Life Science Compliance Update

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December 15, 2011

Physician Payment Sunshine Act: CMS Proposed Rule Overview

Sunshine in focus
In preparation for todays Senate Aging Committee hearing the Centers for Medicare and Medicaid Services (CMS) released their proposed rule for the physician payment sunshine provisions in the affordable care act (ACA).  

Section 6002 of the Affordable Care Act added section 1128G to the Social Security Act (the Act), which requires applicable manufacturers of drugs, devices, biologicals, or medical supplies covered under title XVIII of the Act (Medicare) or a State plan under title XIX (Medicaid) or XXI of the Act (the Children's Health Insurance Program, or CHIP) to report annually to the Secretary certain payments or other transfers of value to physicians and teaching hospitals.

Section 1128G of the Act also requires applicable manufacturers and applicable group purchasing organizations (GPOs) to report certain information regarding the ownership or investment interests held by physicians or the immediate family members of physicians in such entities.

Specifically, manufacturers of covered drugs, devices, biologicals, and medical supplies (applicable manufacturers) are required to submit on an annual basis certain payments or other transfers of value made to physicians and teaching hospitals (collectively called covered recipients) during the course of the preceding calendar year.

 Applicable manufacturers must report the required payment and other transfer of value information to CMS in an electronic format by March 31, 2013, and on the 90th day of each calendar year thereafter.

Applicable manufacturers and applicable GPOs are subject to civil monetary penalties (CMPs) for failing to comply with the reporting requirements of the statute. CMS must publish the reported data on a public website. The data must be downloadable, searchable, and easily aggregated. In addition, CMS must submit annual reports to the Congress and each State summarizing the data reported. Finally, section 1128G of the Act generally preempts State laws that require disclosure of the same type of information by manufacturers.

Key Dates

Data collection mid 2012 (partial year)

CMS is proposing that data collection will not begin on Jan. 1, 2012 and that manufacturers and GPOs do not need to begin data collection until final regulations are issued.   Depending on the timing of the final rule,

Data submission March 31, 2013

CMS is proposing that manufacturers and GPOs will be required to submit a partial year on Mar. 31, 2013.  Once the data has been submitted, CMS will aggregate manufacturer submissions at the individual physician and teaching hospital level, provide them with a 45-day period to confidentially review and, if necessary, correct the data, and make the data publicly available by Sep. 30, 2013

Report to Congress Prior to September 30, 2013

The law requires April 1, 2013, but CMS admits that this date is impossible and has not provided a date to report to congress, rule states some time before the end of fiscal year 2013.

Report to States September 30, 2013

The law requires that a report is sent out to the states on September 30, 2013 and on June 30 in subsequent years.

CMS will accept comments on the proposed rule until Feb. 17, 2012, and will respond to them in the final rule.

The proposed rule can be downloaded from the Federal Register Inspection Desk at: https://s3.amazonaws.com/public-inspection.federalregister.gov/2011-32244.pdf

Transparency Overview

Collaboration among physicians, teaching hospitals, and industry manufacturers may contribute to the design and delivery of life-saving drugs and devices. However, while some collaboration is beneficial to the continued innovation and improvement of our health care system, payments from manufacturers to physicians and teaching hospitals can also introduce conflicts of interests that may influence research, education, and clinical decision-making in ways that compromise clinical integrity and patient care, and may lead to increased health care costs.

We recognize that disclosure alone is not sufficient to differentiate beneficial, legitimate financial relationships from those that create conflict of interests or are otherwise improper. Moreover, financial ties alone do not signify an inappropriate relationship. However, transparency can shed light on the nature and extent of relationships, and may dissuade inappropriate conflicts of interest from developing.

II. Provisions of the Proposed Regulations

For terms undefined by the statute, CMS provided definitions and explanations of how they propose to interpret them.

CMS noted that a final rule will not be published in time for applicable manufacturers and applicable GPOs to begin collecting the information required in section 1128G of the Act on January 1, 2012, as indicated in the statute.

As a result, CMS will not require applicable manufacturers and applicable GPOs to begin collecting the required information until after the publication of the final rule;

CMS is seeking comment on: the amount of time applicable manufacturers and applicable GPOs will need following publication of the final rule in order to begin complying with the data collection requirements of section 1128G of the Act.

CMS is considering a preparation period of 90 days, and is requesting comments on whether that is a sufficient amount of time.

CMS is also seeking input on specific challenges that applicable manufacturers and applicable GPOs may face when setting up the necessary data collection and reporting systems.

CMS hopes to finalize this rule as soon as possible during calendar year (CY) 2012 and, depending on the publication date of the final rule, is considering requiring the collection of data for part of 2012, to be reported to CMS by the statutory date of March 31, 2013. CMS seek comments on the feasibility of submitting the required information for part of CY 2012 by March 31, 2013.

