Physician Payment Sunshine Act Final Rule: Definitions
Section 42 CFR § 403.902 provides the definitions for important terms used in the Sunshine Act, which are critical to understanding whether the Act applies and in what circumstances manufacturers must report payments to teaching hospitals or physicians. Below are the definitions.
Applicable group purchasing organization (GPO) means an entity that:
(1) Operates in the United States; and
(2) Purchases, arranges for or negotiates the purchase of a covered drug, device, biological, or medical supply for a group of individuals or entities, but not solely for use by the entity itself.
Applicable manufacturer means an entity that is operating in the United States and that falls within one of the following categories:
(1) An entity that is engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply, but not if such covered drug, device, biological or medical supply is solely for use by or within the entity itself or by the entity's own patients. This definition does not include distributors or wholesalers (including, but not limited to, repackagers, relabelers, and kit assemblers) that do not hold title to any covered drug, device, biological or medical supply.
(2) An entity 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.
Operating in the United States means that an entity
(1) Has a physical location within the United States or in a territory, possession, or commonwealth of the United States; or
(2) Otherwise conducts activities within the United States or in a territory, possession, or commonwealth of the United States, either directly or through a legally-authorized agent.
Common ownership refers to circumstances where the same individual, individuals, entity, or entities directly or indirectly own 5 percent or more total ownership of two entities. This includes, but is not limited to, parent corporations, direct and indirect subsidiaries, and brother or sister corporations. CMS adopted this definition because had Congress “intended to establish a ‘common control’ standard, it would have used that term, rather than ‘common ownership.’”
Assistance and support means providing a service or services that are necessary or integral to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological or medical supply. In providing this new definition, CMS gave an example:
- An entity under common ownership which produces the active ingredient for a covered drug and provides it to the applicable manufacturer for inclusion in the final product would be considered necessary to the manufacturing of that product, since the applicable manufacturer could not produce the drug without the active ingredient
- Conversely, an entity under common ownership that only aids the applicable manufacturer with human resources administrative functions would not be deemed necessary or integral to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of covered products, since human resources functions are not directly involved with any of these manufacturing processes.
Charitable contribution includes, but is not limited to, any payment or transfer of value made to an organization with tax-exempt status under the Internal Revenue Code of 1986, which is not provided in exchange for any goods, items or services.
Charity care means services provided by a covered recipient specifically for a patient who is unable to pay for such services or for whom payment would be a significant hardship, where the covered recipient neither receives, nor expects to receive, payment because of the patient's inability to pay.
Clinical investigation means any experiment involving one or more human subjects, or materials derived from human subjects, in which a drug, device, biological or medical supply is administered, dispensed or used.
Covered device means any device for which payment is available under Title XVIII of the Social Security Act (“Act”) or under a State plan under Title XIX or XXI of the Act (or a waiver of such plan), either separately (such as through a fee schedule) or as part of a bundled payment (for example, under the hospital inpatient prospective payment system or the hospital outpatient prospective payment system) and which is of the type that, by law, requires premarket approval by or premarket notification to the Food and Drug Administration (FDA).
Covered drug, device, biological, or medical supply means any drug, device, biological, or medical supply for which payment is available under Title XVIII of the Act or under a State plan under Title XIX or XXI of the Act (or a waiver of such plan), either separately (such as through a fee schedule or formulary) or as part of a bundled payment (for example, under the hospital inpatient prospective payment system or the hospital outpatient prospective payment system) and which is of the type that in the case of a:
(1) Drug or biological, by law, requires a prescription to be dispensed; or
(2) Device (including a medical supply that is a device), by law, requires premarket approval by or premarket notification to the FDA.
Covered recipient means
(1) Any physician, except for a physician who is a bona fide employee of the applicable manufacturer that is reporting the payment; or
(2) A teaching hospital, which is any institution that received a payment under 1886(d)(5)(B), 1886(h), or 1886(s) of the Act during the last calendar year for which such information is available.
