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August 08, 2013

Physician Payment Sunshine Act: CMS Posts Round 5 of FAQ’s Adds Newsletters and Taxes to Reportable Items

Today, in anticipation for the Open Payments conference call, the Centers for Medicare & Medicaid Services (CMS) published a number of new and important frequently asked questions (FAQs) for the Physician Payment Sunshine Act. Below are all of the new FAQs posted today, August 8, 2013.

In the latest iteration of FAQs, CMS answered a number of questions about the status of "distributors" under the Sunshine Act; clarified reporting for certain materials and textbooks; explained several issues regarding medical devices and exclusions; and clarified addition terms and reporting requirements.

We have also subsequently updated our previous story that organizes all of the CMS FAQs thus far by category. In addition, where applicable, we have added commentary and analysis on these new FAQs. 

Is a newsletter created by an ad agency on behalf of a pharmaceutical client that is an applicable manufacturer, consisting of a few journal abstracts on the disease state and information on patient adherence, a reportable payment or other transfer of value? If so, what "nature of payment" category should the newsletter be reported in? Additionally, can the ad agency as a third party collect and maintain the physician information that is required for reporting?

Yes, a newsletter consisting of a few journal abstracts provided to physician covered recipients from an applicable manufacturer (directly or indirectly) is considered a reportable payment or other transfer of value for purposes of Open Payments if the newsletter is valued at $10 or more or the aggregate amount of payments or transfers of value provided to a covered recipient exceeds $100 in a calendar year. Applicable manufacturers must select the "nature of payment" category that they believe most accurately describes a payment or other transfer of value. (42 C.F.R. § 403.904(e)(2)) Therefore, applicable manufacturers must select the "nature of payment" category that best describes the provision of the newsletter to a covered recipient. The "nature of payment" category applicable to newsletters created by advertising or marketing agencies is "gift," depending on the circumstances of the transfer of value. Third parties, such as an ad agency, can maintain the information collected that is required for reporting by applicable manufacturers.

Analysis: this FAQ will likely raise further alarms in the medical communications industry, as the Washington Legal Foundation (WLF) and the Coalition for Healthcare Communications have already expressed concerns about CMS' position on materials that are protected under the First Amendment. This FAQ may be the last straw before WLF follows through on its warning to CMS for filing a First Amendment suit because this interpretation likely will "chill" protected speech.

Is a textbook donation to a medical center library for the general use of all employees reportable?

The textbook donation would be considered a reportable event if: 1) The medical center library is part of a teaching hospital; or 2) The donation was an indirect payment or transfer of value to a designated physician or group of physicians. Payments or other transfers of value provided to a third party at the request of or designated by the applicable manufacturer on behalf of a covered recipient, must be reported in the name of the covered recipient, as well as the name of the entity that received the payment at the covered recipient's request or designated on the covered recipient's behalf according to 42 C.F.R. § 403.904(c)(10). Additionally, an indirect payment, defined at § 403.902, is a payment or other transfer of value made by an applicable manufacturer to a covered recipient through a third party, where the applicable manufacturer 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. However, CMS does not believe that a payment that ultimately is passed on to a covered recipient has to be reported if the applicable manufacturer "did not intend or expect that a covered recipient would receive any portion of the payment or other transfer of value." (78 Fed. Reg. 9489).

Analysis: This analysis appears somewhat straightforward. If the donation is to a teaching hospital, it will be reportable regardless of what department it goes to (e.g., library, etc.). CMS did not note the $10 limit, so stakeholders should be aware that such textbook donations will be reportable if over $10 and tracking will be required if under $10. A textbook donation may be an "indirect payment" if a physician of that teaching hospital designates the donation in his/her name or requests the donation be made.

Are awards from specialty societies provided to physician covered recipients considered indirect payments if the awards are funded by grants from applicable manufacturers?

Yes. Open Payments requires reporting of direct and indirect payments or other transfers of value provided by an applicable manufacturer to a covered recipient. An indirect payment, defined by 42 C.F.R. § 403.902, is a payment or transfer 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).

