Life Science Compliance Update

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December 19, 2011

Physician Payment Sunshine Act: CMS Proposed Regulations Delayed Reporting for Clinical Trials, Penalties and Preemption

Clinical trials
Under pressure from congress the Centers for Medicare and Medicaid Services (CMS) released the proposed regulations for the Physician Payment Sunshine Provisions of Affordable Care Act.   The regulations will have significant impact on the medical research industry in the US, where it could make the US uncompetitive in the cost of doing clinical trials and cause physicians and hospitals to reject doing trials at the risk of showing significant financial relationships with industry. 

This article focuses on the proposed rules for delayed reporting of clinical trials, the penalties of errors or failure to report and the relationship of this law to state laws including preemption of similar laws.  

Delayed Publication for Payments made Pursuant to Product Research or Development 

Agreements and Clinical Investigations 

Section 1128G(c)(1)(E) of the Act provides for delayed publication of payments or other transfers of value from applicable manufacturers to covered recipients made pursuant to product research or development agreements or clinical investigations. The granting of delayed publication aims to maintain confidentiality for proprietary information relating to development of new drugs, devices, biologicals, and medical supplies. The statute outlines several statutorily required instances when publication of a payment or transfer of value should be delayed in the context of a product research or development agreement or clinical investigation. 

The statute requires that information about payments and other transfers of value that are delayed from publication must be made publicly available on the first publication date after the earlier of either: (1) the approval, licensure or clearance by the FDA of the covered drug, device, biological or medical supply; or (2) 4-calendar years after the date of payment. 

For example, if in April of 2013 an applicable manufacturer provides a research grant to a teaching hospital for an initial trial of a new product under a product research or development agreement, the applicable manufacturer would be required to report this payment to us under section 1128G(a)(1) of the Act by March 31, 2014.  However, the payment would not be published on the public website in 2014 since the product had not yet been granted FDA approval, licensure or clearance. If the product is granted FDA approval, licensure or clearance in October of 2015, then we would publish the payment by the applicable manufacturer to the covered recipient as part of the public release of CY 2015 data in 2016. If the product had not been approved or cleared by the FDA by the beginning of 2018 (4-calendar years after the payment date in 2013), we would publish the 2013 payment during the data release in 2018. 

CMS proposed that applicable manufacturers should indicate on their reports whether or not a payment or other transfer of value should be granted a delay in publication on the public website. In the absence of notification by an applicable manufacturer that a payment or other transfer of value is subject to delayed publication, CMS would have no way of knowing that such a payment or other transfer of value should not be published. 

In addition, CMS proposes that payments or other transfers of value subject to delayed reporting need to be reported each year with a continued indication that publication should remain delayed and any updated information on the payment or other transfer of value, as necessary.  Further, CMS proposes that following FDA approval, licensure or clearance, applicable manufacturers must indicate in their next annual submission that the payment should no longer be granted a delay and should be published in the current reporting cycle.

Failure to indicate to CMS in a timely fashion that a payment or other transfer of value should no longer be granted a delay in publication, due to FDA approval, licensure or clearance, may be subject to penalties under section 1128G(b) of the Act. Finally, if a report includes a date of payment 4 years prior to the current year, then the payment or other transfer of value would be automatically published, regardless of whether the applicable manufacturer indicates that the payment should be delayed. 

For example, in 2019, all payments or transfers of value with a payment date in 2014 (which were initially submitted to CMS in 2015) would be published in the public database in 2019. 

With an annual publication, it is difficult to grant each payment an exactly 4-year delay and CMS recognizes that payments made early in the year would be granted more than a full 4-year delay period under this proposal. CMS believes that this method is preferable because it allows all payments, even those made late in the year, a full 4 year delay. CMS seeks comment on these proposals. 

CMS proposes that payments or other transfers of value granted delayed publication are limited to relationships for bona fide research or investigation activities, which, if made public, would damage the manufacturers' competitive and/or proprietary interests. In order to ensure that the payments or other transfers of value granted a delay are for bona fide research, CMS proposes that the "product research or development agreement" referenced in the statute include a written statement or contract between the applicable manufacturer and covered recipient, as well as a written research protocol

Additionally, the Act defines "clinical investigation" in section 1128G(e)(3) of the Act as "[a]ny experiment involving 1 or more human subjects, or materials derived from human subjects, in which a drug or device is administered, dispensed, or used."  CMS proposes that in the context of this definition, a clinical investigation is limited to one which is memorialized in a written research protocol between the covered recipient and the applicable manufacturer. 

If an applicable manufacturers contracts with CROs, to facilitate their clinical research, as long as the applicable manufacturer has a written agreement with the CRO, CMS proposes that the CRO may have the written research agreement with the covered recipient, rather than the applicable manufacturer. 

