Life Science Compliance Update

November 20, 2015

Senate Finance Committee Hearing on Physician Owned Distributorships (PODs) Highlights the Complexity of the Issue

The Senate Finance Committee has been conducting an investigation into Physician Owned Distributorships (PODs), leading to at least one referral to the Health and Human Services Office of Inspector General for potential action, the case of a device manufacturer who offered to make payments to doctors through a third party to avoid disclosure.


The Affordable Care Act's Open Payments Program made it a requirement for PODs to disclose their ownership interests. POD critics, including some politicians, say such required disclosure has not been happening the way it should be. On November 17, 2015, the Senate Finance Committee held a hearing on PODs, entities in which physicians are both an investor and a distributor of the product or device. Senate Finance Committee Chairman Orrin Hatch and Ranking Member Ron Wyden called the hearing and issued the following joint statement:

While the vast majority of doctors operate with the highest ethical standards, those with a vested stake in medical device distributorships raise a number of concerning questions about the physician's motivation in prescribing a procedure, as well as the overall cost to the health care system. When physicians have a financial incentive to recommend and perform a surgery, a potential conflict of interest can occur and jeopardize the health of patients.  With this hearing, the Committee will have the opportunity to hear views on all sides of the debate, and we look forward to a constructive conversation on how to ensure major health decisions are made in the best interest of the patient and not the physician's pocketbook.

Senator Hatch insisted that he understands that PODs are not always problematic, but that "more and more of these physician-salespeople using the very devices they sell in the surgeries and procedures they perform" and could be beginning to cause an ethical imbalance in the profession.

The hearing did include views on all sides of the debate, with Scott Lederhaus, M.D., President of the Association for Medical Ethics; John Steinmann, D.O., Board Advisor to the American Association of Surgical Distributors; Suzie Draper, Vice President of Business Ethics and Compliance at Intermountain Healthcare; and Kevin Reynolds, the son of a patient where the surgeon was affiliated with a POD, in attendance.

Due to their involvement in the field and presumed understanding of the topic, Dr. Lederhaus and Dr. Steinmann offered the majority of the testimony, each on an opposing side of the issue.

Scott Lederhaus, M.D. – Association for Medical Ethics

Dr. Lederhaus has spent the last several years speaking out against PODs of implantable medical devices. The organization Dr. Lederhaus is president of, the Association for Medical Ethics, was formed in 2005 because of concerns about excessive and unnecessary spinal surgeries being performed. The members of that group "believe there is a need to address the rampant physician financial conflicts of interest contributing to the overuse and misuse of spine surgery in America."

According to Dr. Lederhaus, spinal fusion surgery is one of the most common surgical procedures done in the United States with roughly a half a million operations per year. He states, "extensive spinal fusion surgery in the United States has exploded over the last decade often without indication and for no reason other than to enhance the income of some greedy and misguided spine surgeons."

Dr. Lederhaus believes that PODs have a tendency to find their way around the legal requirements, stating that even when doctors do disclose their POD ownership to patients, patients do not understand what it means, or what it entails. "Patients are blindly willing to accept whatever implant the surgeon would decide to use regardless of the quality of those implants or where they are made. A patient has no idea what a POD is or how a POD might affect their treatment or outcome."

Senator Hatch asked Dr. Lederhaus if he though changes to the Sunshine Act would eliminate any conflicts of interest and be "enough to protect patients from physicians with financial interests" in PODs. Dr. Lederhaus does not think changes to the Sunshine Act would be enough and that it would be difficult to control and keep track of dishonest people who went out of their way to hide their involvement. Dr. Lederhaus feels as though it is a conflict of interest for a physician to have ownership interest in a POD and receive revenues from procedures that they perform on their patients.

John Steinmann, D.O. – American Association of Surgeon Distributors

Dr. Steinmann was the only witness present at the hearing who supported PODs. As board advisor for the American Association of Surgeon Distributors (AASD), he focused on the compliance that the AASD requires of PODs with respect to both the self-referral and anti-kickback statutes. AASD also encourages transparency with patients and utilization reports to ensure doctors who join a POD do not suddenly start performing more surgeries as a result.

Dr. Steinmann also defended PODs, saying they actually help to lower the cost of treatment by reducing the price of devices they sell. He stated that since PODs do not have the sales force and overhead that traditional device manufacturers have, they can sell their devices at a lower cost, thereby lowering the cost of healthcare.