Transparency Reports

Our summary mainly addresses transparency reporting requirements for required reports from applicable manufacturers on payments or other transfers of value to covered recipients.  CMS noted that compliance with the Sunshine Act does not exempt applicable manufacturers, applicable GPOs, covered recipients, physician owners or investors, or anyone else from any potential liability associated with payments or other transfers of value, or ownership or investment interests (for example, potential liability under the Federal Anti-Kickback statute or False Claims Act).

Reports on Payments and Other Transfers of Value Under Section 1128G(a)(1) of the Act

a. Applicable Manufacturers

(1) CMS gave a comprehensive definition of “manufacturer,” and defined "applicable manufacturer" as an entity that is:1) Engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply for sale or distribution in the United States, or in a territory, possession, or commonwealth of the United States; or (2) Under common ownership with an entity in paragraph (1) of this definition, which provides assistance or support to such entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological, or medical supply for sale or distribution in the United States, or in a territory, possession, or commonwealth of the United States.

Under this definition, manufacturers of a covered drug, device, biological, or medical supply (under either paragraph (1) or paragraph (2) of the definition) are deemed

to be an "applicable manufacturer" if their products are sold or distributed in the United States (U.S.), regardless of where the covered drug, device, biological, or medical supply is actually produced or where the entity is actually located or incorporated. Given the global nature of these industries, we believe that any entity manufacturing covered drugs, devices, biologicals, or medical supplies for sale or distribution in the U.S. (or any entity under common ownership which provides assistance or support in the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of such items) should be subject to the requirements of section 1128G of the Act.

The opportunity for undue influence or inappropriate relationships caused by payments or transfers of value to covered recipients is the same for manufacturers of drugs, devices, biologicals, or medical supplies sold or distributed in the United States regardless of where the product is actually manufactured, and we, therefore, propose to treat them the same.

CMS proposed that all payments or transfers of value made by an applicable manufacturer to a covered recipient must be reported as required regardless of whether the particular payment or other transfer of value is associated with a covered drug, device, biological, or medical supply.

Additionally, CMS said the proposed definition includes entities that hold Food and Drug Administration (FDA) approval, licensure, or clearance for a covered drug, device, biological, or medical supply, even if they contract out the actual physical manufacturing of the product to another entity. CMS interpreted these entities as being "engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply." CMS seeks comment on this interpretation.

CMS proposed to define "common ownership" as when the same individual, individuals, entity, or entities, directly or indirectly, own any portion of two or more entities. The common ownership definition would apply to a range of corporate arrangements, including, but not limited to, parent companies and subsidiaries and brother/sister corporations.  They are seeking comments on this and an alternative definition.

If an applicable manufacturer under paragraph (1) reports for itself as well as for entities under common ownership that are required to report under paragraph (2), the report should clearly name all of the entities that are included in the report. Given the various relationships between entities under common ownership, CMS proposed that if an applicable manufacturer under paragraph (1) reports for at least one additional entity under common ownership, the applicable manufacturer may decide whether to identify the payments as those from the entity under common ownership, or whether to combine them with their payments or other transfers of value.

In addition to payments or other transfers of value to covered recipients made by applicable manufacturers themselves, applicable manufacturers are also required by statute to report payments and other transfers of value provided indirectly to covered recipients through third parties, if the applicable manufacturer is aware of the identity of the covered recipient.

(2) Covered Drug, Device, Biological, or Medical Supply

The reporting requirements are limited to applicable manufacturers of a "covered drug, device, biological, or medical supply." The phrase "covered drug, device, biological, or medical supply" is defined as any drug, biological product, device, or medical supply for which payment is "available" under Medicare, Medicaid, or CHIP. Many drugs, devices, biological, and medical supplies are reimbursed separately under these programs, making payment availability clear.

CMS proposed that payment is considered "available" under Medicare, Medicaid or CHIP for items included in a composite payment rate, such as the Medicare hospital inpatient prospective payment system (IPPS), the outpatient prospective payment system (OPPS), or the end-stage renal disease (ESRD) prospective payment system.

CMS’s is proposing to limit drugs and biologicals in the definition of "covered drug, device, biological, and medical supply," to drugs and biologicals that, by law, require a prescription to be dispensed, thus excluding drugs and biologicals that are considered "over-thecounter" (OTC).

They noted that exclusion may be appropriate for manufacturers that manufacture only these products (and not also products which fall within the proposed definition of "covered drug, device, biological, or medical supply"), since physicians and teaching hospitals have less influence over patients' choice of OTC products.  CMS seeks comments on the proposal to limit covered drugs and biologicals to those that require a prescription to be dispensed.  If CMS adopts this interpretation, applicable manufacturers who manufacturer only OTC drugs or biologicals (and not also products which fall within the proposed definition of "covered drug, device, biological, or medical supply"), would not be required to report at all under section 1128G of the Act. However, manufacturers who manufacture both OTC drugs or biologicals and at least one product that falls within the definition of a covered drug, device, biological or medical supply would be required to report all payments or transfers of value to covered recipients.

