Life Science Compliance Update

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October 30, 2013

Physician Payment Sunshine Act: CMS Open Payments - Posts Round 6 of Frequently Asked Questions

Now that the government is back at work, the Centers for Medicare & Medicaid Services (CMS) updated it's frequently asked questions (FAQ) page regarding the Open Payments program—formerly known as the Physician Payment Sunshine Act. This time, CMS labeled the updated FAQs with "NEW!" next to the questions, which are listed towards the bottom of the FAQ page. There are twenty (20) new FAQs.

We have previously provided updates and full-text versions of FAQs (particularly in event of future possible government shutdowns). The fact that CMS continues to issue FAQs makes it interesting to see how the agency will handle mistakes or discrepancies regarding topics addressed by FAQs issued after reporting has already begun (August 1st, 2013). In other words, will companies still be penalized for making mistakes that CMS did not clarify until after reporting began, or will the agency use its enforcement discretion?

Below is the full text and hyperlinks to the questions and some of Policy & Medicine's analysis. We have also updated our FAQ story that lists the FAQs by topics. We've highlighted three (3) new FAQs that deal with continuing medical education (CME) at the top.

If an applicable manufacturer provides compensation to a non-US speaker for a CME in the US, does the payment or other transfer of value provided to the speaker need to be reported? (posted October 2013)

Yes. If the non-US speaker meets the definition of a physician covered recipient and the event does not meet the criteria specified at 42 C.F.R § 403.904(g)(ii)-(iii) the payment or other transfer of value provided to the speaker needs to be reported, unless the non-US speaker is a physician employee of the applicable manufacturer. In the latter case, the physician employee would have to fulfill the definition of employee as set forth at Section 1877(h) of the Social Security Act.

Analysis: This should not be news to anyone. It does not matter whether the speaker is from another country. Under the final regulations, if the doctor is licensed in the U.S. to practice medicine—regardless of whether they currently treat patients or are enrolled with CMS—he or she is a covered recipient and falls under the reporting requirements. Thus, the payment would be reportable if the event does not meet all three criteria for exemption.

This question also reiterates CMS' stance in the final rule about taking a case-specific analysis to determine if a physician is an "employee" as defined in the Social Security Act.

Is the loan of a covered device by an applicable manufacturer for training purposes at a CME or non-CME event considered a payment or other transfer of value to covered recipients? (posted October 2013)

No. A loan of a covered device by an applicable manufacturer for training purposes at a CME or non-CME event is not considered a payment or other transfer of value provided to a covered recipient if the device was loaned to the CME vendor for training covered recipients at a CME event and the covered recipient did not take possession of the covered device.

Analysis: This question is in line with the final rule and other recent FAQs about educational materials provided at CME programs. CME providers offering accredited CME should ensure that all agreements and materials with an applicable manufacturer regarding commercial support and funding indicate that the loaned covered device is for training purposes.

Is a meeting a reportable event if an applicable manufacturer located in the United States conducts the meeting in a foreign country? (posted October 2013)

Yes. Any payments or other transfers of value provided by an applicable manufacturer to covered recipients (or physician owners or investors), wherever made, are required to be reported.

Analysis: This is consistent with the final rule. However, manufacturers should be reminded that this meeting would only be reportable if covered recipients (physicians) that attended this meeting (1) were U.S.-licensed; and (2) received reportable payments or transfers of value. Thus, it would be incumbent upon the manufacturer and meeting organizer to determine if any U.S.-licensed physician has registered or will attend the meeting. Manufacturers should also remember that several foreign countries also have transparency reporting laws and regulations.

How should an applicable manufacturer determine which National Drug Code(s) (NDC) to report for a payment or other transfer of value that is associated with a covered drug or biological? (posted October 2013)

Applicable manufacturers and applicable group purchasing organizations are required to report any 10-digit NDC corresponding to the covered drug or biological, which includes the labeler code (assigned by the FDA) and the product and package code (assigned by the labeler) that matches a covered drug or biological that is associated with a payment or other transfer of value. Once reported, Open Payments will identify the associated drug or biological using the provided NDC and provide just the marketed covered drug or biological name on its website.

Analysis: This is consistent with the final rule. Manufacturers may report up to five (5) covered products per payment and would be required to report associated NDCs with each covered product. Additionally, CMS did clarify in the final rules that if "no NDC" is available for a product, "it does not have to be reported."

Are all applicable manufacturers and applicable group purchasing organizations required to register for Open Payments?

(posted October 2013)

No, only applicable manufacturers and applicable group purchasing organizations that have reportable payments or other transfers of value, ownership or investment interest, or both are required to register.

Analysis: This is consistent with the final rule. If an applicable manufacturer makes no payments to "covered recipients"—physicians or teaching hospitals—then they are not required to register.

An entity leases employees to an applicable manufacturer for operational purposes, and continues to pay all salaries for the leased employees. Would this assistance and support be enough to consider the entity an applicable manufacturer if the entity is also under common ownership with the applicable manufacturer?

(posted October 2013)

Yes, the act of an entity leasing employees to an applicable manufacturer that it is also under common ownership with may constitute assistance and support necessary to consider the entity an applicable manufacturer if the service or services provided by the employees that are leased 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.