He recognized that there are, as always, some bad apples who take advantage, and insisted that the lack of "clear, affirmative program guidance from the government has kept many honorable surgeons and their hospitals from sitting down to implement this very sensible model." Steinmann continued to defend the ethical physicians who participate in PODs, saying, "I don't believe it's [the potential for physicians to earn extra money from PODs] powerful enough to change a person's ethics."


Proponents of PODs argue that some of the hardline statements coming from the HHS OIG and Congress go too far and claim that implementing a sweeping prohibition on physician ownership in medical technology companies might have an unintended "chilling effect" on legitimate business practices as well as medical breakthroughs and research.

Senator Hatch was the only senator to ask questions of the witnesses. While it seems as though Senators Hatch and Wyden are eager to engage in discussion of what should be done to "promote patient safety and transparency" in PODs, they haven't given us an exact "tell" of how they plan to move forward. Senator Hatch seemed particularly interested in existing laws and whether the federal government currently offers enough guidance to provide clarity for hospitals to design POD policies that comply with the law and how to deal with the confusing web of entities that may be involved in paying physician POD investors.

Senator Hatch also expressed an interest in finding a balance between physician entrepreneurship and safeguards to protecting patients from unnecessary harm. He asked that members of the Senate Finance Committee submit their written questions to him by Tuesday, December 1, signaling that he himself is not entirely sure what to think.

Senator Hatch has previously represented physicians and hospitals so he comes from a position of understanding. He also stated that many great ideas that have improved the profession, solved problems and advances have come from good physicians and managers who care about patient health and want to make sure everything is ethical and appropriate.

For the time being, the committee has decided to submit additional information to both the OIG and to the Centers for Medicare & Medicaid Services (CMS) about the rate at which PODs report their ownership interests.

Given the intense focus the Senate Finance Committee seems to have on the issue of PODs, we anticipate some further action to be taken on this issue. Any further action has the potential to implicate the Sunshine Act and possibly make further, more burdensome, changes to the already-onerous reporting laws.

November 12, 2015

2016 Physician Fee Schedule: Includes Changes on Self-Referral Rules, Biosimilars and Reimbursement, Transparency Changes for Another Day

Earlier this year, we wrote about the proposed Medicare Physician Fee Schedule. In the proposed rule, CMS sought comment on whether to add Open Payments data to its "Physician Compare" website. Additionally, the proposal included a decision to fund previously controversial advance care planning codes, the first regulations implementing the post-SGR legislation, Stark Law exceptions, and more.

For now, CMS decided against finalizing any decision to publish Open Payments data on the Physician Compare website, according to the rule. The final rule will be published in the Federal Register on November 16, 2015. Comments on the final rule must be received by CMS before December 29, 2015 at 5pm.

Open Payments

CMS explains in the rule that it sought comment on adding Open Payments data to the Physician Compare website. However, prior to issuing any proposal, CMS is testing data with consumers to establish the context and framing needed to best ensure these data are accurately understood and presented in a way that assists decision making. CMS concluded that Open Payments data are different from the quality of care data included on Physician Compare and it will continue testing with consumers. The agency is taking comments and recommendations under consideration and may address them in future rulemaking.


Despite criticism from industry, Congress, and the biosimilars industry, CMS finalized its rule that sets a single reimbursement price for all biosimilars of a given reference product covered under Medicare Part B. Biosimilar manufacturers have noted that biosimilars for the same reference product may not necessarily share all indications or interchangeability status and therefore should receive unique payment rates. CMS specifically notes in the rule that it did not consider how interchangeability status will factor into its final payment policy because there are currently no interchangeable biosimilars on the market.

Ultimately, if each biosimilar to a reference produce is not given a different code, providers are concerned they will not receive an appropriate payment, creating a race to the bottom that short-changes biosimilars. Orrin Hatch (R-UT), Chairman of the Senate Committee on Finance, strongly objected and wrote CMS to not finalize the rule. This could be an area of legislative action in the future.

Stark Law

The proposed rule from CMS contained significant changes to the regulations that implement the federal physician self-referral law. In the final rule, CMS adopts most of the proposed changes. One notable exception created by the final rule states that under certain conditions, Medicare will permit payments to physicians by hospitals, Federal Qualified Health Centers or Rural Health Clinics for the purpose of compensating non-physician practitioners.

To quality for the exception, the arrangement must be for the expansion of access to mental health care services or primary care services. The exception further requires a minimum amount of primary care or mental health care services furnished to patients of the physician's practice by the non-physician practitioners, caps on the amount and duration of remuneration that may be furnished, restrictions on providing assistance if the non-physician practitioner has practices in the geographic service area served by the hospital, FQHC or RHC within one year prior to becoming employed by the physician, and additional safeguards consistent with other Stark Law direct compensation exceptions.