CMS also proposed an additional limitation to the definition as it pertains to devices and medical supplies, which would limit them to those devices (including medical supplies) that, by law, require premarket approval by or notification to FDA. This would exclude many Class I devices and certain Class II devices, which are exempt from premarket notification requirements under 21 U.S.C. 360(l) or (m), such as tongue depressors and elastic bandages. Some of these devices and medical supplies are so routinely provided in the course of medical care that the Congress may not have intended to capture manufacturers of such items under these reporting requirements.

CMS believes this limitation may be appropriate for applicable manufacturers, because manufacturers that solely produce these exempt products have not been shown to have extensive relationships with covered recipients. Additionally, CMS believes this limitation might be appropriate because these financial relationships (to the extent they exist) are less likely to influence patient care.  CMS seeks comment on this limitation. CMS noted that in the event this interpretation is adopted, applicable manufacturers who manufacture only devices or medical supplies that are exempt from premarket notification requirements (and not also products which fall within the proposed definition of "covered drug, device, biological, or medical supply"), would not be required to report at all.

However, manufacturers who manufacture both devices or medical supplies that are exempt from premarket notification requirements and at least one product that falls within the definition of a covered drug, device, biological or medical supply would be required to report all payments or transfers of value to covered recipients required.

b. Covered Recipients

Applicable manufacturers are required to disclose certain payments or other transfers of value made to covered recipients, or to entities or individuals at the request of, or designated on behalf of, a covered recipient. "Covered recipient" is defined as: (1) a physician, other than a physician who is an employee of an applicable manufacturer; or (2) a teaching hospital. "Physician" includes doctors of medicine and osteopathy, dentists, podiatrists, optometrists and licensed chiropractors. "

The term "teaching hospital" is not explicitly defined in the Act. CMS noted that one possible way to define the term "teaching hospital" is by linking it to Medicare graduate medical education (GME). CMS believed this is an appropriate way to identify teaching hospitals because GME payments are provided to support the training of medical residents, and hospitals that receive such payments are easily identifiable. Therefore, CMS proposed to define a teaching hospital as any institution that received payments under section 1886(d)(5)(B) of the Act (IPPS Indirect Medical Education (IME)), section 1886(h) of the Act (direct GME), or section 1886(s) of the Act (psychiatric hospitals IME) during the most recent year for which such information is available.  CMS seeks comment on this proposed definition.

c. Identification of Covered Recipients

In order to accurately distinguish covered recipients, the Act requires that applicable manufacturers report the covered recipient's name and business address, and for physician covered recipients, report the physician's National Provider Identifier (NPI), and specialty. The collection of this information is necessary for applicable manufacturers, in order to distinguish individual covered recipients when reporting to CMS. Similarly, it is also important for CMS when aggregating the data.

CMS suggested that applicable manufacturers use the National Plan & Provider Enumeration System (NPPES), which CMS currently maintains and updates on its public website. CMS believed that NPPES represents the most comprehensive listing of physicians available. If a physician is not listed in the NPPES NPI registry, the applicable manufacturer will be responsible for obtaining the physician's individual NPI directly from the physician, to the extent that the physician has an NPI.

CMS is also considering whether it should require that applicable manufacturers report another unique identifier such as State license number, for physicians who are identified, but do not have an NPI. CMS seeks comment on what other unique identifiers could be used, including whether these unique identifiers are readily obtainable by applicable manufacturers.

With respect to teaching hospitals, CMS proposes to publish a list of hospital covered recipients (that is, those hospitals that received Medicare direct or indirect GME) on the CMS website once per year. CMS believes publication of this list is necessary because it may not be immediately apparent to applicable manufacturers whether a particular hospital meets our proposed definition of a teaching hospital, and there is no currently published database that includes this information. The list for the reporting year would include the most recent data available. We propose that the list of teaching hospital covered recipients should include the name and address of each teaching hospital. CMS seeks comments on this proposal.

d. Payments or Other Transfers of Value

"Payment or other transfer of value" is defined broadly as "a transfer of anything of value." This includes all payments or other transfers of value given to a covered recipient, regardless of whether the covered recipient specifically requested the payment or other transfer of value. In addition, payments or transfers of value made to an individual or entity at the request of or designated on behalf of a covered recipient must be reported under the name of the covered recipient.

CMS proposed that this includes payments or other transfers of value provided to a physician (or physicians) through a physician group or practice. CMS proposed that payments or other transfers of value provided through a group or practice should be reported individually under the name(s) of the physician covered recipient(s).