The statute provides for delayed publication of payments for services furnished in connection with research on "medical technology" with regard to both research on potential new medical technologies and new applications of existing medical technologies. In contrast, the statute provides for delayed publication for services furnished in connection with the development of, or a clinical investigation for, a new drug, device, biological, or medical supply (as opposed to a new application of an existing drug, device, biological, or medical supply as well). 

However, given the close relationship and significant overlap among the phrases "medical technology" and "drug, device, biological, and medical supply," CMS proposes to consider use of the term "medical technology" broadly as any drug, device, biological, or medical supply. CMS proposes this interpretation because it believes that the rationale underlying the statutory inclusion of the delayed publication provision – protecting an applicable manufacturer's legitimate proprietary and competitive interests in research and development – should apply to all applicable manufacturers under this statute. Moreover, it is difficult to fairly carve out certain applicable manufacturers or certain products for differing standards of delayed publication. 

Alternatively, CMS is considering defining "medical technology" more narrowly as a subset of drugs, devices, biologicals, and medical supplies. CMS seeks comments on both approaches, including suggestions for a narrower definition of "medical technology." 

The statute also distinguishes between the scope of delayed publication permitted for payments related to "research" versus payments related to "development" or "clinical investigations." Delayed publication is allowed for payments or other transfers of value for research-related services for both new medical technologies and new applications of existing medical technologies, whereas, delayed publication for development and clinical investigations are limited solely to new drugs, devices, biologicals, and medical supplies. It is difficult to meaningfully separate research and development due to the overlap in the activities associated with them, and the fact that they are commonly used synonymously. 

Given this close association between the terms, CMS proposes to treat them similarly in this provision. However, CMS is also considering the possibility of assigning different meanings to "research" and "development," and seeks comments on this approach and suggestions for meaningful distinctions for the two terms. With regard to clinical investigations, CMS believes they have a distinct meaning as set forth in section 1128G(e)(3) of the Act, which is separate from both "research" and "development" for the purposes of the Act. Specifically, section 1128G(e)(3) provides that clinical investigations involve human subjects or materials derived from human subjects. 

Given these interpretations, CMS proposes that delayed publication should apply to payments to covered recipients for services in connection with research on, or development of new drugs, devices, biologicals, or medical supplies, as well as new applications of existing drugs, devices, biologicals, or medical supplies. Conversely, CMS proposes limiting delayed publication for payments in connection with clinical investigations for new drugs, devices, biologicals, or medical supplies, and not new applications of existing drugs, devices, biologicals, or medical supplies. CMS seeks comment on these proposals and solicit comment on whether there are better ways to distinguish among these categories for the purposes of delayed publication, including treating payments and transfers of values made in connection with clinical investigations the same as those made in connection with research and development. 

Pursuant to the statute, information reported by applicable manufacturers that is subject to delayed publication under section 1128G(c)(1)(E) of the Act shall be considered confidential and shall not be subject to disclosure under 5 U.S.C. 552, or any other similar Federal, State or local law, until after the date on which the information is made available to the public via publication on the website. 

Penalties 

Section 1128G(b) of the Act authorizes the imposition of CMPs for failures to report required information on a timely basis in accordance with our regulations. If an applicable manufacturer or applicable GPO fails to submit the required information, then the applicable manufacturer or applicable GPO may be subject to a CMP of at least $1,000, but no more than $10,000, for each payment or other transfer of value, or ownership or investment interest not reported as required. 

The maximum CMP with respect to each annual submission for failure to report is $150,000. For knowing failure to submit required information in a timely manner, an applicable manufacturer or applicable GPO will be subject to a CMP of at least $10,000, but no more than $100,000, for each payment or other transfer of value, or ownership or investment interest not reported as required. The maximum CMP with respect to each annual submission for a knowing failure to report is $1,000,000. The term "knowingly" is given the meaning from the False Claims Act, 31 U.S.C. 3729(b). 

All CMPs would be collected and imposed in the same manner as the CMPs collected and imposed under section 1128A of the Act. Additionally, CMS proposes that the procedures in 42 CFR 402 subpart A would apply with regard to imposition and appeal of CMPs. 

As noted previously, applicable manufacturers and applicable GPOs may be subject to a CMP for a failure to report information timely in accordance with our regulations. This proposed rule interprets the statute to require the submission of information that is accurate and complete. Therefore, CMS proposes that a CMP may be imposed for failure to report information in a timely, accurate, and complete manner. As set forth in section 1128G(c)(1)(C)(ix) of the Act, applicable manufacturers and applicable GPOs are allowed 45-days prior to publication to review their data. 