CMS clarified the public advertising disclosure requirement that applies to physician-owned hospitals. CMS states that social media sites and electronic payment and patient care portals do not satisfy the public website for the hospital requirement. To determine what language constitutes a sufficient statement of physician ownership, the agency clarified that phrases ranging from "this hospital is owned or invested in by physicians" to "managed by physicians" is sufficient.

Another new exception exists with timeshare arrangements. According to CMS, timeshare arrangements do not transfer dominion and control over the premises, equipment, personnel, items, supplies, and services of their owner. Rather, it confers a privilege to use, during specified periods of time, the premises, equipment, personnel, items, supplies, and services that are the subject of the arrangement.

Such arrangements may not qualify for protection under existing Stark Law exceptions, and because the arrangements are often necessary to ensure adequate access to needed specialty care, CMS finalized its proposal for a new exception to protect such arrangements. To be protected under the new exception, the arrangement must be se out in writing, signed by the parties, and specify the premises, equipment, personnel, items, supplies and services covered by the arrangement. The arrangement must be between a hospital or physician organization and a physician or the physician organization in whose shoes the physician stands, the licensed items must be used predominantly to furnish evaluation and management services to patients of the licensee, the arrangement must not be conditioned on the licensee's referral of patients to the licensor, and the compensation arrangement must be set in advance and consistent with fair market value.

Furthermore, the new exception also requires that the equipment must be located in the same building where the physician performs evaluation and management services, be used only to furnish designed health services that are incidental to the E/M services furnished, and not be advanced imaging equipment, radiation therapy equipment, or clinical or pathology lab equipment other than that which is used to perform clinical laboratory improvement amendments-waved lab tests.

The new exception also prohibits types of per-unit of service compensation under timeshare arrangements but permits others. CMS does not specify minimum time-based units like per hour or per day. CMS employed a federal court ruling to justify the decision, claiming the new exception will not pose a risk of program or patient abuse.

The final rule further establishes that the writing required in many Stark exceptions can be a collection of documents, as opposed to a single, formal contract. The final rule removes the term agreement from nearly all exceptions in which it appears. CMS clarified that parties need not reduce the key terms of an arrangement to a single formal contract and that the agency offers a list of examples of documents that might, individually or in combination, meet the writing requirement. These include board meeting minutes or other documents authorizing payments for specified services, written communications including hard and electronic copies, check requests or invoices, time sheets, call coverage schedules, accounts payable or receivable records documenting the date and rate of payment and the reason for payment, and checks issued for items, services, or rent.

Continuing, the final rule also addresses holdover arrangements. Several regulatory exceptions permit a holdover arrangement for up to six months if the arrangement has a term of at least one year, meets the requirements of the exception when it expires, and continues on the same terms and conditions after its stated expiration. The final rule amends these exceptions to permit indefinite holdovers if the arrangement complies with the applicable exception when the arrangement expires by its own terms, the holdover is on the same terms and conditions as the immediately preceding arrangement, and the holdover continues to satisfy the requirements of the applicable exception, including that compensation be consistent with fair market value.

The final rule revises fair market value exception to remove the limitation that only arrangements for less than one year may be renewed any number of times. Now, arrangements of any timeframe, including arrangements for more than one year may be renewed any number of times.

CMS also addressed split billing arrangements, noting that these arrangements include a physician making use of a hospital's resources when treating hospital patients, the hospital billing the appropriate payor for these resources, and the physician billing the payer for his or her professional fees only. To address concerns that the hospital has provided remuneration to the physician, CMS states that it does not believe such an arrangement involves remuneration between the parties because the physician and the DHS entity do not provide items, services or other benefits to one another. Instead, the physician provides services to the patient and bills the payor for his or her services and the DHS entity provides its resources and services to the patient and bills the payor for the resources and services, therefore, there is no remuneration between the parties for purposes of the Stark Law.

Advance Care Planning

CMS is now allowing Medicare to reimburse physicians for these discussions. Years ago, they were dubbed "death panels" during the early days of the Affordable Care Act, but this time around there was almost no controversy. Supported by numerous medical organizations, CMS said the proposal will help patients "make important decisions that give them control over the type of care they receive and when they receive it," in an agency news release.