In addition, there may be other situations when a covered recipient may request that a payment or other transfer of value be transferred by the applicable manufacturer to another individual or entity instead of being provided directly to himself/herself or the hospital itself. CMS stated that these payments should be reported under the name of the covered recipient since they are made at the request of, or designated on behalf of, a covered recipient.

Additionally, CMS proposed that applicable manufacturers report the name of the entity or individual that received the payment at the request of or designated on behalf of the covered recipient. Reporting the entity or individual paid will maximize transparency about the details of the payment or other transfer of value, by allowing end users to discern whether a covered recipient actually received the payment, and if not, where the payment went.

CMS does not believe it is feasible to provide a review period for these entities or individuals before the data is made publicly available on the CMS website. Instead, CMS believes that review by the covered recipient is sufficient and welcomes comment.

e. Payment and Other Transfer of Value Report Content

There are specific categories of information required to be reported for each payment or transfer of value provided to a covered recipient CMS provided the following explanations and details on how it proposes that applicable manufacturers report some of this information to CMS.

(1) Name

When reporting the name of physician covered recipients, CMS proposes reporting the first name, last name, and middle initial for physician covered recipients.

(2) Business Address

CMS proposes that applicable manufacturers report the full street address. For teaching hospital covered recipients, they propose using only the address included in the CMS-published list of teaching hospitals. For physician covered recipients, they propose that applicable manufacturers report the physician's primary practice location address since this is more easily recognizable to end users of the data. The practice location can be found in NPPES as the "provider business practice location."

(3) Specialty and NPI

Applicable manufacturers are also required to report specialty and NPI for physician covered recipients. If using NPPES, CMS suggests using the "provider taxonomy" field when reporting the physician specialty. CMS proposes that applicable manufacturers only report a single specialty for each physician covered recipient. CMS proposes that applicable manufacturers use only the specialties available for the "provider taxonomy" field in NPPES.

(4) Date of Payment

Applicable manufacturers must provide the date upon which a payment or transfer of value was provided to the covered recipient. Some payments or transfers of value may be provided over multiple dates, such as a consulting agreement with monthly payments. CMS proposes that applicable manufacturers use their discretion over whether to report the total payment on the date of the first payment as a single line item, or to report each individual payment as a separate line item. Under this proposal, either approach would comply with these regulations.  CMS is also considering requiring manufacturers to report multiple payments in a single consistent manner and seeks comments on these proposals.

(5) Associated Covered Drug, Device, Biological, or Medical Supply

The Act requires applicable manufacturers to report the name of the covered drug, device, biological, or medical supply associated with that payment, if the payment is related to "marketing, education, or research" of a particular covered drug, device, biological, or medical supply.  CMS realizes that not every financial relationship between an applicable manufacturer and a covered recipient is explicitly linked to a particular covered drug, device, biological, or medical supply. However, in cases when a payment or other transfer of value is reasonably associated with a specific drug, device, biological, or medical supply, the name of the specific product must be reported.

For example, if a sales representative takes a physician to dinner to explain the benefits of the applicable manufacturer's new product, the name of the product must be included since it was associated with the dinner. CMS proposes that the applicable manufacturer should report a related covered drug, device, biological, or medical supply (if there is one) using the name under which the product is marketed, since this name is probably most recognizable to the consumer. In the event that a covered drug, device, biological or medical supply does not yet have a market name, the applicable manufacturer should report the scientific name.

Additionally, CMS proposes that applicable manufacturers report only one covered drug, device, biological, or medical supply as related to a payment or other transfer of value, even though there arguably may be multiple products related to the payment. We are considering, as an alternative, allowing applicable manufacturers to report multiple covered drugs, devices, biologicals, or medical supplies as related to a single payment or other transfer of value. Allowing the reporting of multiple covered drugs, devices, biologicals and medical supplies may be easier for applicable manufacturers since many financial relationships are not specific to one product only, but would make aggregating payments by product difficult.  We seek comment on this approach.

Finally, if an applicable manufacturer is not reporting the name of the drug, device, biological, or medical supply as appropriate, then the applicable manufacturer may be subject to penalties under section 1128G(b) of the Act.

(6) Form of Payment and Nature of Payment

The statute requires reporting on both the form of payment and the nature of payment for each payment or transfer of value made by an applicable manufacturer to a covered recipient.

The statute provides a list of categories for both the form of payment and nature of payment and gives the Secretary discretion to define additional categories, if necessary. These categories are described in more detail later in this section.

CMS proposes that the categories within both the form of payment and the nature of payment should be defined as distinct from one another. CMS believes that any overlap among the categories will decrease the overall utility of the information submitted to CMS. For example, a payment for activities under the nature of payment category "education" should be separate from activities under the nature of payment category "research." If a payment or other transfer of value for an activity is associated with multiple categories, such as travel to a meeting under a consulting contract, we propose that the travel expenses should remain distinct from the consulting fee expenses and both categories would need to be reported to accurately describe the relationship.

