Life Science Compliance Update

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June 04, 2013

Physician Payment Sunshine Act: CMS Updates FAQ’s Round 2 – Textbooks, Imaging, Biologics and Employee Recruitment

The Centers for Medicare & Medicaid Services (CMS) recently updated its list of Frequently Asked Questions (FAQs) regarding Open Payments, the National Physician Payment Transparency Program (NPPTP)—also known as the Physician Payments Sunshine Act. Below are summaries and excerpts from the recently posted questions. Notably, CMS has not posted any responses to questions and concerns regarding continuing medical education (CME). We've reordered the questions based on our readers interests.

Click here for our previous write up of CMS' prior FAQs.

Updated FAQs

Which payment category should medical textbooks provided to covered recipients be reported?

CMS provided no definitive answer with respect to this question. Instead, CMS remarked that "Applicable manufacturers must select the nature of payment category that they believe most accurately describes a payment or other transfer of value." Accordingly, they proposed that "[p]ossible natures of payment applicable to medical textbooks include "education" and "gift," depending on the circumstances of the transfer of value.

CMS reiterated that the "education" category "generally includes payments or other transfers of value that involve the imparting or acquiring of particular knowledge or skills, which can include medical textbooks provided to covered recipients."

Is a medical device considered eligible for payment by Medicare, Medicaid, or CHIP for purposes of Open Payments reporting requirements if a test performed using the device is eligible for payment, but not the device itself (e.g., MRI machines, CT, x-rays, ultrasounds machines)?

Yes, if a medical device is used to perform a service that is reimbursable under Medicare, Medicaid, or CHIP, the device is considered a covered device for purposes of Open Payments, so long as it is of the type that by law requires premarket approval by or premarket notification to the FDA, per the definition in 42 C.F.R. § 403.902.

Are drugs or biologicals that are reimbursed by Medicare, Medicaid, or CHIP but do not require a prescription and are not over-the-counter products considered covered drugs or biologicals for Open Payments?

Yes, drugs and biologicals that are reimbursable under Medicare, Medicaid, or CHIP and that are not over-the-counter products are considered covered drugs or biologicals for Open Payments.  The limiting clause requiring a "prescription to be dispensed" in order for a drug or biological to fall within the definition of a "covered drug, device, biological, or medical supply" in 42 C.F.R. § 403.902 is only intended to exclude over-the-counter (OTC) drugs, not those that require administration or authorization by a physician. 78 Fed. Reg. 9465.

Is study equipment, implantable devices, instrumentation, or other supplies provided to a covered recipient by an applicable manufacturer in connection with a FDA approved clinical trial for use solely in a research project considered a transfer of value?

Yes, payments or other transfers of value made in connection with an activity that meets the definition of research and that are subject to a written agreement, a research protocol or both should be included in the total amount of the research payment.

CMS reiterated that payments or other transfers of value that are not included in the written agreement or research protocol should be reported separately in the appropriate nature of payment category.

Are applicable manufacturers required to report meals, travel, lodging, and other similar expenses made in connection with interviewing prospective employees?

Yes, compensation paid by an applicable manufacturer to a physician for expenses made in connection with interviewing the physician for possible employment is considered a reportable payment or other transfer of value.

Should all physician covered recipient principal investigators who perform research for the research institution under a research agreement or research protocol be listed on the research reporting templates when reporting research payments, even if such sub-researchers would not normally be considered "principal investigators" in the normal industry understanding of the word - i.e., the sub- researchers are not directing or in charge of the research overall?

No, applicable manufacturers are only required to report the names of principal investigators, as that term is normally used in industry, not sub-researchers. Applicable manufacturers reporting research payments may report up to five covered recipient principal investigators for each research payment reported.

If an employee (non-physician) of a teaching hospital receives a transfer of value such as a meal, would that transfer of value need to be reported as a transfer of value to the teaching hospital? Similarly, if employees of a physician's office receive a transfer of value, will that transfer of value need to be reported as a transfer of value to the physician?

Non-physician employees of a teaching hospital and non-physician employees of a physician-owned practice or other physician-owned entity are not covered recipients for the purposes of Open Payments. Accordingly, payments or other transfers of value made to these non-physician employees generally do not need to be reported.

However, CMS explained "that such payments to non-physician employees would need to be reported pursuant to 42 C.F.R. §403.904(a) and (c)(10) if the payments were made to the non-physician employees at the request of or designated by the applicable manufacturer on behalf of a covered recipient. In addition, the payments to non-physician employees would need to be reported if they were in fact indirect payments (as defined at §403.902) to a covered recipient (physician or teaching hospital) being made through the non-physician employee.

CMS clarified that "Indirect payments or other transfers of value occur when an applicable manufacturer or applicable group purchasing organization requires, instructs, directs or otherwise causes a third party to provide the payment or other transfer of value, in whole or in part, to a covered recipient." For example, an applicable manufacturer providing equipment to a non-physician employee of a teaching hospital that is intended to benefit the teaching hospital is considered an applicable manufacturer otherwise causing the employee to provide the equipment to the teaching hospital covered recipient.

If a covered recipient does not accept an offered payment or other transfer of value from an applicable manufacturer, but an applicable manufacturer provides the payment or other transfer of value to a separate covered recipient without the prior covered recipient's knowledge, what name should the applicable manufacturer report the payment or other transfer of value under?

The applicable manufacturer should report the payment or other transfer of value under the name of the covered recipient who accepted the payment or other transfer of value.

Is there a required relationship between the "applicable manufacturer" of a covered device and the entity that provides "necessary and integral assistance or support"? 

An entity can be considered an applicable manufacturer under prong 2 of the definition at 42 C.F.R. § 403.902 if it is under common ownership with an applicable manufacturer under prong 1 of the definition, and it provides assistance or support to the prong 1 applicable manufacturer with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological or medical supply. 

"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, including, but not limited to, parent corporations, direct and indirect subsidiaries, and brother or sister corporations.  

CMS clarified that "[a] prong 2 applicable manufacturer is only required to report payments or other transfers of value that are related to a covered drug, device, biological, or medical supply for which it provided assistance or support to the prong 1 applicable manufacturer under common ownership." 

When can covered recipients and physician owners or investors initiate a dispute?

Covered recipients and physician owners or investors may initiate disputes at any time after the 45 day review and correction period begins, but before the end of the calendar year. Note that any changes resulting from disputes initiated after the 45 day review period may not be made until the next time the data is refreshed. If a dispute is not resolved by 15 days after the end of the 45 day period, CMS will report the applicable manufacturer or applicable GPO's version of the payment or other transfer of value (or ownership or investment interest), but will mark it as disputed. CMS previously noted in the final rule that it may only be able to "refresh" the data once or twice a year due to resource constraints.

The definition of an applicable manufacturer excludes distributors or wholesalers that do not hold title to any covered drug, device, biological or medical supply. What is the meaning of "hold title" in this context?  

A distributor holds title to products once it takes ownership of a particular inventory of products from the seller and possesses the right to re-sell the inventory of the products that it has purchased. Holding title to a covered product in this context is distinct from holding FDA approval, licensure or clearance for a covered product.  

Distributors and wholesalers (which include repackagers, relabelers, and kit assemblers) that hold title to a covered drug, device, biological or medical supply meets the definition of an applicable manufacturer.  Distributors and wholesalers that do not hold title of a covered product will not be subject to the reporting requirements, unless they are under common ownership with an applicable manufacturer and provide assistance or support with respect to a covered drug, device, biological, or medical supply.  

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