On February 1, 2013, the Centers for Medicare and Medicaid Services (CMS) released the final rule implementing the physician payment sunshine provisions of the Affordable Care Act. The final rule requires certain manufacturers of drugs, devices, biologicals, and medical supplies covered by Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP) to report annually to CMS certain payments or other transfers of value provided to physicians or teaching hospitals. The rule also requires manufacturers and certain group purchasing organizations (GPOs) to report annually certain physician ownership or investment interests.
Manufacturers and GPOs regulated under the final rule must begin to collect the required data for payments or transfers of value made on or after August 1, 2013. The first report to CMS must be provided by March 31, 2014.
This article summarizes the main features of the final rule, including who is regulated, the scope of payments that must be reported, and the reporting form and format.
The text of the final rule can be found here.
I. Who is Required to Report?
A manufacturer is subject to the reporting obligations if the manufacturer has a physical location in the United States or otherwise conducts activities within the United States, directly or through an authorized agent, and either: (1) is engaged in the production, preparation, propagation, compounding, or conversion of a drug, medical device, biological, or medical supply for which payment is available under Medicare, Medicaid or CHIP (either as a separately billed item or as part of a bundled payment); or (2) has 5% or more common ownership with such an entity, and provides services that are necessary or integral to the production, preparation, propagation, compounding, or conversion of a drug, medical device, biological, or medical supply for which payment is available under Medicare, Medicaid or CHIP.
To illustrate the type of entity falling within the common ownership part of this definition, CMS provides the following example: an entity with 5% or more common ownership with a drug manufacturer that produces the active ingredient for a covered drug for such manufacturer provides necessary and integral services, but an entity that provides human resources support functions to the manufacturer does not provide necessary or integral services related to the production of that drug. CMS points out, however, that manufacturers may not hide payments to physicians or teaching hospitals by making the payments indirectly through an affiliate that provides no necessary or integral services to the manufacturing process.
Regulated manufacturers are called “Applicable Manufacturers.” The definition of an Applicable Manufacturer specifically excludes a hospital, pharmacy, laboratory or other health care provider that manufactures a product solely for use by or within the entity itself or solely for use by the entity’s own patients.
Only manufacturers of drugs and biologicals that require a prescription are considered Applicable Manufacturers, and only manufacturers of medical devices or medical supplies that require FDA premarket approval or notification are considered Applicable Manufacturers. Accordingly, the new rule applies only to entities that manufacturer a drug or biological that is a prescription-only product, and for which payment is available under Medicare, Medicaid, or CHIP. Medical device or supply manufacturers are regulated only if they manufacture a device or supply that requires premarket approval or notification, and for which payment is available under Medicare, Medicaid, or CHIP. These products are referred to in this article as “Covered Products.”
Generally, an Applicable Manufacturer must report all of its payments or other transfers of value to physicians or teaching hospitals, even if those payments or transfers of value are unrelated to any Covered Product. However, the final rule adopts some important limitations to this general rule.
First, if an Applicable Manufacturer received gross revenue from Covered Products that constituted less than 10% of the Applicable Manufacturer’s total gross revenue for the year preceding the reporting year, then the Applicable Manufacturer need only report for that year payments or other transfers of value related to Covered Products.
Second, entities falling within the definition of Applicable Manufacturer because they are under common ownership and provide services to support the manufacturing of Covered Products need only report payments related to the Covered Products for which they provide support.
Third, Applicable Manufacturers that have separate operating divisions that do not manufacture any Covered Products (for example, an animal health division) need only report payments related to Covered Products.
Finally, Applicable Manufacturers that manufacture a Covered Product only under a contract manufacturing agreement with another Applicable Manufacturer, and do not hold the FDA approval, licensure, or clearance for the Covered Product, and are also not involved in the sale, marketing, or distribution of the Covered Product, need only report payments related to Covered Products.
Applicable Manufacturers must report all payments or other transfers of value to “Covered Recipients.” A “Covered Recipient” means: (1) a physician, other than a physician who is a bona fide employee of an Applicable Manufacturer; or (2) a teaching hospital. All physicians that have a current license to practice (other than bona fide employees of Applicable Manufacturers) are considered “Covered Recipients.” CMS added the phrase “bona fide” to ensure that Applicable Manufacturers do not create false relationships with physicians to avoid reporting payments or transfers. Covered Recipients do not include residents due to the difficulty in tracking payments or transfers of value to residents. A teaching hospital is considered a Covered Recipient if it receives Medicare direct GME or IME payments. Payments to non-healthcare departments of universities affiliated with teaching hospitals need not be reported.