However, CMS believes that reporting multiple categories to describe a single payment or transfer of value may be confusing for end users, so we propose that for each payment or other transfer of value reported, applicable manufacturers may only report a single nature of payment and a single form of payment. For example, if a physician received meals and travel in association with a consulting fee, we propose that each segregable payment be reported separately in the appropriate category. The applicable manufacturer would have to report three separate line items, one for consulting fees, one for meals and one for travel.

The amount of the payment would be based on the amount of the consulting fee, and the payments for the meals and travel. For these lump sum payments or other transfers of value, we propose that the applicable manufacturer break out the disparate aspects of the payment that fall into multiple categories for both form of payment and nature of payment. This approach should be easier for users to understand since they will know the totals for each form of payment, and each nature of payment, rather than totals for various combinations of categories, which may differ across applicable manufacturers.

In addition, this should lead to greater consistency within the database because applicable manufacturers will separate all payments, rather than each applicable manufacturer combining payments differently. CMS seeks comment on the proposal to require reporting payments under a single form of payment and nature of payment. CMS welcomes comments about the usefulness of this data as well as any operational issues that applicable manufacturers might face in reporting it.

They also solicit comment on an alternative approach of allowing a payment or other transfer of value for an activity that is associated with multiple segregable categories to be reported as a single lump sum, rather than separately by each segregable category.  This approach may be more compatible with existing business processes, but it might also make the public disclosure database more confusing for end users. We welcome comment on the costs and relative advantages and disadvantages of this approach.

f. Forms of Payments

The Act lists the following forms of payment that applicable manufacturers must use to describe payments or other transfers of value:

  • Cash or a cash equivalent.
  • In-kind items or services.
  • Stock, a stock option, or any other ownership interest, dividend, profit, or other return on investment.
  • Any other form of payment determined by the Secretary.

CMS does not propose to add any forms of payment beyond those outlined in the statute because we believe what is provided in the statute is sufficient to describe payments and other transfers of value. CMS seek comments on whether other categories are necessary or would be helpful.

Additionally, CMS believes that these terms are understandable as written and propose that each form of payment be defined by the term's dictionary definition. Applicable manufacturers must assign each individual payment or other transfer of value, or separate parts of a payment, to one and only one of these categories.

g. Nature of Payment

The Act lists the categories for the nature of payment or other transfer of value that applicable manufacturers must use to describe each payment. CMS proposes that each of these categories should be distinct and that only one nature of payment can be indicated for each individual payment or other transfer of value reported. When selecting natures of payment, CMS encourages applicable manufacturers to consider the purpose and the manner of the payment or other transfer of value.

If a payment could conceivably fall into more than one category, CMS asks applicable manufacturers to make reasonable determinations about the nature of payment reported for the payment or transfer of value. The Act lists the following categories for nature of payment:

  • Consulting fees.
  • Compensation for services other than consulting.
  • Honoraria.
  • Gift.
  • Entertainment.
  • Food.
  • Travel (including the specified destinations).
  • Education.
  • Research.
  • Charitable contribution.
  • Royalty or license.
  • Current or prospective ownership or investment interest.
  • Direct compensation for serving as faculty or as a speaker for a medical education program.
  • Grant.
  • Any other nature of the payment or other transfer of value (as defined by the Secretary).

CMS believes that these terms have meanings to the general public that are familiar to the industry and propose defining each nature of payment category by its dictionary definition. To ensure consistency in the reporting and selection of categories, CMS will allow applicable manufacturers to submit with their data a document describing the assumptions used when categorizing the natures of payments.

Submission of the assumptions document will not be mandatory, but CMS believes that applicable manufacturers may want to explain the reasoning behind their categories. Additionally, CMS believes that the information may be useful for CMS to monitor how applicable manufacturers are reporting data and whether significant differences among applicable manufacturers exist. The assumptions documents will not be posted on the public website because they may contain information applicable manufacturers would consider proprietary.

However, based on CMS review and assessment of these assumptions, they may choose to offer further guidance to applicable manufacturers regarding how natures of payment should be classified. CMS recognizes that many of these categories are similar, so the assumptions document can also help us understand the assumptions made by applicable manufacturers when classifying payments or other transfers of value. CMS seeks comments on this proposal, including whether it should make submission of the assumptions document mandatory instead of voluntary.

CMS also provided some explanation of the following categories to provide additional context: charitable contribution, food, research, and direct compensation for serving as faculty or as a speaker for a medical education program. These explanations are not exhaustive (unless specified as such), but rather are intended to provide guidance to applicable manufacturers when they are categorizing payments.