If the applicable manufacturer causes the specialty society, acting as a third party, to provide a payment or transfer of value in whole or in part to a covered recipient, then this may be considered an indirect payment or other transfer of value. In this scenario, the transfer of value is the portion of the grant that would be used to create an award for a covered recipient. 

However, an applicable manufacturer is not required to report an indirect payment/other transfer of value if, according to 42 C.F.R. § 403.904(i)(1), the applicable manufacturer is unaware of the identity of the covered recipient. An applicable manufacturer is unaware of the identity of a covered recipient if the applicable manufacturer does not know (as defined in §403.902) the identity of the covered recipient. The definition of "know" states that a person "knows" if he/she has actual knowledge of the information, or acts in deliberate ignorance or reckless disregard of the information. An example of an applicable manufacturer having the requisite knowledge that a covered recipient received an award from grant funds is if an applicable manufacturer allows a specialty society to use its name in an award for a covered recipient, the applicable manufacturer would easily be able to ascertain the identity of the award's recipient. Therefore, the applicable manufacturer could be deemed to be acting with deliberate ignorance if it did not follow up with the specialty society regarding the identity of the recipient. 

Analysis: This explanation is also straightforward. Unless grant funds to a third party are unrestricted, it is most likely that any indirect payments made to covered recipients from such grant funds will be reportable.  

Is a payment or other transfer of value considered indirect if an applicable manufacturer utilizes a market research company's services to conduct double-blinded market research with primary care physicians, which includes paying physicians for participating?

No, a payment or other transfer of value provided to a market research company to conduct double-blinded market research with physicians is not considered an indirect payment. The applicable manufacturer clearly intends a portion of the payment to be provided to physicians, but given that the reason for the third party's involvement is specifically to maintain the anonymity of the respondents and sponsor, we do not intend this to be considered a reportable indirect payment or other transfer of value. Additionally, under section 1128G(e)(10)(A) of the Social Security Act, Open Payments excludes reporting of payments when an applicable manufacturer is unaware of the covered recipient, and the payment to the covered recipient is made indirectly through a third party, such as the market research company, in the above facts. 

Analysis: This just reiterates language from the preamble of the Final Rule (78 Fed. Reg. 9490).    

Are tax and payments for shipping and handling including in calculating value for a payment or other transfer of value?

Yes, tax and payments for shipping and handling are included in the total payment or other transfer of value for Open Payments. 
 

Analysis: Again, reiterating language from the preamble of the Final Rule (78 Fed. Reg. 9470).      

Are applicable manufacturers required to report uncollected payments for a covered device owed by a covered recipient to an applicable manufacturer as a payment or other transfer of value?

Yes, debt forgiveness by an applicable manufacturer for the remaining balance of a covered drug, biological, device or medical supply purchased by a covered recipient is considered a payment or transfer of value and reportable for purposes of Open Payments.

For purposes of the 90-day exclusion for a loan of a covered device, does the loan begin when an applicable manufacturer provides the covered device to a covered recipient or when the covered device is first used by a covered recipient?

The Open Payments reporting exclusion for providing a covered device or device under development for 90 days to permit evaluation of the device or medical supply by the covered recipient begins when an applicable manufacturer provides the covered device to a covered recipient.


If the same medical device is loaned to three different teaching hospitals for a period of 30 days each is that considered one loan subject to the short term loan exclusion? If three identical devices are loaned to three different teaching  hospitals is that considered three separate loans subject to the short term exclusion?  

The short term loan exclusion to permit evaluation of the device or medical supply by the covered recipient applies on a per-covered recipient basis. Therefore, if a manufacturer loans a medical device (whether the same device or not) to different teaching hospital recipients, each for a period of 90 days or less, each loan would be eligible for the exclusion in 42 C.F.R. 403.904(i)(5).

Are free repairs or services, and/or additional training offered by applicable manufacturers included in the contractual warranty exclusion in 42 C.F.R. 403.904(i)(6) ?  