The final rule requires Applicable Manufacturers to report separately two types of information. First, Applicable Manufacturers must report payments or other transfers of value to Covered Recipients. Second, Applicable Manufacturers and applicable GPOs must report information regarding the ownership or investment interests held by physicians or their immediate family members. Below are discussions of both types of reports.
A. Reporting Requirements
CMS requires Applicable Manufacturers to report several categories of information for each payment or transfer of value to a Covered Recipient, including: (1) Applicable Manufacturer’s name; (2) Covered Recipient’s name (as listed in the National Plan and Provider Enumeration System (NPPES)); (3) Covered Recipient’s business address (if a physician, the primary practice location); (4) specialty (name and code) and National Provider Identifier (NPI) for the physician; (5) state professional license number for at least one state where the physician maintains a license; (6) amount of payment; (7) date of payment; (8) brief contextual information; (9) name of the Covered Product if the payment or transfer is related to a particular Covered Product; (10) National Drug Codes of related covered drugs and biologicals, if any;
(11) form of payment; (12) nature of payment; (13) name of entity that received payment or other transfer if not provided directly to Covered Recipient; and (14) whether the payment or transfer was provided to a physician holding ownership or investment interests in the Applicable Manufacturer.
The final rule establishes the following “form of payment” categories: (1) cash or cash equivalent; (2) in-kind items or services; (3) stock, stock option, or any other ownership interest; and (4) dividend, profit or other return on investment. Applicable Manufacturers must report using the single form of payment that best describes the payment or transfer being reported.
The final rule also establishes the following “nature of payment” categories: (1) consulting fee;
(2) compensation for services other than consulting; (3) honoraria; (4) gift; (5) entertainment; (6) food and beverage; (7) travel and lodging; (8) education; (9) research; (10) charitable contribution; (11) royalty or license; (12) current or prospective ownership or investment interest; (13) compensation for services as faculty or speaker for an unaccredited and non-certified continuing education program; (14) compensation for serving as faculty or speaker for an accredited or continuing education program; (15) grant; and (16) space rental or facility fees (teaching hospitals only). CMS makes clear that if no payment category fits the nature of the payment, then the Applicable Manufacturer must select the nature of payment category that best describes the payment or transfer.
The final rule provides that the following categories of payments and transfers of value are expressly excluded from reporting: (1) transfers of value less than $10 (unless the total annual value exceeds $100); (2) educational materials intended to directly benefit patients or intended for patient use; (3) discounts and rebates; (4) in-kind items for the provision of charity care; (5) product samples; (6) short term loans; (7) contractual warranties; (8) payments to Covered Recipients acting as patients; (9) provision of healthcare; (10) payments solely for the non-medical professional services of a licensed non-medical professional; (11) payment for services with respect to civil or criminal action or administrative proceedings; and (12) payments made solely in the context of a personal non-business-related relationship.
C. Reporting Indirect Payments
Applicable Manufacturers must also report indirect payments made to Covered Recipients. This means that an Applicable Manufacturer must report any payment made 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. CMS states that this reporting of indirect payments extends to situations where the Applicable Manufacturer does not control or know the identity of the specific physicians or teaching hospitals the third party is paying. For example, if an Applicable Manufacturer donates funds to a medical professional society association and earmarks the donation for physician grants, then the Applicable Manufacturer must report those grant payments that the professional society makes. This indirect payment provision has many meaningful consequences for distribution and marketing arrangements that manufacturers enter into with third parties, and will require those third parties to track payments to Covered Recipients so that Applicable Manufacturers can appropriately report.
D. Reporting Physician Ownership and Investment Interests
The final rule also requires Applicable Manufacturers and applicable GPOs to report information about each ownership or investment interest held by physician owners or investors or their immediate family members. CMS clarifies that “physician” includes all physicians, regardless of whether a physician is an employee of an Applicable Manufacturer, and includes the ownership and investment interests of the physician’s immediate family members. “Immediate family members” include spouses, parents, children, siblings, stepparents, stepchildren, stepsiblings, parents-in-law, children-in-law, siblings-in-law, grandparents, grandchildren, spouses of grandparents, and spouses of grandchildren. Applicable Manufacturers and applicable GPOs can report a specific ownership interest in the aggregate across multiple immediate family members so long as the immediate family members: (1) have ownership or investment interests with the same terms; and (2) the reported value includes the total value of all of the immediate family members’ interest.