(1) Charitable Contributions

Charitable contributions to, at the request of, or on behalf of covered recipients by applicable manufacturers must be reported. For purposes of the reporting requirement, a charitable contribution is any payment or transfer of value made to an organization with tax-exempt status under the Internal Revenue Code of 1986 that is not more specifically described by one of the other nature or payment categories. Payments that do not meet this requirement made to, at the request of, or designated on behalf of a covered recipient must be reported in another appropriate category.

(2) Food and Beverage

CMS proposes that applicable manufacturers should report the value of any food or beverage items provided to covered recipients, over $10 or $100 aggregate.  This would be more straightforward in circumstances where covered recipients who partake in the meal are easily identifiable (for example, when a sales representative takes a specific number of physician covered recipients to a restaurant). However, CMS recognizes that in instances where group meals are being provided in group settings (for example, buffet-style food in a physician's office), it may be more difficult to keep track of which covered recipients are partaking in the food and beverage. CMS proposes that in this type of scenario, applicable manufacturers should report the cost per covered recipient receiving the meal (even if the covered recipient does not actually partake of the meal).

For example, if once during the calendar year, a sales representative from an applicable manufacturer brings $25 worth of bagels and coffee to a solo physician's office for a morning meeting, regardless of the number of individuals who partake (such as non-covered recipient staff members), the per covered recipient cost is $25. Since this falls above the $10 minimum threshold for reporting a payment or other transfer of value, which is statutorily required, this meal must be reported.

However, if the practice group includes five physicians, then the per-covered recipient cost is $5 (regardless of whether all five physicians actually consumed any of the food provided), so the payment would not need to be reported. CMS recognizes that this may be difficult for large group practices or hospital-based physicians, where an applicable manufacturer may be bringing bagels for a meeting with two specialists. CMS is considering whether to adopt a different approach for these situations, such as counting the number of physicians by department.

CMS seeks comment on these proposals and whether there is a more equitable, but not overly burdensome, way to report these payments or other transfers of value. Additionally, they propose that applicable manufacturers do not need to report any offerings of buffet meals, snacks or coffee at booths at conferences or other similar events where it would be difficult for applicable manufacturers to definitively establish the identities of the individuals who accept the offerings.

(3) Research

CMS seeks to limit the research category to bona fide research activities, including clinical investigations that are subject to both a written agreement or contract between the applicable manufacturer and the organization conducting the research, as well as a research protocol. CMS proposes to use this method to distinguish the research nature of payment category from other natures of payment categories because this method is also used to identify payments or other transfers of value eligible for delayed publication to protect the proprietary interests of applicable manufacturers. More details and an explanation of the written agreement and research protocol, as well as a definition of clinical investigation, are discussed more fully in the section of this preamble regarding delayed publication.

CMS requests comment on whether its proposed method is viable and not overly burdensome, and whether an alternative method would be preferable.

CMS proposes to separate the classification of research payments to clarify whether the payment or other transfer of value went indirectly or directly to the covered recipient. Indirect research would be used when a research payment is made to a clinic, hospital (other than a teaching hospital), or institution conducting the research (either by an applicable manufacturer or a CRO entity) and that organization in turn pays the physician covered recipient (or multiple physician covered recipients) serving as a principal investigator(s). Conversely, direct research would be used when a research payment or other transfer of value was provided directly to a physician covered recipient or teaching hospital covered recipient by an applicable manufacturer or CRO entity.

When reporting payments or other transfers of value designated as research, CMS proposes that applicable manufacturers must report the payment or other transfer of value as either "indirect research" or "direct research."  When reporting indirect or direct research, we propose that the payment or other transfer of value should be reported individually under the names and NPIs of physician covered recipients serving as principal investigators. For indirect payments, this includes the physician covered recipient(s) serving as principal investigator(s) who would ultimately receive payments from the clinic, hospital, or other research institution, assuming the applicable manufacturer is aware of the identity of the principal investigator(s).

Teaching hospitals are also defined as covered recipients, and may conduct research led by a physician covered recipient(s) acting as (a) principal investigator(s). While these payments could be reported as direct research to the teaching hospital covered recipient, we do not want to establish different reporting requirements for physician covered recipients acting as principal investigators at teaching hospitals versus other research institutions. To maintain consistency, we propose that research payments provided to teaching hospitals and ultimately to physician covered recipients must be reported for both the teaching hospital covered recipient, and the physician covered recipient(s).

The payment or other transfer of value to the teaching hospital covered recipient should be reported as a direct research payment; whereas the payment or other transfer of value for the principal investigator(s) (physician covered recipient(s)) should be reported as indirect research.