Repairs or services and/or additional training provided under a contractual warranty (including a service or maintenance agreement) will also be subject to the exclusion, where the terms of the warranty are set forth in the purchase or lease agreement.

Analysis: Reiterating language from the preamble of the Final Rule (78 Fed. Reg. 9488). 

Is leasing included in the actions that constitute "assistance or support" to determine if an entity is considered an applicable manufacturer under prong 2 of the definition for an applicable manufacturer at 42 C.F.R § 403.902?

Assistance or support, as defined at 42 C.F.R § 403.902, is conduct that is necessary or integral to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered product.  An example of assistance or support considered necessary or integral, would be an entity that produces the active ingredient for a covered drug, which is then included in the final product.  (78 Fed. Reg. 9463) Based on the limited information supplied in this question, it is difficult to determine whether the provision of a leasing device constitutes assistance or support. However, leasing a device may constitute assistance or support if supplying the device would be necessary or integral to the applicable manufacturer who could not produce the product without the leased device.   

Are research payments provided to a Military Medical Center that is not a teaching hospital covered recipient required to be reported for Open Payments?

Yes, for research payments, the reporting entity must provide the name of the research institution, individual or entity receiving the payment or other transfer of value as outlined in §403.904(f). If the Military Medical Center receives a research-related payment or other transfer of value, which is ultimately paid in whole or in part to a covered recipient (physician or teaching hospital), it must report information on the payment as indicated at § 403.904(f)(1)(i)(C).

Is information regarding a physician principal investigator required for reporting if he/she is a military physician?

Yes, if a military physician is a physician covered recipient principal investigator for a research study that is identified according to 42 C.F.R. § 403.904(f) then information about the physician covered recipient principal investigator is required to be reported as indicated at § 403.904(f)(1)(v).

Should applicable manufacturers and applicable group purchasing organizations use the information found in NPPES if they ascertain that their information regarding physicians' unique identifiers is more accurate that what is listed in NPPES?

Applicable manufacturers and applicable group purchasing organizations may obtain information regarding physicians' unique identifiers from their internal sources however the information must be reported accurately as listed in NPPES.

Analysis: This may be somewhat problematic because as HHS-OIG has noted, the NPPES database is not entirely accurate. Hopefully, all of the press and attention regarding the Sunshine Act will encourage physicians to ensure their information is accurate. Nevertheless, the duty is on manufacturers and GPOs to ensure such data is correct before submitting it to CMS. This may require stakeholders to provide "pre-submissions" to physicians to ensure all data is correct.

How should applicable manufacturers and applicable group purchasing organizations report transfer royalties, which are financial interests in a company provided in conjunction with an intellectual property assignment?

Transfer royalties are reportable payments or other transfer of value for Open Payments. Transfer royalties are required to be reported using the general payment data specification. The appropriate "nature of payment" category for the payment or transfer of value would be "royalty or license." The value of a transfer royalty should reflect the cost of the intellectual property that an applicable manufacturer or applicable group purchasing organization would pay to acquire the intellectual property from a covered recipient.

Is a physician located outside of the United States considered a physician covered recipient for purposes of Open Payments?

If a physician maintains a current state license to practice medicine in any state in the United States, the physician will be considered a covered recipient for purposes of Open Payments. Within Open Payments, the term "physician" has the same meaning as under Section 1861(r) of the Social Security Act, which generally includes doctors of medicine, osteopathy, dentists, podiatrists, optometrists and chiropractors who are legally authorized to practice by a state. A current state license would render the physician "legally authorized" to practice medicine, regardless of the extent to which they do so. Therefore, a physician who maintains an active license to practice in the United States would be considered a covered recipient, and payments made to such a person would have to be reported, even for services rendered (such as speaking at a public seminar) outside of the U.S. An exception to this covered recipient classification is when a physician is a bona fide employee of an applicable manufacturer that is required to submit reporting information under subsection (a) of Section 1128G of the Social Security Act.