CMS clarified this definition out of concern that “applicable manufacturers could circumvent the reporting requirements by styling a physician as an “employee” and not reporting payments made to such a physician.” This distinction is critical for manufacturers to recognize, as many companies engage physicians for various purposes and in order to remain exempt under this definition, companies will have to ensure that such employment is “bona fide.” Companies should consult guidance from HHS-OIG regarding the bona fide employment exception in the Anti-Kickback Statute in section 1128(b)(3)(B) of the Social Security Act and the corresponding HHS OIG regulation at 42 CFR 1001.952(i).
Employee means an individual who is considered to be “employed by” or an “employee” of an entity if the individual would be considered to be an employee of the entity under the usual common law rules applicable in determining the employer-employee relationship (as applied for purposes of section 3121(d)(2) of the Internal Revenue Code of 1986).
Immediate family member means any of the following:
(2) Natural or adoptive parent, child, or sibling.
(3) Stepparent, stepchild, stepbrother, or stepsister.
(4) Father-, mother-, daughter-, son-, brother-, or sister-in-law.
(5) Grandparent or grandchild.
(6) Spouse of a grandparent or grandchild.
Indirect payments or other transfers of value refer to payments or other transfers of value made by an applicable manufacturer (or an applicable group purchasing organization) to a covered recipient (or a physician owner or investor) through a third party, where the applicable manufacturer (or applicable group purchasing organization) requires, instructs, directs, or otherwise causes the third party to provide the payment or transfer of value, in whole or in part, to a covered recipient(s) (or a physician owner or investor).
Know, knowing, or knowingly
(1) Means that a person, with respect to information—
i. Has actual knowledge of the information;
ii. Acts in deliberate ignorance of the truth or falsity of the information; or
iii. Acts in reckless disregard of the truth or falsity of the information; and
(2) Requires no proof of a specific intent to defraud.
NPPES stands for the National Plan & Provider Enumeration System.
Ownership or investment interest
(1) Includes, but is not limited to the following:
i. Stock, stock option(s) (other than those received as compensation, until they are exercised).
ii. Partnership share(s);
iii. Limited liability company membership(s).
iv. Loans, bonds, or other financial instruments that are secured with an entity's property or revenue or a portion of that property or revenue.
(2) May be direct or indirect and through debt, equity or other means.
(3) Exceptions. The following are not ownership or investment interests for the purposes of this section:
i. An ownership or investment interest in a publicly traded security or mutual fund, as described in section 1877(c) of the Act.
ii. An interest in an applicable manufacturer or applicable group purchasing organization that arises from a retirement plan offered by the applicable manufacturer or applicable group purchasing organization to the physician (or a member of his or her immediate family) through the physician's (or immediate family member's) employment with that applicable manufacturer or applicable group purchasing organization.
iii. Stock options and convertible securities received as compensation, until the stock options are exercised or the convertible securities are converted to equity.
iv. An unsecured loan subordinated to a credit facility.
v. An ownership or investment interest if an applicable manufacturer or applicable group purchasing organization did not know, as defined in this section, about such ownership or investment interest.
Payment or other transfer of value means a transfer of anything of value.
Physician has the same meaning given that term in section 1861(r) of the Act.
Related to a covered drug, device, biological, or medical supply means that a payment or other transfer of value is made in reference to or in connection with one or more covered drugs, devices, biologicals, or medical supplies.
Research includes a systematic investigation designed to develop or contribute to generalizable knowledge relating broadly to public health, including behavioral and
social-sciences research. This term encompasses basic and applied research and product development.
Third party means another individual or entity, regardless of whether such individual or entity is operating in the United States.
CMS provided clarification for some of the above definitions based on comments. First, CMS noted that for “applicable manufacturer,” they never intended to “capture foreign entities that may contribute to the manufacturing process of a covered product, but have no business presence in the United States.” However, “entities based outside the United States that do have operations in the United States are subject to the reporting requirements.”
CMS also clarified that “entities that have operations in the United States are not permitted to circumvent the reporting requirements by making payments to covered recipients indirectly through a foreign entity that has no operations in the United States.” CMS explained that “Such payments are considered to be made by the entity that is operating in the United States as an indirect payment or other transfer of value and must be reported as such, so long as the entity operating in the United States is aware of the identity of the covered recipients receiving the payments as required for all indirect payments or other transfers of value.