Physicians can use two current procedural terminology (CPT) billing codes for the service. CPT code 99497 covers a discussion of advance directives with patients, a family member, and/or surrogate for up to 30 minutes. An additional 30 minutes of discussion takes the add-on code of 99498. Medicare will pay approximately $86 for the first CPT code and $75 for the second when the counseling occurs in a physician's office. The service can be an optional and reimbursable element of Medicare's annual wellness visit. However, the agency declined to issue a national coverage determination which means local medical administrators, many of whom are commercial insurers that process Medicare claims, will make the decision to reimburse for the service.

Pay Rate

When Congress repealed the sustainable growth rate (SGR) formula, it called for an annual raise of .5% from 2016 through 2019 as a part of a transition to value-based reimbursement. However, this is now a .3% pay cut in the final rule because of the Affordable Care Act and other laws that set Medicare reimbursement policy. CMS lowered the conversation factor by .02% to reflect a relative value unit budget neutrality adjustment. Further, there was an additional .77% decrease from CMS to meet cost-savings targets. CMS only corrected enough misvalued codes for a savings of .23% according to the rule. Because it fell short of the 1% mark, it is obliged under the Protecting Access to Medicare Act to reduce total fee-for-service spending on physicians by .77% to make up the difference.

Value Modifier

The Value-Based Payment Modifier (Value Modifier) provides for differential payments under the Fee Schedule to physicians, groups, and other eligible professionals based on the quality and cost of care they furnish to beneficiaries enrolled in the traditional Medicare fee-for-services program. Under the Value Modifier, performance on quality and cost measures can lead to increased payments for those who provide high quality, efficient care. However, it also can mean decreased payment adjustments for low-performing physicians and eligible professionals who underperform. The Value Modifier expires at the end of CY 2018 as the new Merit-Based Incentive Payment System starts in CY 2019.

This year, CMS finalized several provisions, including a decision to apply the Value Modifier to non-physician eligible professionals who are Physician Assistants, Nurse Practitioners, Clinical Nurse Specialists, and Certified Registered Nurse Anesthetists in groups and to these professionals who are solo practitioners, in the CY 2018 adjustment period. Additionally, CMS will continue to set the maximum upward adjustment under its quality-tiering methodology for the CY 2018 Value Modifier at +4.0 times an adjustment factor for groups of physicians with ten or more eligible professionals, +2.0 times an adjustment factor for groups of physicians with between two to nine eligible professionals and physician solo practitioners, and +2.0 times an adjustment factor for groups that consist of non-physician eligible professionals and solo practitioners, like physician assistants. However, at risk is a possible -4.0 adjustment for groups of physicians with ten or more eligible professionals, -2.0 percent for groups of physicians between two to nine eligible professionals and physician solo practitioners, and -2.0 percent for groups consisting of non-physician EPs and solo practitioners like nurse practitioners and physician assistants.

November 10, 2015

2016 Data Collection and Submittal Changes under the Open Payments System

A representative of the Open Payments Team at CMS, hosted a Webinar on Thursday, October 29, 2015 about Open Payments and the new submittal and data collection changes for CY2015 data and CY 2016 data, respectively. This webinar comes on the heels of a presentation by Mr. Brown, presented at the Sixteenth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum, in late October.

Both presentations shed light on the progress CMS has made on data submission and answered some open questions, a summary of which is laid out below.

Stakeholder Feedback Changes

The representative mentioned that they had received a lot of stakeholder feedback and were working on making some responsive changes, including the ability to exchange reporting entity and covered recipient contact information to help facilitate the review and dispute process. The system will now ask you what contact information you want shared with the individuals/organizations reviewing your records, and you can input the most convenient way to contact you.

CMS also received a lot of comments on the special character restrictions; most of the unnecessary special character restrictions have now been removed.

The ability to download reported records will also be enhanced in the update: the downloaded records will now be enhanced to include dispute information and be extended to covered recipient uses. Each download is limited to 400,000 records, which stands in contrast to the upload limit of 250MB. Therefore, CMS recommends that your uploaded data be less than 250MB and 400,000 records so the same files that are uploaded can be downloaded all at once.

One more change CMS has made from stakeholder feedback is that the covered recipient interface will allow users to distinguish whether a record identifies them as a covered recipient or a principal investigator.

Help Desk Feedback Changes

In addition to stakeholder feedback, CMS received feedback from their help desk. One of the new updates will be that reporting entities may delete records that have a status of "system processing."

Additionally, recipient type and details on payment records and principal investigator information on research records cannot be changed after final submission. Changes require the original record to be deleted and a new record with updated information to be submitted. CMS wanted to draw attention to the fact, however, that while reporting entities can delete old records and replace them with new records, the Open Payments system will treat them as new submissions and it may appear as though the records were submitted late.