Based on these considerations, CMS proposes that for both direct and indirect research, applicable manufacturers must report the entire payment amount for each research payment (whether to the covered recipient or research institution), rather than the specific amount that was provided to the covered recipient. However, on the public website, CMS would report the payment amount separately and would not aggregate it into the total for physician covered recipients.  CMS seeks comment on these proposals.

CMS is also considering attributing the total payment to the covered recipient for direct research. May be necessary because in direct research, the covered recipient is individually receiving the payment, so the specific amount the covered recipient is receiving is clearly defined and available to the applicable manufacturer.

CMS solicits comments about which existing nature of payment category (previously described) would apply to these other types of research, whether the scope of the "research" nature of payment should be broadened, and/or whether another nature of payment category should be added to address such research.

(4) Direct Compensation for Serving as a Faculty or as a Speaker for a Medical  Education Program

CMS proposed that this category of payment be interpreted broadly to encompass all instances in which applicable manufacturers pay physicians to serve as speakers, and not just those situations involving "medical education programs."  CMS believes that this interpretation is consistent with the authority granted in the Act to add additional nature of payment categories. Alternatively, CMS is considering adding another nature of payment category to describe situations when a covered recipient provides speaking services that are outside of medical education programs; however CMS believes that fewer categories for nature of payment is preferable. Additionally, it is simpler to only have one category for speaker fees to minimize potential inconsistencies in how applicable manufacturers categorize payments. CMS welcomes comment on this proposal and the appropriate distinction between this nature of payment category and other categories, such as honoraria.

CMS realizes that this interpretation does not allow for differentiation between continuing medical education (CME) accredited speaking engagements, and all other speaking engagements.  CMS is considering, and welcome comments on, whether to limit this category to CME-accredited speaking engagements and report other speaking engagements in another category, such as compensation for services other than consulting, or additional category.

Exclusion:  Educational Materials that Directly Benefit Patients or are Intended For Patient Use

Educational materials must consist of materials (such as pamphlets) that directly benefit patients or are intended for patient use. CMS wants to clarify that this exclusion is limited to "materials" (including, but not limited to, written or electronic materials) and does not include services or other items. CMS is considering whether certain materials provided by applicable manufacturers to covered recipients to educate the covered recipients themselves, but which are not actually given to patients (for example, medical textbooks), should be interpreted as educational materials that "directly benefit patients."

CMS seeks comments on whether such materials should be included in this exclusion and, if so, which types of educational materials provided to covered recipients should be deemed to "directly benefit patients." CMS intends to finalize the agency's position on this in the final rule based on comments received.

(5) Indirect Payments through a Third Party

The Act also excludes the reporting of payments or other transfers of value that an applicable manufacturer makes indirectly to a covered recipient through a third party when the applicable manufacturer is unaware of the identity of the covered recipient. However, any payment or other transfer of value provided to a covered recipient through a third party, whether or not the third party is under common ownership with an applicable manufacturer or operating in the U.S., must be reported, if the applicable manufacturer is aware of the covered recipient's identity.

This exclusion hinges on whether an applicable manufacturer is "unaware" of the identity of the covered recipient. To ensure that payments via third parties are reported, where appropriate, we propose that an applicable manufacturer is aware of the identity of a covered recipient if the applicable manufacturer has actual knowledge of, or acts in deliberate ignorance or reckless disregard of, the identity of the covered recipient.

For example, if an applicable manufacturer provides a payment through a third party to the department chairs at a specific hospital, this payment would need to be reported because even though the applicable manufacturer did not name the recipients, their identities are publicly available. This standard is consistent with the knowledge standard set forth in many fraud and abuse laws, including the False Claims Act, and we believe it is one with which applicable manufacturers are already familiar. In addition, CMS proposes that awareness of the identity of the covered recipient by an agent of the applicable manufacturer will be attributed to the applicable manufacturer.

h. Exclusions

The Act excludes the following types of payments and other transfers of value from the reporting requirements:

  • Transfers of value less than $10, unless the aggregate amount transferred to, requested by, or designated on behalf of the covered recipient exceeds $100 in a calendar year.
  • Product samples that are not intended to be sold and are intended for patient use.
  • Educational materials that directly benefit patients or are intended for patient use.
  • The loan of a covered device for a short-term trial period, not to exceed 90 days, to permit evaluation of the covered device by the covered recipient.
  • Items or services provided under a contractual warranty, including the replacement of a covered device, where the terms of the warranty are set forth in the purchase or lease agreement for the covered device.
  • A transfer of anything of value to a covered recipient when the covered recipient is a patient and not acting in the professional capacity of a covered recipient.
  • Discounts, including rebates.
  • In-kind items used for the provision of charity care.
  • A dividend or other profit distribution from, or ownership or investment interest in, a publicly traded security or mutual fund.
  • In the case of an applicable manufacturer who offers a self-insured plan, payments for the provision of health care to employees under the plan.
  • In the case of a covered recipient who is a licensed non-medical professional, a transfer of anything of value to the covered recipient if the transfer is payment solely for the non-medical professional services of the licensed non-medical professional.
  • In the case of a covered recipient who is a physician, a transfer of anything of value to the covered recipient if the transfer is payment solely for the services of the covered recipient with respect to a civil or criminal action or an administrative proceeding.
  • Transfers of value made indirectly to a covered recipient through a third party in cases when the applicable manufacturer is unaware of the identity of the covered recipient.