CMS also explained that “Entities that only manufacture raw materials or components, which are not themselves covered products, will not be required to report unless they are under common ownership with an applicable manufacturer and assist such manufacturer with the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological, or medical supply.” In the event a supplier of raw materials is under common ownership with an applicable manufacturer, “it will be subject to the reporting requirements for entities under common ownership, including options for consolidated reporting with the applicable manufacturer.”
CMS also revised the definition of “applicable manufacturer” to exclude “hospitals, hospital-based pharmacies and laboratories that manufacture a covered product solely for use by or within the entity itself or by an entity's own patients” because it was not the “intent of the statute to include these entities as applicable manufacturers.”
In addition, the definition of applicable manufacturer does not include pharmacies, including compounding pharmacies, that meet all of the following conditions:
(1) maintain establishments that comply with applicable local laws regulating the practice of pharmacy;
(2) regularly engage in dispensing prescription drugs or devices upon prescriptions from licensed practitioners in the course of their professional practice; and
(3) do not produce, prepare, propagate, compound, or convert drugs or devices for sale other than in the regular course of their business of dispensing or selling drugs or devices at retail to individual patients.
As noted in the definition above, “distributors that hold the title to a covered product are similar to applicable manufacturers since both hold title to the product at some point in the production and distribution cycle,” and therefore, CMS concluded that these entities will be subject to the same requirements as all other applicable manufacturers.
CMS also clarified that “entities that manufacture any covered product are applicable manufacturers, even if the manufacturer does not hold the FDA approval, licensure, or clearance.” CMS noted that while such entities “do not necessarily market the product,… it is clear that they do manufacture it.” Noting that such entities’ “business model may not be focused on covered products.” Accordingly, CMS said that if an applicable manufacturer
- does not manufacture a covered drug, device, biological, or medical supply except pursuant to a written agreement to manufacture the covered product for another entity,
- does not hold the FDA approval, licensure or clearance for the product, and
- is not involved in the sale, marketing or distribution of the product,
then the manufacturer is only required to report payments or other transfers of value related to the covered product.
If an applicable manufacturer has this business arrangement for some products and also manufactures at least one covered product that does not meet these criteria, then the applicable manufacturer must report all payments or other transfers of value subject to the reporting requirements. To address concerns from smaller manufacturers, is allowing applicable manufacturers “with less than 10 percent of total (gross) revenues from covered drugs, devices, biologicals or medical supplies during the previous fiscal year to report only payments or other transfers of value specifically related to covered drugs, devices, biologicals or medical supplies.”
The 10-percent threshold should be calculated based on the company's total (gross) annual revenue. Applicable manufacturers with less than 10 percent of total (gross) revenue from covered products during the previous year that have payments or other transfers of value to report must register with CMS and must attest that less than 10 percent of total (gross) revenues are from covered products, along with their attestation of the submitted data.
CMS also provided clarification for what applicable manufacturers should do when a product becomes “covered” and thus, when data collection and reporting requirements will begin. Agreeing with one comment, CMS will “allow the applicable manufacturer a grace period of 180 days following a product becoming "covered" to begin complying with the data collection and reporting requirements.”
With respect to “assistance and support” for entities under “common ownership,” CMS noted that “The final rule does not require entities under common ownership to report when they are not necessary or integral to manufacturing, and are not applicable manufacturers in and of themselves.”
However, “an indirect payment or other transfer of value made to a covered recipient through an entity under common ownership that is not necessary or integral to the manufacturing process must still be reported as required for indirect payments or other transfers of value.”
In addition, CMS clarified that applicable manufacturers that have separate operating divisions (e.g. animal health) “that only produce non-covered products and do not meet the definition of providing “assistance and support,” that “such divisions only need to report payments or other transfers of value that are related to a covered drug, device, biological or medical supply.” CMS explained that “this includes payments or other transfers of value made directly by the operating division, as well as payments or other transfers of value made indirectly by the applicable manufacturer through the separate operating division, as the latter payments are required to be reported as indirect payments or other transfers of value.” CMS is requiring such reporting to “prevent applicable manufacturers from diverting payments through these divisions in order to avoid the reporting requirements.”