Analysis: this is consistent with the final rule (See 78 Fed. Reg. 9483, noting that reporting is required for Principal Investigators "even if they do not regularly treat patients"). All physicians, other than "bona fide" employees would be determined on a "case-specific analysis (See 78 Fed. Reg. 9468). More importantly, this question re-emphasizes that it does not matter where the payment or the nature of the transaction occurs (e.g., outside of the United States); if the physician is licensed in the U.S., he or she is a covered recipient and the Sunshine Act rules apply.

Are dental schools that are affiliated with universities and health care institutions, but do not match the name or address information provided on CMS' teaching hospital list, still considered teaching hospitals for the purposes of reporting?

The teaching hospital list compiled by CMS is a complete list of teaching hospital covered recipients. Applicable manufacturers and applicable group purchasing organizations should collect the TIN from a hospital, or in this case, dental school, that they believe is affiliated with a teaching hospital in order to correctly identify the teaching hospital's name and address from the list. Additionally, as discussed in the proposed and final rule, a teaching hospital is any institution that received payments under sections 1886(d)(5)(B), 1886(h) or 1886(s) of the Act.

Will CMS issue opinions exempting applicable manufacturers or applicable group purchasing organizations from Open Payments reporting requirements?

No, CMS is not issuing advisory opinions exempting applicable manufacturers or applicable group purchasing organizations from Open Payments reporting requirements.

Is a contract research organization (CRO) that performs clinical trials according to protocols for pharmaceutical companies required to report a budgeted amount contracted for medical safety, which is performed by the CRO's employed physician?

A CRO that is not an applicable manufacturer is not required to report information under Open Payments. However, an applicable manufacturer providing a payment that meets the definition of research, as defined at 42 C.F.R. § 403.902, to a CRO which is ultimately paid in whole or in part to a covered recipient (physician or teaching hospital), is required to report, as outlined in §403.904(f), the name of the research institution, individual or entity receiving the payment, total amount of the research payment, name of the research study, names of any related covered drugs, devices, biological, or medical supplies, and information about each physician covered recipient principal investigator. The research agreement may include an unbroken chain of agreements as long as they link the applicable manufacturer with the recipient. If the employee of a CRO who is conducting medical safety for clinical trials for a research study is also a physician covered recipient principal investigator then information regarding the physician is required to be reported by the applicable manufacturer under Open Payments.

 Analysis: this is consistent with the final rule. 78 Fed. Reg. 9482.

Are applicable manufacturers that receive research grants from National Institute of Health (NIH) required to report a sub-award from the NIH grant as a research payment, where the applicable manufacturer contracts with medical centers or universities to conduct research?

Yes, research payments (meeting the definition of research at 42 C.F.R. § 403.902) from an NIH research grant are required to be reported as payment or other transfer of value for purposes of Open Payments according to the special rules for research payments at § 403.904(f).

Is a payment or other transfer of value provided by an applicable manufacturer's distributor to a covered recipient considered a reportable indirect payment if the payment or other transfer of value is from the distributor's own resources and the distributor does not hold title to any of the applicable manufacturer's products?

Yes, if the applicable manufacturer requires, instructs, directs, or otherwise causes the distributor to provide the payment or transfer of value, in whole or in part, to a covered recipient or a physician owner or investor. 

Analysis: CMS appears to be applying the standard of "indirect payments" to this kind of transaction. See 78 Fed. Reg. 9522 (42 C.F.R. § 403.902 Definition of Indirect Payments or Other Transfers of Value).  

Is a distributor for an applicable manufacturer responsible for reporting to CMS payments or other transfers of value to health care professionals?

If a distributor holds title to any covered drug, device, biological, or medical supply, the distributor meets the definition of an applicable manufacturer as defined at 42 C.F.R. § 403.902, and is subject to Open Payments reporting requirements. 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. Applicable manufacturers that have products with titles held by distributors do not need to report payments or other transfers of value made by the distributor to covered recipients. The distributor that holds title will be subject to the same reporting requirements as applicable manufacturers, and thus will be responsible for reporting the transfer of value.