CMS said it does not their intent to capture purely personal transfers of value (for example, if one spouse, who works for an applicable manufacturer, gives a present to the other spouse who is a covered recipient). They welcome suggestions on how to incorporate this into the codified language of the final rule.

CMS proposes that applicable manufacturers use the dictionary definitions for the exclusions. However, they provided some clarification.

(1) Transfers of Value Less Than $10

Small payments, which the statute defines as payments or other transfers of value less than $10, do not need to be reported, except when the total annual value of payments or other transfers of value provided to a covered recipient exceeds $100. As defined in section 1128G of the Act for subsequent calendar years the dollar amounts specified will be increased by the same percentage as the percentage increase in the consumer price index for all urban consumers (all items; U.S. city average) for the 12-month period ending with June of the previous year. We propose to publish the updated threshold amounts annually on the CMS website.

CMS proposes that applicable manufacturers should not report to CMS any payments or other transfers of value less than $10 individually and all small payments or transfers of value in the same nature of payment category should be reported as one total amount for that category. This would simplify reporting for applicable manufacturers and prevent the reporting of payments less than $10 individually. We have provided a few examples to ensure that this exclusion is applied consistently.

Example 1: An applicable manufacturer takes a physician out to lunch four times during the year and each lunch costs $9. The applicable manufacturer has no other relationships with the physician. Since the aggregate cost of the four meals is $36 for the year, these payments would not need to be reported.

Example 2: An applicable manufacturer provides a physician with five meals, each worth $9, a speaker fee of $150, and pens worth $5. The aggregate amount is greater than $100 so all the payments need to be reported. The speaker fee should be reported as $150 under "direct compensation for serving as faculty or as a speaker for a medical education programs," the meals would be reported together as food for $45, and the pens would be reported as gifts for $5.

(3) Discounts and Rebates

Discounts and rebates for covered drugs, devices, biologicals, and medical supplies provided by applicable manufacturers to covered recipients are excluded from reporting under section 1128G(e)(10)(B)(vii) of the Act. Discounts and rebates are common in the industry and may be beneficial to payers (including Federal health care programs) and beneficiaries. We remind manufacturers of their obligations to appropriately report discounts and rebates for purposes of the Medicare and Medicaid programs and to comply with fraud and abuse laws, including the Federal Anti-Kickback statute.

(4) In-kind Items for the Provision of Charity Care

We recognize the extensive philanthropic activities of many applicable manufacturers, such as the provision of supplies (both in the U.S. and abroad) to provide care for those who are unable to pay. We propose defining "charity care" as items provided to a covered recipient for one or more patients who cannot pay, where the covered recipient neither receives, nor expects to receive, payment because of the patient's inability to pay. Any items provided by the applicable manufacturer to a covered recipient that meet the definition of charity care, are excluded from reporting. This does not include the provision of in-kind items to a covered recipient, even if the covered recipient is a charitable organization, for the care of all of the covered recipient's patients (both those who can and cannot pay). For example, the donation of an imaging machine to a covered recipient that would be for the use of both paying and nonpaying patients would not be excluded under this category, even if the covered recipient is a charitable organization. If a payment or other transfer of value is not an in-kind item and/or not for the provision of charity care, as defined, then the payment must be reported as required under section 1128G of the Act.

Summary

Overall the proposed rule follows closely the original physician payment sunshine provision in the affordable care act.  There are still significant areas that CMS is unsure about.  CMS is seeking significant input into the rule and all affected parties including physicians, hospitals, manufactures; GPO’s and patients should all read the rule carefully and submit comments to CMS.  

The act and subsequent rule will have significant cost and labor implications to manufactures, which CMS grossly underestimates. Assembling all this data will require an army of administrative personal and severely limit any manufacturer interactions with physicians and teaching hospitals.  The time spent on collecting all this information, and processing it is enormous.   In the end it is not clear how any patient will be able to wade through all this data to make some type of quantifiable judgment on their individual physician.   In the end this is taking resources from patient care and putting even more resources towards compliance.

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

 

Baltimore, MD

Centers for Medicare & Medicaid Services,

Department of Health and Human Services,

7500 Security Boulevard,

Baltimore, MD 21244-1850.

 

FOR FURTHER INFORMATION CONTACT:

Erica Breese (202) 260-6079

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