Similarly, CMS said it does “not intend to capture payments made to a veterinary school that may be associated with a teaching hospital.”
Covered Drug, Device, Biological, or Medical Supply
CMS clarified that a covered drug, device, biological or medical supply is one for which payment is available under Medicare, Medicaid or CHIP and which, requires a prescription to be dispensed (in the case of a drug or biological) or premarket approval by or notification to the FDA (in the case of a device or a medical supply that is a device).” For example, “a device which is of a type that requires premarket notification, but for which payment is not available under Medicare, Medicaid, or CHIP, would not be a covered device under the program.”
In defining this term, CMS expressed particular concern “about inadvertently excluding items, such as implantable devices, for which payment may be available only as part of a bundled payment.” As a result, CMS adopted as final “products which are reimbursed separately or as part of a bundled payment.” CMS said it would be “inappropriate to exclude implanted devices that are reimbursed through the hospital inpatient prospective payment system (IPPS) or the outpatient prospective payment system (OPPS), as well as chronic kidney disease drugs and products reimbursed through the end stage renal disease (ESRD) bundled payment system.” Thus, CMS concluded that “bundled payment” would be interpreted as meaning IPPS, OPPS, and other prospective payment systems.
CMS said that it does “not intend to capture all items that require FDA premarket approval or premarket notification and for which payment is available under Medicare, Medicaid, or CHIP. Rather, CMS only intends “to include items that meet these criteria and that are devices (or medical supplies that are devices).” For example, the definition “is not intended to include products that require premarket approval or premarket notification, but that are regulated by the FDA solely as a food.”
CMS also clarified that “covered devices and medical supplies are limited to those devices and medical supplies for which payment is available under Medicare, Medicaid or CHIP, and are of the type that require premarket notification to or premarket approval by the FDA.” CMS said this provides a “clear sense” to applicable manufacturers given that FDA defines the devices (including certain medical supplies) that are exempted from the premarket notification requirements, which can be found in 21 CFR parts 862 through 892.
Although recognizing that “not all payments or other transfers of value will be related to specific drugs, devices, biologicals, or medical supplies,” CMS said “they nevertheless represent a financial relationship between an applicable manufacturer and a covered recipient that has the potential to affect medical judgment and must be reported.” Additionally, CMS expressed concern that “limiting the reporting requirements to payments or other transfers of value related to covered products would create loopholes that would allow entities to avoid reporting of certain payments or other transfers of value.”
CMS explicitly asserted that it would not expand the definition of covered recipients to “include other provider types.” This means that Congress will need to amend the Sunshine Act (Section 6002 of the ACA) to require the reporting of payments to other healthcare professionals, such as nurses, nurse practitioners, physician assistants, or pharmacists.
In fact, CMS recognized that it will “not be able to fully capture financial relationships between industry and prescribers, specifically non-physician prescribers such as nurse practitioners.” However, “to the extent that applicable manufacturers make payments or other transfers of value to non-physician prescribers to be passed through to a physician, they would be indirect payments to the physician and would have to be reported under the name of the physician.”
CMS also clarified that the definition of “covered recipient” hinges on whether a physician is “legally authorized” to practice. Therefore, CMS concluded that “all physicians (including all providers types listed in the statutory definition) that have a current license to practice will be considered covered recipients.” By holding a current license to practice, the physician is legally authorized to practice regardless of the extent to which they do so.
Payments to Residents
CMS clarified that “Payments or other transfers of value to residents (including residents in medicine, osteopathy, dentistry, podiatry, optometry and chiropractic) will not be required to be reported for purposes of this regulation.” CMS acknowledged that while some states require residents to obtain licenses to practice, CMS does “not want to treat residents differently depending on their State of residency by requiring reporting on payments to residents in only those States that require or allow residents to have a license.” CMS recognized the difficulty to “accurately identify residents and ensure that payments or other transfers of value are attributed across applicable manufacturers appropriately because many of them do not have a NPI and/or State professional license number (used for physician identification, discussed later in this section).” Thus, CMS is not requiring the reporting of payments to residents.
CMS also recognized that the term “physician” applies to physicians regardless of whether the physician is enrolled in Medicare, since the “statute did not indicate that physician covered recipients be limited to those enrolled in Medicare, Medicaid or CHIP.”