Are applicable manufacturers required to report a physician's name and taxonomy code as listed in the National Plan & Provider Enumeration System (NPPES)

? (posted October 2013)

Applicable manufacturers and applicable group purchasing organizations (GPO) are required to report a physician's National Provider Identifier (NPI) and name as listed in NPPES and include first and last name, middle initial, and suffix (for all that apply). Applicable manufacturers and applicable GPOs may use their internal information when reporting a physician's taxonomy code. However, the NPPES provider taxonomy code list should be used as the list of accepted physician specialties.

Analysis: This is consistent with the final rule. However, as we recently wrote, the NPPES database has numerous errors. It will be interesting to see whether CMS would penalize manufacturers for errors or mistakes created by using the NPPES database.

Is an applicable manufacturer required to report all taxonomy codes for a physician or just the primary taxonomy codes?

(posted October 2013)

Applicable manufacturers will report only one taxonomy code per physician. Additionally, applicable manufacturers may use their internal data to determine a physician's taxonomy code. However, the National Plan & Provider Enumeration System provider taxonomy code list should be used as the list of accepted specialties.

Analysis: This is consistent with the final rule; however, see our analysis directly above.

What value should an applicable manufacturer assign to clinical study drugs that are provided to principal investigators as part of the research agreement?

(posted October 2013)

Applicable manufacturers are not required to assign a specific value to clinical study drugs that are provided to principal investigators, rather applicable manufacturers should report the total amount of the research payment, including all research-related costs for activities outlined in a written agreement, research protocol or both, as specified in 42 C.F.R. § 403.904(f)(1)(ii).

Analysis: This is consistent with the final rule. CMS clarified in the final rule that the "total research payment amount" should include the aggregated amount of any payments for services includined in the written agreement/research protocol." CMS stated that this includes "the costs associated with patient care, including diagnostics, exams, laboratory expenses, time spent by health care professionals treating the patient and managing the study, and the provision of study drugs, devices, biological, and medical supplies or other in-kind items." 78 Fed. Reg. at 9484.

However, this answer might not have provided the response the questioner was seeking. This question does not tell manufacturers how to actually value the cost of a clinical study drug. Are manufacturers supposed to use what the estimated market price will be, the wholesale price, a discounted price? FDA recently issued guidance on charging patients for clinical study drugs, so this may be helpful for manufacturers to include in their assumption documents if they choose to submit one.

Why was research removed as a nature of payment category option from the general data specification?

(posted October 2013)

The research nature of payment category was removed from the general data specification because all payments or other transfers of value made in connection with an activity that meets the definition of research, as defined at 42 C.F.R § 403.902, are required to be reported using the research data specification according to § 403.904(f). As discussed in the preamble to the final rule research-related payments, which do not meet the definition of research, should be reported using the other nature of payment categories available. (42 Fed Reg. 9482).

Analysis: Research is in a separate payment category also because such payments are eligible for a four (4) year delay in publication on the Open Payments website out of concern for proprietary and confidential business information.

Are Federal, state, and local taxes withheld from a physician owner or investor considered reportable payments or other transfers of value?

(posted October 2013)

No, Federal, state, and local taxes withheld from a physician owner or investor are not considered reportable payments or other transfer of value.

Is a hospital that is not listed on the Open Payments teaching hospital list considered a teaching hospital covered recipient for purposes of Open Payments?

(posted October 2013)

No. A teaching hospital covered recipient for the purposes of Open Payments is defined at 42 C.F.R. § 403.902 as any institution that received a payment under 1886(d)(5)(B), 1886(h), or 1886(s) of the Social Security Act during the last calendar year for which such information is available. The teaching hospital list posted at http://go.cms.gov/openpayments is the final list of all teaching hospital covered recipients for the purposes of Open Payments for the reporting year specified on the list, and the list will be refreshed every year.

Analysis: This question is straightforward. The final rule specifically states that CMS will provide a list of teaching hospitals each year. We recently noted that CMS published the 2014 Teaching Hospital list.

Are independent sales representatives that are responsible for taking product orders from covered recipients and may receive a commission, but who do not hold title to any covered drugs, devices, biological, or medical supply and are not employees of applicable manufacturers required to report payments or other transfers of value provided to covered recipients or physician owners or investors?

(posted October 2013)

Independent sales representatives are only required to report payments or other transfers of value provided to covered recipients or physician owners or investors if they meet the definition of an applicable manufacturer, as defined by 42 C.F.R § 403.902 or if they are under common ownership with an applicable manufacturer and provide assistance and support to such 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. However, applicable manufacturers requiring, instructing, directing or otherwise causing independent sales representatives to provide payments or other transfers of value, in whole or in part, to a covered recipient or physician owner or investor, known as indirect payments defined at § 403.902, are required to be reported by the applicable manufacturer.

Analysis: This question is interesting and applicable manufacturers will need to be careful approaching this scenario. As CMS noted, such scenarios may implicate indirect payments, so manufacturers will want to analyze whether such arrangements meet the definition of "indirect payments."

