of which payment/transfer of value was provided

5)    A description of the form of payment/transfer of value, including

a.    Cash or cash equivalent

b.    In-kind items or services

c.    Stock, a stock option, or any other ownership interest, dividend/profit

d.    Any other form defined by HHS regulations

6)    A description of the nature of the payment/transfer, such as:

a.    Consulting fees; compensation for services; honoraria; gift;

b.    Entertainment; food; travel;

c.    Education; research; charitable contribution;

d.    Royalty or license; current or prospective ownership;

e.    Direct compensation as faculty speaker for CME program; grant; and

f. Anything defined by HHS regulations

The federal disclosure will also require the name of the drug, device, biological or medical supply if the reportable payment or other transfer of value is related to:

-    Marketing;

-    Education; and

-    Research specific to a covered drug, device, biological or medical supply

Payments made at the request of an entity or individual to a covered recipient, such as a physician donating to a charitable disease organization, must also be disclosed.

With regards to clinical trials, the broad reporting exemption established by DPH under Massachusetts disclosure rules for clinical trials will not apply to the federal reporting system. Beginning in 2010, manufacturers will be required to track and report any payment worth $10 of more related to research or pre-market approval activities but, such interactions will not become immediately public.

Disclosure information with respect to a product research or development agreement for services furnished in connection with research on a potential new medical technology or new application of an existing medical technology or the development of a new drug, device, biological, or medical supply, or in connection with a clinical investigation regarding a new drug, device, biological, or medical supply, will also not be immediately available on the public data base. This information is made public depending on FDA approval dates, and is not subject to Freedom of Information Act requests.

Non-Preempted Massachusetts Reporting

Companies will still be required to track sales and marketing activities and file reports to DPH beginning in 2012 that are not covered by federal law, such as disclosures from independent distributors that take title (verses consignment) to products.

Companies will also still be required to fully report all reportable sales and marketing activities under DPH’s regulations made to other non-physician licensees who are authorized to prescribe, non-teaching hospitals, nursing homes, and pharmacists.

Exempt from reporting under federal law includes:

-    product samples for patient use;

-    educational materials for patients;

-    items or services under warranty, including replacement of a covered device;

-    transfer of values to a recipient when they are not acting in a professional capacity;

-    discounts, including rebates;

-    items for charity care; and

-    profits from a publicly traded security or mutual fund

Mr. Mandell also noted that companies will still have to determine if payments for expert witnesses are exempt from federal reporting, since under Massachusetts, they will still have to determine whether such interactions come within the definition of “sales and marketing activity” under the DPH rules.

Federal law also requires that doctors disclose to patients in writing at the time of the referral that the patient may obtain diagnostic imaging or radiology services from a person other than the referring physician or group practice, and patients must be given a list of other providers in the area.

Impact on Companies

While companies have time to begin interpreting the new disclosure requirements, this process seems problematic considering Congress did not specify which agency will be handling the reporting.

Since there is no agency as of now, there are also no regulations or rules for companies to be following.

As the administration scrambles to find ways and people to begin implementing the Patient Protection and Affordable Care Act (PPACA) timing will be important for implementation of many of the provisions.  Numerous sections of the law have never been done before, and will require an army of employees and contractors to ensure its success.   It is important to keep this in context as the government prioritizes implementation.

This is particularly essential because drug and device companies are largely expected to be making more drugs and newer treatments for millions of patients that will be added to the health care system.  These medicines will need to be tested, and doctors will need to learn about them, all of which requires paying physicians and researchers for their hard work. As a result, if drugs and devices are ready to go but HHS is stalled on gift reports, Americans may be seeing clouds, not sunshine.

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