CMS rejected the idea of allowing physicians to “opt-out” of reporting requirements, and instead, instructed physicians to “simply refuse all payments or other transfers of value from manufacturers” to avoid being included on the public website (unless they hold ownership or investment interests in an applicable manufacturer or applicable GPO).
Additionally, CMS clarified that for employees of agents of the applicable manufacturer, CMS does “not intend these individuals to be included in the exception, since they are not employees of the applicable manufacturer.”
CMS also does “not believe that payments or other transfers of value to legal agents of an applicable manufacturer that happen to have physicians on staff constitutes a payment or other transfer of value for the purposes of this rule.”
Board Members, Medical Directors, Prospective Employees, and Retirees
CMS acknowledged the difficulty of excluding from reporting employees of an applicable manufacturer such as board members and medical directors. However, CMS stated that “whether such individuals fall within the statutory definition of employee in section 1877(h)(2) of the Act, which defines employee by referencing common law rules used to determine the employer-employee relationship for Internal Revenue Service purposes, will require a case-specific analysis. Therefore, CMS did not adopt a bright-line policy that all board members or medical directors are (or are not) bona fide employees for purposes of the reporting exclusion.
Similarly, CMS said it would use a case-specific analysis for determining whether prospective employees and retirees should be treated as employees for purposes of being excluded from the reporting requirements. As a result, CMS was “unable to state that payments to such physicians, such as recruiting costs paid to prospective employees, do not need to be reported.”
CMS agreed that “payments to non-healthcare departments of universities affiliated with teaching hospitals should not be included in reporting requirements.” However, any “payments or other transfers of value made through these departments to a covered recipient as indirect payments or other transfers of value must be reported as required for indirect payments.”
Identification of Physicians in Reports
CMS believed that it is “reasonable for the applicable manufacturer to bear responsibility for determining a physician covered recipient's NPI (or lack thereof).” CMS stated that “Applicable manufacturers should be able to demonstrate that they made a good faith effort to obtain an NPI for the physician.” CMS explained that “a good faith effort includes, but is not limited to, specifically requesting an NPI from the physician, checking the NPPES database, and calling the NPPES help desk.” CMS recognized that the statute does not impose requirements on covered recipients, and thus, CMS cannot require physicians to disclose their NPI to applicable manufacturers when requested.” However, CMS “strongly encourage[d] physicians to provide this information because it is essential for matching payments or other transfers of value to physicians accurately.”
If, after a good faith effort, the applicable manufacturer cannot determine an NPI for a physician covered recipient, or a physician does not have an NPI, CMS agreed with commenters and finalized that the “NPI field may be left blank to indicate that the applicable manufacturer could not identify an NPI for the physician covered recipient.”
However, if CMS determines that a physician covered recipient does have an NPI, CMS may inform the applicable manufacturer and require the applicable manufacturer to re-submit the data including the NPI and re-attest to the updated data.
Additionally, CMS recognized that “not reporting an NPI for physician covered recipients that do have an NPI will be considered inaccurate reporting, which may be subject to penalties. Finally, CMS reiterated that only one individual NPI (not a group NPI) may be reported for each physician, and that applicable manufacturers should use the NPI listed in NPPES, if a dispute arises. CMS noted that physician-covered recipient’s NPIs will not be included on the public website.
CMS stated that “obtaining a unique identifier is particularly important for physicians who do not have an NPI or for whom an NPI cannot be reasonably identified.” As a result, “pursuant to the discretion granted in section 1128G(a)(1)(A)(viii) of the Act,” CMS finalized “that applicable manufacturers must report the State(s) and appropriate State professional license number(s) for at least one (but multiple will be accepted) State where the physician maintains a license for all physician covered recipients, regardless of whether the applicable manufacturer has identified an NPI for the physician covered recipient or not.” CMS stated that such a requirement will “significantly improve data accuracy and will not represent a significant additional burden on applicable manufacturers.”
CMS clarified that it did not intend to require applicable manufacturers to specifically or solely use NPPES in order to obtain the NPI of a covered recipient.” CMS explained that “Applicable manufacturers may obtain physician NPI information (or any other information) in any manner they see fit, as long as they report NPIs accurately as required. This may include matching NPIs obtained elsewhere with the NPIs provided in NPPES.”