Does Open Payments require an entity to report payments or other transfers of value provided to covered recipients or physician owners or investors retroactively once the entity becomes an applicable manufacturer, once the entity has a least one covered drug, biological, device or medical supply?

(posted October 2013)

No, Open Payments does not require retroactive reporting. Entities determined to be applicable manufacturers because they have least one product that became a covered drug, have a grace period of 180 days following a drug, device, biological or medical supply becoming covered to begin complying with the data collection and reporting requirements.

Analysis: This is consistent with the final rule and should certainly reassure many smaller manufacturers who are likely working with many physicians, and thus generating reportable events, prior to getting FDA approval. This allows smaller companies to focus on getting FDA approval first, and then creating an aggregate spend system within 180 days of approval to comply with the Sunshine Act—of course if they continue to make payments to covered recipients.

Is an applicable manufacturer with both covered and non-covered products required to report payments or other transfers of value associated with a non-covered device, for example a device that is still in its development phase, which does not have pre-market approval by, nor required to have premarket notification to, the FDA and even when the device will only be used in the preclinical laboratory setting and not on humans?

(posted October 2013)

Yes, applicable manufacturers of at least one covered drug, device, biological or medical supply are required to report all payments or other transfers of value, unless the applicable manufacturer meets one of the reporting limitations, as described in 42 C.F.R. § 403.904(b); in that case the applicable manufacturer is only required to report payments or other transfer of value related to covered drugs, devices, biological, or medical supplies. Reporting limitations include: (1) applicable manufacturers with total revenue from covered drugs, devices, biological, or medical supplies constituting less than 10 percent of total revenue during the fiscal year preceding the reporting year, (2) an entity meets the definition of an applicable manufacturer because it is under common ownership with such applicable manufacturer and provides assistance and support to such applicable manufacturer, (3) the applicable manufacturer has separate operating divisions that do not manufacture any covered drugs, devices, biologicals or medical supplies, and (4) the applicable manufacturer is only manufacturing a covered drug, device, biological, or medical supply because it is under written agreement to manufacture the covered drug, device, biological, or medical supply, does not hold the FDA approval, licensure, or clearance for the covered drugs, device, biological, or medical supply, and is not involved in the sale marketing, or distribution of the covered drugs, device, biological, or medical supply. In the instance of pre-clinical research, applicable manufacturers only need to report the research institution, principal investigator(s) (including their name, National Provider Identifier, State professional license number(s), specialty and business address) and total payment. See 78 FR 9484.

Analysis: This answer is consistent with the final rule. As noted above, this kind of device if used in pre-clinical setting could also be included in the "total research payment."

Is an applicable manufacturer required to report the name of a third party, such as a clinical research organization (CRO) providing an indirect research payment to a covered recipient? (posted October 2013)

No, applicable manufacturers are not required to report the name of the third party, such as a CRO, that indirectly provides a research payment to principal investigators, teaching hospitals, nonteaching hospitals or clinics. Applicable manufacturers are required to report information regarding recipients of research payments as specified in 42 C.F.R § 403.904(f).

Analysis: This is consistent with the final rule.

Is an applicable manufacturer required to report payments provided to a physician covered recipient for a claim settlement, for example, costs relating to a defective product? (posted October 2013)

No, legal proceedings that require physician involvements are excluded, including, legal defense, prosecutions, settlement or judgment of a civil or criminal action and arbitration or other legal action.

Analysis: This is consistent with the final rule.

Is a distributor required to report food and beverages that are provided during an open house for a new distributorship center opened by a distributor? (posted October 2013)

Yes. If the distributor meets the definition of an applicable manufacturer, as defined by 42 C.F.R § 403.902, food and beverages provided to covered recipients and physician owners or investors are required to be reported. The applicable manufacturer should divide the value of the food by the number of those who partook in the food. The value of the food still needs to be accounted for even if the event is a large scale event as long as the applicable manufacturer can identify the covered recipients of the food.

Analysis: This is consistent with the final rule.

Is a donation provided to a teaching hospital's foundation by an applicable manufacturer reportable? (posted October 2013)

Yes, if an applicable manufacturer provides a payment or other transfer of value to a teaching hospital's foundation at the request of or designated on behalf of the teaching hospital covered recipient. An applicable manufacturer will also need to report the donation as a payment or other transfer of value made to a teaching hospital covered recipient if the applicable manufacturer requires, instructs, directs, or otherwise causes the teaching hospital's foundation to provide the donation, in whole or in part, to the teaching hospital covered recipient.

Analysis: This is consistent with the final rule.

How should an applicable manufacturer report a payment or other transfer of value provided to a teaching hospital that is on the Open Payments teaching hospital list if the applicable manufacturer refers to the teaching hospital by a different name or the manufacturer's internal records have a different address? (posted October 2013)

An applicable manufacturer must report identifiers for a teaching hospital as they appear on the teaching hospital list. If there are minor discrepancies in the hospital name and/or address, the name and address provided on the teaching hospital list should be used. The reported Taxpayer Identification Number (TIN) must match exactly the TIN provided on the teaching hospital list.

Analysis: This provides good clarification as many stakeholders have seen discrepancies in names.

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