The final change being made in response to help desk feedback is the character limit for physician/principal investigator state license number has been increased. The character limit will now be twenty-five characters for manual submission and 28 characters for bulk file upload (25 license, 1 hyphen, 2 state code).

Validation Edits

In the 2015 program year, CMS will reject records that are submitted with an NDC (National Drug Code) but without a marketed name. NDCs will also be validated for proper format – dashes must be included in the appropriate positions. The drug name is required in addition to the NDC for several reasons, (1) it is a requirement in the Open Payments Final Rule, and (2) as a more technical point, Open Payments data is not connected to the drug data directly, so for consumers to understand the publicly available information, the marketed name is an important component.

Also, in the next year, research and general payment amounts may not contain a "$0" value amount. For ownership records, "$0" may only be entered in "Total Amount Invested" or "Value of Interest" field, but not both at the same time. If both the total amount invested and the value of interest are equal to zero, there is nothing to report.

For records that contain data in physician-specific fields and hospital-specific fields simultaneously, those records will now be rejected. CMS only wants either the hospital reported or the physician-covered recipient, not both.

Teaching Hospital Complications

Last year, there was some confusion as to which organization should be listed in the Open Payments database: the teaching hospital on the list is the organization that you make the research or general payment to directly. CMS provided this slide during the webinar in hopes that it would shed some light on the confusing hierarchy.


Also related to Teaching Hospitals, CMS provided the below flow chart to use in determining when and how to report payments to Teaching Hospitals.


Stock as a Form of Payment

CMS also touched upon how to handle stock as a form of payment. Essentially, if the stock is publicly traded, it should be reported as a General Payment, Form: Stock. If the stock is not publicly traded, it should be reported as a General Payment and as Ownership.

Stock Options as a Form of Payment

Stock Options as a form of payment is a little trickier. If the stock is publicly traded, payment of transfer of value in the form of stock options should be reported as a General Payment, Form: Stock Options. If the stock is not publicly traded, it should also be reported as a General Payment, Form: Stock Options, but if the options are exercised also need to be reported as Ownership or Investment Interest. If the options are not exercised, they are just reported as General Payment, Form: Stock Options.

Ownership and Investment: Stock

If you have an ownership interest in stock and it is publicly traded, there is nothing more to report. If you have an ownership interest in the form of stock, and it is not publicly traded, new holdings need to be reported in "Dollar Amount Invested" and total holdings should be reported as of the last feasible valuation date in "Value of Interest."

GPOs and PODs

A manufacturer must report each payment to a physician owned distributor (POD) (e.g., LLC, etc.) as an indirect payment to a covered recipient physician. PODs, as a subset of GPOs, must report their physician ownership interests annually.

2015 Physician Fee Schedule Reminders

The 2015 Physician Fee Schedule, implemented November 13, 2014, made some regulation changes to allow for consistency in reporting. For data collected in CY2016, the device and medical supply names will be required and therapeutic area and product category will be optional. CMS wants to move to a more uniform way of reporting medical devices and drugs, making it easier on consumers and patients to read and understand their physicians' reports.

CME Payments

Additionally, with regard to CME payments, compensation (either direct or indirect payments) for physician speakers at accredited or certified continuing education events must be reported if the payment was directed towards a specific physician. However, CMS did update their section on CME payments because they would like for patients to be able to understand their physicians' reports. CMS states that if you are making a direct or an indirect payment to a covered recipient physician, within the context of providing the CME, then that is a reportable event. If by virtue of the relationship you have with the CME organization, it does not meet the definition of a direct or indirect payment, then it is not a reportable event.

Essentially, when determining whether to report a CME payment or not, always review whether it fits into the definition of a direct or indirect payment. If it does, it is reportable; if not, do not report. CMS has outlined in several FAQ's the criteria for determining if the CME payment qualifies as a payment.


Failure to timely, accurately, or completely report each payment or transfer of value, or ownership or investment interest is subject to a penalty of $1,000 - $10,000 per payment/interest, with a maximum annual penalty of $150,000.

Knowingly failing to timely, accurately, or completely report each payment or transfer of value, or ownership or investment interest is subject to a penalty of $10,000 to $100,000 per payment/interest, with a maximum penalty of $1,000,000.

Resources Available

CMS announces periodic webinars and Q&A sessions for industry professionals and offers a Help Desk email:



Preview | Powered by FeedBlitz


November 2015
Sun Mon Tue Wed Thu Fri Sat
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30