“Applicable manufacturers may rely on NPI information in NPPES as of 90 days before the beginning of the reporting year.” However, “just because an NPI is not listed in NPPES does not mean that the applicable manufacturer does not need to make a good faith effort to obtain the NPI or that the payment should not be reported.” Interestingly, CMS acknowledged that the “NPPES is not perfect” and that the agency is “working to improve it.”
Identification of Teaching Hospitals in Reports
CMS will publish a list of hospital covered recipients (that is, those hospitals that received Medicare direct GME or IME payments during the last calendar year for which such information is available) once annually and make it available publicly and for download at least 90 days before the beginning of the reporting year, or for the first reporting year, at least 90 days prior to the start of data collection. Applicable manufacturers can rely on the list for the entirety of the data collection year.
The list will include all hospitals that CMS had recorded as receiving a payment under one of the defined Medicare direct GME or IME programs. The list will include hospital TINs to provide more specific information on hospitals with complex corporate identities.
Finally, CMS will not include an institutional contact, since CMS does not have this information readily available and do not believe it is integral to the success of the program.
Payments or Other Transfers of Value
CMS clarified that payments or other transfers of value to an entity or individual at the request of or designated on behalf of a covered recipient refers “to a situation in which an entity or individual receives and keeps the payment that was made on behalf of (or at the request of) the covered recipient and the coveredrecipient does not receive the payment or other transfer of value. Rather, the covered recipient directs the payment or other transfer of value and does not receive the payment personally. CMS stated that “Such payments or other transfers of value to third party recipients are somewhat different than indirect payments to a covered recipient made through a third
Party.” Indirect payments or other transfers of value are made to an entity or individual (that is, a third party) to be passed through to a covered recipient. In the case of indirect payments or other transfers of value, we believe that the applicable manufacturer will generally direct the payment path.
In general, for purposes of this rule only, CMS interpreted value as the “discernible economic value on the open market in the United States.” However, CMS agreed to allow applicable manufacturers “flexibility to determine value,” and thus did not “create numerous rules for calculating value.” Instead, CMS outlined a few guidelines to help manufacturers.
First, payments or other transfers of value that do not have a "discernible" economic value for the covered recipient specifically, but nevertheless have a discernible economic value generally must be reported. For example, an applicable manufacturer may provide a physician with a textbook that the physician already owns. Since it is a duplicate, it may not have a value to the physician; however, the textbook does have an economic value, so it must be reported.
Second, even if a covered recipient does not formally request the payment or other transfer of value, it still must be reported.
Similarly, when calculating value, CMS believes that “all aspects of a payment or transfer of value, such as tax or shipping, should be included in the reported value.
Finally, all applicable manufacturers must make a reasonable, good faith effort to determine the value of a payment or other transfer of value. The methodology used and assumptions made by the applicable manufacturer may be included in the applicable manufacturer's voluntary assumptions document.
Physician Group Practices
CMS agreed that that payments or other transfers of value being provided to a specific physician through a group practice should not necessarily be attributed to all physicians in that group. However, CMS does not want payments or other transfers of value to “go unreported because they were provided to a group or practice rather than to a specific physician.”
Accordingly, CMS “finalized that payments provided to a group or practice (or multiple covered recipients generally) should be attributed to the individual physician covered recipients who requested the payment, on whose behalf the payment was made, or who are intended to benefit from the payment or other transfer of value. “This means that the payment or other transfer of value does not necessarily need to be reported in the name of all members of a practice.”
For example, CMS stated that “if an applicable manufacturer donates a set of dermatology textbooks to a group practice, … applicable manufacturers should attribute the transfer of value to only the dermatologists at the practice by dividing the cost equally across all dermatologists.” CMS intends for applicable manufacturers to divide payments or other transfers of value in a manner that “most fairly represents the situation.”
For example, many payments or other transfers of value may need to be divided evenly, whereas others may need to be divided in a different manner to represent who requested the payment, on whose behalf the payment was made, or who was intended to benefit from the payment or other transfer of value. CMS said that this approach attributes payments more fairly, “since some physicians in a group practice may not make use of a payment or other transfer of value and may have concerns about such payments or other transfers of value being attributed to them.”
