PPAI Action Alert: Physician Payment Sunshine Act

The Centers for Medicare & Medicaid Services have published the final rule that details reporting transfers of value as identified by the Center for Medicare and Medicaid Services. The following summary reviews those reporting obligations–specifically as they relate to the promotional products industry. Please note–this law does not prohibit the giving of promotional products to physicians and teaching hospitals.

For any questions or concerns please email us at ppailaw@ppai.org.

On February 2, 2013, the Centers for Medicare & Medicaid Services (www.CMS.gov) within the United States Department of Health and Human Services published the much-delayed final rule for the transparency reports that pharmaceutical and medical device manufacturers must file with the Federal government for payments and transfers of value they provide to physicians (doctors of medicine and osteopathy, dentists, podiatrists, optometrists and chiropractors, who are legally authorized to practice by the State in which they practice) and teaching hospitals. The requirement was included in the healthcare reform law and the provision is frequently referred to as the “Physician Payments Sunshine Act.”

At the outset, it is important to remember that the law does not prohibit the giving of promotional products to physicians and teaching hospitals. The manufacturers of drugs, devices, biologicals or medical supplies—CMS refers to them as the “applicable manufacturers”—must report the transfers of value. There were two exclusions from the reporting requirements of interest to us—an aggregate $100 of items with values under $10 each and a separate exclusion for educational materials that directly benefit patients or are intended for patient use.

The regulations and CMS’s explanatory material cover nearly 300 pages. You can find them at ppailaw.org.

For the most part, CMS followed the law. In one situation, it appears to provide some relief. Here are some of the “highlights” of the final rule.

Applicable manufacturers and applicable group purchasing organizations must begin to collect the required data on August 1, 2013, and report the data to CMS by March 31, 2014.

The law included a list of categories of payments and transfers of value. The rule requires each payment or transfer of value to be placed in a specific category. Promotional products will be reported in the category called “gifts.”

You may recall, one of our concerns was that the law provided no minimum for the term “transfer of value.” Unfortunately, CMS acknowledged that it does not have the latitude to adjust that rigid standard. Said the CMS: “We appreciate the comments on the threshold for small payments and understand that they may be low for some stakeholders.  Nevertheless, the thresholds were mandated by the statute, and we do not have discretion to change them.  However, we recognize that we do not want the database to be overwhelmed by small payments.  We have considered options for reducing the number of small payments, but we believe that we do not have authority to change the reporting requirements for small payments or other transfers of value.”

On establishing the value, CMS said:

“Applicable manufacturers should be allowed flexibility to determine value, so we do not plan to create numerous rules for calculating value.  We have 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 we believe 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 [that can be included with its report.]”

The law provides that the $10 and $100 aggregate numbers will be adjusted for inflation in future years, but CMS chose to start with the statutory amounts of $10 and $100 aggregate for this first reporting cycle.

With regard to reporting multiple items, the CMS said: “applicable manufacturers have flexibility in reporting small payments.  They may either report them individually or bundled with other small payments or other transfers of value in the same nature of payment category, as long as applicable manufacturers are reporting consistently and clearly indicating the method they are using.”

CMS did provide an “exception to the exception” that allows promotional products to be provided in large event settings without having those items count toward the $10 and $100 numbers. Said the CMS:

“Regarding reporting of payment or other transfers of value at conferences or similar events, we appreciate the comments and have provided additional guidelines expanding on the proposed rule.  In general, we will finalize that these guidelines will apply to conference and similar events, as well as events open to the public.  We believe that at events open to the public, it will be extremely difficult for applicable manufacturer to identify physician covered recipients.  Therefore, we will finalize that small incidental items that are under $10 (such as pens and note pads) that are provided at large-scale conferences and similar large-scale events will be exempted from the reporting requirements, including the need to track them for aggregation purposes.  While these small payments are excluded by statute, the $100 aggregate payment requirement generally requires the tracking of small payments in order to determine whether covered recipients received more than $100 annually.  For these covered recipients, we believe it would be difficult for applicable manufacturers to track who receives these small items at conferences or similar events, due to the nature and disparate attendance at large-scale conferences or similar events.”

With regard to the patient education materials exclusion, the CMS said:

“We understand that patient education is important and recognize that it may take a form other than written material, especially in the device context.  For example, a device manufacturer may give a physician an anatomical model to help explain to patients how a procedure would work.

“We agree that such an item, which is given to physicians for the purpose of educating patients, falls within the exclusion.  Similarly, if a manufacturer provides educational materials to a physician on a flash drive to be distributed to patients, the flash drive would also be included in the exclusion.  However, if the drive was provided as a gift alongside the materials, then it would have to be reported, since it was secondary to the materials.  Similarly, we believe that overhead expenses, such as printing and time, should be included in the exclusion as long as they are directly related to the development of the materials, which directly benefit patients or are intended for patient use.”

With respect to providing promotional products in a group practice setting, the CMS said:

“We have 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, if an applicable manufacturer donates a set of dermatology textbooks to a group practice, we believe that applicable manufacturers should attribute the transfer of value to only the dermatologists at the practice by dividing the cost equally across all dermatologists.

“We intend 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.  We agree with the commenters 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.”

One definition has been clarified. The law never defined a teaching hospital. The rule defines it, and CMS said it will publish a list to simplify the process. A teaching hospital is defined by linking it to Medicare graduate medical education (GME) payments it receives.

For convenience, PPAI has extracted the applicable sections of the rule from the Federal Register Notice. It can be found at ppailaw.org.   It should be noted that the explanatory material cited above is found only in the Federal Register Notice.

Since it has been more than two years since the law was enacted, publication of the rule is likely to refresh memories and stir another review of internal policies in the pharmaceutical and medical device industries. The laws in those states that have passed their own laws regarding “gifts” to physicians and others still apply, and some of the manufacturers in those industries may still adhere to their own voluntary codes of conduct.

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