Are distributions to physician owners of LLC units in a physician owned distributor (POD) considered reportable payments or other transfers of value or are they incidents of ownership and not considered reportable?

If a POD falls within the definition of an applicable manufacturer or applicable group purchasing organization (or both), then they must report distributions provided to physician owners of LLC units in the POD for purposes of Open Payments.

What should distributors, which offer a multitude of covered and non-covered products, report in the Product Indicator data element regarding related covered drug, device, biological or medical supply?

Distributors that are considered applicable manufacturers because they hold title to a covered drug, device, biological or medical supply may report "None" in the Product Indicator indicating that the payment or other transfer of value was not associated with any covered drugs, device, biological or medical supply if the payment or other transfer of value was related to the distributor's full line of products, rather than any specific covered products.

Is a distributor considered an applicable manufacturer if it holds title to devices and drugs and distributes and sells medical devices and drugs from a manufacturer to hospitals and ambulatory surgery centers or covered recipients for use in surgical procedures, and payment for all products is limited to commercial insurance and private payer only?

An applicable manufacturer, as defined by 42 C.F.R § 403.902, is an entity that is engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply, or is under common ownership with an applicable manufacturer and provides assistance or support to such entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale or distribution of a covered product or a distributor or wholesaler (including, but not limited to, repackagers, relabelers, and kit assemblers) that do not hold title to any covered drug, device, biological or medical supply. A "covered device" (including a medical supply that is a device) is any device for which (1) payment is available under Medicare, Medicaid, or the Children's Health Insurance Program (CHIP), either separately (such as through a fee schedule or formulary) or as part of a bundled payment, and (2) by law, requires premarket approval by or premarket notification to the FDA.

The question of whether a distributor falls within the definition of an applicable manufacturer, as defined in 42 C.F.R. § 403.902, depends in part on whether payment is available for any of the distributor's products under Medicare, Medicaid, or CHIP. A distributor is not considered an applicable manufacturer for purposes of Open Payments if the distributor only distributes and sells a manufacturer's medical devices and drugs and payment is not available under Medicare, Medicaid, or CHIP. However, it is worth noting that under the final rule, if an entity manufactures at least one covered drug, device, biological, or medical supply, then it qualifies as an applicable manufacturer and must report all payments or transfers of value to covered recipients, regardless of whether or not they are related to a covered product. Similarly, if a distributor distributes at least one covered drug, device, biological or medical supply, then it qualifies as an applicable manufacturer and must report all payments or transfers of value to covered recipients, regardless of whether or not they are related to a covered product.

Is a manufacturer of dental alloys considered an applicable manufacturer for purposes of Open Payments? Are payments or other transfers of value provided to dental labs reportable or only payments or other transfers of value provided to dentists?

A manufacturer of dental alloys is considered an applicable manufacturer, as defined by 42 C.F.R § 403.902, if it is an entity that is engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply (prong 1 of the definition). Additionally, a manufacturer of dental alloys is considered an applicable manufacturer if all of the following criteria are met: the manufacturer of dental alloys provides assistance or support to an entity that meets prong 1 of the definition of an applicable manufacturer of a covered drug, device, biological, or medical supply; the manufacturer of dental alloys and the entity are under "common ownership" (as defined in 42 C.F.R. § 403.902); and the manufacturer of dental alloys' act of providing alloys to the entity constitutes "assistance or support" to the entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological or medical supply. 

The final rule defines assistance or support as being necessary or integral to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered product.  As an example of assistance or support that would be considered necessary or integral, the preamble mentions an entity that produces the active ingredient for a covered drug, which is then included in the final product.  (78 Fed. Reg. 9463.)  It seems likely that a manufacturer of dental alloys under common ownership with an applicable manufacturer, which provides alloys that is included in the final product, would be considered to be providing necessary and integral support with respect to the production of that product.  Similar to the example in the preamble, supplying alloys would be necessary or integral since the applicable manufacturer could not produce the product without it.  

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