Payments from a covered recipient to another covered recipient
CMS provided clarification about situations where payments or other transfers of value are provided through a covered recipient to another covered recipient—for example, “when a payment is provided to a physician covered recipient, but made through a teaching hospital covered recipient.” CMS noted that a “majority of payments” in this situation will involve a physician and teaching hospital.
Accordingly, CMS clarified that “Payments provided to one covered recipient, but directed by the applicable manufacturer to another specific covered recipient should be reported in name of the covered recipient that ultimately received the payment because the intermediate covered recipient was merely passing through the payment.” For example, if an applicable manufacturer provides a payment to a teaching hospital intended for a physician employee of the teaching hospital, then the payment should be reported in the name of the physician covered recipient, since that is who ultimately received the payment. In addition, a payment provided directly to a physician covered recipient should be reported in the name of the physician, regardless of whether the physician is an employee of a teaching hospital, since the payment was provided to the physician and not the teaching hospital.
In order to prevent double counting, payments provided in these circumstances should not also be reported in the name of the intermediate covered recipient. If the payment or other transfer of value “was not passed through in its entirety, then the applicable manufacturer should report separately the portion of the payment or other transfer of value retained by the teaching hospital covered recipient and the portion passed through to the physician covered recipient.” If the payment or other transfer of value “was not passed through at all, the applicable manufacturer should report it in its entirety in the name of the teaching hospital.” CMS noted that the rules regarding research-related payments made to teaching hospital covered recipients differ somewhat. (see here)
CMS finalized that “applicable manufacturers must report, in the name of the covered recipient, all payments or other transfers of value made at the request of or designated on behalf of a covered recipient, as well as the name of the entity that received the payment or other transfer of value.” In the event that a payment was “provided to an individual, at the request of or designated on behalf of a covered recipient, the individual's name does not need to be reported. Instead, the applicable manufacturer should report simply ‘individual’ in the field for entity paid.”
CMS also finalized that “review and correction for entities which receive a payment at the request of or designated on behalf of a covered recipient will be done by the covered recipient, rather than the entity.”
Payment “at the request of” or “designated on behalf of”
CMS provided general guidelines for how it intends to interpret these phrases. If a covered recipient directs that an applicable manufacturer provide a payment or other transfer of value to a specific entity or individual, rather than receiving it personally, then the payment is being made "at the request" of such covered recipient and must be reported as described in this section (under the name of the covered recipient, but also including the name of the entity paid or "individual," in the case of an individual).
For example, in the event that a covered recipient directs an applicable manufacturer to “donate a payment or other transfer of value—to which he would have otherwise been entitled—to a particular charity, the applicable manufacturer must report the payment in the name of the covered recipient and provide the name of the charity that received the payment at the covered recipient's request.
However, if a covered recipient decides to “neither accept the payment or other transfer of value nor request that it be directed to another individual or entity, then the payment or other transfer of value that was offered by the applicable manufacturer does not need to be reported.” In this situation, “there is nothing to report because no reportable payment or other transfer of value was made to a covered recipient or to an individual or entity at the request of or designated on behalf of a covered recipient.”
In addition, CMS interpreted “designated on behalf of a covered recipient” as when a “covered recipient does not receive a payment or other transfer of value, but the applicable manufacturer provides the payment or other transfer of value to another entity or individual in the name of the covered recipient.” For example, a covered recipient “may waive his payment, and the applicable manufacturer nevertheless donates the payment to a charity ‘on behalf of’ the covered recipient.” CMS recognized “that this could result in a covered recipient who waived a payment nevertheless having a payment reported in his or her name;” therefore, CMS encouraged “covered recipients to make very clear to applicable manufacturers whether they would like their waived fee to be paid to another individual or entity.”
Thus, CMS finalized “that reporting of payments or other transfers of value at the request of or designated on behalf of a covered recipient should be reported, but should include the name of the entity paid or that another individual received the payment. The covered recipient will have the opportunity to review and correct the payment on behalf of the entity or individual that received the payment.”