Outside this period, any additions or oversights would be considered late and subject to penalties. Together with the annual submission of data, an authorized representative from each applicable manufacturer and applicable GPO would be required to submit a signed attestation certifying the truth, correctness, and completeness of the data submitted to the best of the signer's knowledge and belief. 

In determining the amount of the CMP, CMS proposes and seeks comments on factors to be considered, which include, but are not limited to, the following: 

  • The length of time the applicable manufacturer or applicable GPO failed to report, including the length of time the applicable manufacturer and applicable GPO knew of the payment or other transfer of value, or ownership or investment interest.
  • Amount of the payment or other transfer of value or the value of the ownership or investment interest the applicable manufacturer or applicable GPO failed to report
  • Level of culpability.
  • Nature and amount of information reported in error.
  • Degree of diligence exercised in correcting information reported in error. 

In addition, CMS also proposes that the Secretary, CMS, OIG or their designees may audit, evaluate, or inspect applicable manufacturers and applicable GPOs for their compliance with timely, complete and accurate submission of information required in section 1128G of the Act and the implementing regulations.  Access to this information is implicit in the statute in order to enforce the requirements outlined. To facilitate this review, applicable manufacturers and applicable GPOs must maintain all books, records, documents, and other materials sufficient to enable an audit, evaluation or inspection of the applicable manufacturer's or applicable GPO's compliance with the requirements in section 1128G of the Act and the implementing regulations. 

CMS proposes that applicable manufacturers and applicable GPOs must maintain these books, records, documents, and other materials for a period of at least 5 years from the date the payment or other transfer of value, or ownership or investment interest is published publicly on the website.  CMS believes that 5 years from the date of publication is sufficient for all audit, inspection, or evaluation activities. The requirements set forth in this proposed rule are in addition to, and do not limit, any other applicable requirements that may obligate applicable manufacturers or applicable GPOs to retain and allow access to records. CMS seeks comments on these proposals. 

Annual Reports 

CMS is required to submit annual reports to Congress and the States. The Report to Congress is due annually on April 1st beginning in 2013 and shall include aggregated information on each applicable manufacturer and applicable GPO for the preceding calendar year, as well as any enforcement action taken and any penalties paid. Since CMS will not receive data for the prior year until the 90th day of each year, the data submitted that year will not be ready for the April 1st report.

Instead, CMS proposes that it report to Congress information submitted by applicable manufacturers and applicable GPOs during the preceding year. Similarly, CMS must report to States annually by September 30, 2013 and June 30 for each year thereafter. The reports would be State specific and include summary information on the data submitted regarding covered recipients and physician owners or investors in that State. Since these reports are due later in the year than the Report to Congress, CMS proposes that the reports would include data collected during the previous calendar year which was submitted in the current year. These reports would not include any payments or other transfers of value that were not published under the delayed publication requirements in section 1128G(c)(1)(E) of the Act. 

Relation to State Laws 

Section 1128G(d)(3) of the Act preempts any State or local laws requiring reporting, in any format, of the same type of information concerning payments or other transfers of value made by applicable manufacturers to covered recipients. No State or local government may require the separate reporting of any information regarding a payment or other transfer of value that is required to be reported under section 1128G(a) of the Act, unless such information is being collected by a Federal, State, or local governmental agency for public health surveillance, investigation, or other public health purposes or health oversight. Such agencies include those that are charged with preventing or controlling disease, injury, or disability and/or with conducting oversight activities authorized by law, including audits, investigations, inspections, licensure or disciplinary actions, or other activities necessary for oversight of the health care system. 

However, this exception does not apply to State or local reporting requirements related to information on payments or other transfers of value included in section 1128G of the Act. In addition, State and local governments may require reporting of information other than that required under this provision, including the types of information excluded by section 1128G(e)(10)(B) of the Act, with the exception of payments that fall below the $10 individual or $100 aggregate threshold in section 1128G(e)(10)(B)(i). 

To Submit Comments

Comments are due by 5:00pm Eastern, February 17, 2012.

You may submit comments in one of four ways

Electronically: You may submit electronic comments on this regulation to

http://www.regulations.gov. Follow the "Submit a comment" instructions.

Regular mail

CMS-5060-P 3

Centers for Medicare & Medicaid Services,

Department of Health and Human Services,

Attention: CMS-5060-P,

P.O. Box 8013,

Baltimore, MD 21244-8013.

 

Express or overnight mail

Centers for Medicare & Medicaid Services,

Department of Health and Human Services,

Attention: CMS-5060-P,

Mail Stop C4-26-05,

7500 Security Boulevard,

Baltimore, MD 21244-1850.

By hand or courier.

Washington, DC

Centers for Medicare & Medicaid Services,

Department of Health and Human Services,

Room 445-G, Hubert H. Humphrey Building,

200 Independence Avenue, SW.,

Washington, DC 20201

CMS-5060-P 4

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