Ownership and investment interests that must be reported include both direct and indirect interests. CMS clarifies that stock options, before exercised, are compensation, not ownership or investment interests. However, in order to align with the physician self-referral rule, Applicable Manufacturers and applicable GPOs need not report ownership or investment interests held by physicians or their immediate family members if the Applicable Manufacturer or applicable GPO did not know about such interests.
Less information is required to satisfy the ownership and investment reporting obligation than the payment and transfer of value reporting obligation, and CMS aligns the reporting requirements to the extent they overlap. The Applicable Manufacturer or applicable GPO must report: (1) Applicable Manufacturer’s or applicable GPO’s name, (2) physician’s name (as listed in NPPES) and whether such interest is held by physician or an immediate family member of physician; (3) business address (primary practice location); (4) specialty (name and code) and NPI; (5) appropriate state professional license number for at least one state where the physician maintains a license; (6) dollar amount invested; (7) value and terms of each ownership or investment interest; and (8) direct and indirect payments or transfers of value.
III. Report Format and Submission
CMS will provide Applicable Manufacturers and applicable GPOs with reporting templates and will create an electronic system for accepting data. Such electronic system will allow secure registration, data submission, data review, and submission of corrections processes. Reporting templates and additional information about the operational reporting mechanics will be provided in future guidance.
Applicable Manufacturers and applicable GPOs must submit reports by March 31, 2013, and on the 90th day of each calendar year following 2013. CMS will only allow submission of a single report consisting of the entire reporting period. Applicable Manufacturers and applicable GPOs must provide an attestation for data at the time of original submission and additional attestations for any changes. Although in the proposed rule CMS suggested that Applicable Manufacturers and applicable GPOs with nothing to report must attest that they have nothing to report, CMS decided in the final rule that such entities need not take any action or submit any report or attestation for years in which they have no payments or ownership or investment to report. Applicable Manufacturers or applicable GPOs with items to report must register with CMS prior to the deadline for data submission. If multiple Applicable Manufacturers submit a consolidated report, the report must provide information to identify each Applicable Manufacturer and entity under common ownership addressed in the report.
IV. Report Review and Correction
CMS will provide for one formal 45-day review and correction period during which Covered Recipients and physician owner and investors may review the data submitted by Applicable Manufacturers and applicable GPOs. Following this period, Applicable Manufacturers and applicable GPOs will have 15 days to correct data and resolve disputes, after which they may submit updated data. Disputes that are unresolved will be marked “disputed.” Although CMS will not mediate disputes, the agency will facilitate a process for resolving disputes and correcting data.
V. Pre-Emption of State Law
The federal law preempts any State or local laws requiring reporting of the same type of information concerning payments or other transfers of value from Applicable Manufacturers to Covered Recipients. In the final rule CMS does not provide much additional guidance regarding what State physician payment reporting laws, or portions of those laws, are preempted. CMS states that the preemption clause refers to the categories of information required to be reported under the statute and the new rule. The federal law does not preempt State laws requiring reporting of nonrequired categories of information, categories excluded under the federal regulations, or categories not addressed in the federal law. This appears to leave room for States to require reporting of specific data elements regarding payments to physicians that the federal regulations do not require be reported.
The final rule will force drug and device manufacturers, distributors, and sales and marketing entities to examine their operations and relationships to determine which entities have reporting responsibilities and the scope of those responsibilities. For many manufacturers the rule will require new internal reporting processes to ensure that payments to physicians and teaching hospitals are tracked and appropriately reported internally for compilation into annual reports. Manufacturers entering into distribution arrangements with third parties will need to consider whether the distributor could be making indirect payments to physicians on their behalf, and whether the distributor should be obligated to track such payments.
The consequences of the final rule are broad, and the operational requirements to build necessary infrastructure and process will be challenging. These efforts should begin now in order to prepare for payment tracking starting August 1, 2013.