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February 15, 2013

CMS Issues Long-Awaited Final Rule To Implement The Physician Payments Sunshine Act

On Friday, February 1, 2013, the Centers for Medicare & Medicaid Services (CMS) released its final rule ("Final Rule") implementing the Physician Payments Sunshine Act (the "Act"). Under the Act, applicable drug, device, biological and medical supply manufacturers are required to report annually to CMS certain payments or transfers of value furnished to physicians and teaching hospitals, referred to as covered recipients. The Act also requires applicable manufacturers and group purchasing organizations (GPOs) to report on physician ownership or investment interests in their organizations. The Act was passed in March 2010 as part of the Patient Protection and Affordable Care Act, and the proposed rule to implement the Act was issued for public comment in December 2011.

Data collection was supposed to have begun on January 1, 2012, but was postponed because of the delay in issuance of the Final Rule. Under the Final Rule, data collection will commence on August 1, 2013, with the first report of calendar year 2013 data due to CMS by March 31, 2014.

The Final Rule provides many significant changes and long-awaiting guidance. Several key provisions of the Final Rule are summarized below.

Definition of Applicable Manufacturer. Applicable manufacturers are manufacturers of drugs, devices, biological and medical supplies covered by Medicare, Medicaid or the Children's Health Insurance Program (CHIP) and operating in the United States. The Final Rule narrowed the definition by limiting "operating in the United States" to mean having a physical location within the U.S. or otherwise conducting activities (including sales) within the U.S. In contrast, the proposed rule would have covered products "for sale or distribution" in the U.S., capturing products that are ultimately sold in the U.S. even if the manufacturer thereof had no operations here.

Exception for Manufacturers of Primarily Non-Covered Products. Even though the Final Rule requires reporting of all non-exempt payments to covered recipients, not just those payments related to a covered product, an exception has been made to address the concern of manufacturers whose primary business is not the production of covered products. Under the Final Rule, manufacturers with less than 10% of total (gross) revenue from covered products during the previous fiscal year need only report payments or other transfers of value to covered recipients to the extent they are specifically related to covered products.

Common Ownership. Entities under "common ownership" with an applicable manufacturer are subject to the reporting requirements. The Final Rule sets the common ownership threshold at 5%. Entities under common ownership have the flexibility to report either separately or on a consolidated basis. All consolidated reports submitted for multiple entities must identify each applicable manufacturer and each entity under common ownership.

Payments with Multiple Dates. If payments are made over multiple dates, applicable manufacturers will have the flexibility to report them either separately or as a single line item as of the first payment date.

New Form of Payment Category. The Final Rule adds a new "form of payment" category to those set forth in the Act to distinguish "stock, stock options and other ownership investment interests" from "dividends, profits and other returns of investment."

Food and Beverage Reporting. Several changes were made to the "nature of payment" categories, including how to report food and beverages brought to a group setting where it is unclear who will be partaking. Under the Final Rule, applicable manufacturers must report the per person cost of the food for each covered recipient who actually partakes in the meal. In other words, applicable manufacturers should divide the total value of the food provided by the number of people who actually partook in the food, including both covered and non-covered recipients. This is a change from the proposed rule, which divided the total food cost by the number of covered recipients in the practice, even if some of the covered recipients did not partake in the food. CMS also finalized that food and beverages provided at conferences to all attendees do not need to be reported.

Speaker Compensation. Payment for serving as a speaker will now be separated into three separate categories: (1) payments for accredited and certified continuing medical education (CME), (2) payments for unaccredited and non-certified CME, and (3) payments for speaking at an event other than CME (i.e., non-educational). Because the accreditation process entails compliance with separate standards that include safeguards designed to reduce industry influence, CMS determined that payments made in accordance with these standards should be reported separately. Also, in order to distinguish educational speaking from promotional or other speaking, all non-educational speaking payments will be reported separately.

Other. The Final Rule deleted the "other" nature of payment category because a catch-all could dilute the usefulness of this reporting field. All payments that are not excluded must be reported under the category in the Final Rule that best describes it.

Assumptions Document. Applicable manufacturers can submit along with their data a document describing the assumptions used when categorizing the nature of payments. Under the Final Rule, the assumptions document will be voluntary and will not be made public.

Research. The Final Rule defines research based on the Public Health Service Act definition, which broadly includes pre-clinical research and FDA Phases I-IV research, as well as investigator-initiated investigations. If a payment falls within the nature of payment category for research, it must be subject to a written agreement OR a research protocol, but not necessarily both. There need not be a single agreement directly between an applicable manufacturer and covered recipient; a chain of agreements with one or more third parties intervening, such as a contractor research organization or site management organization, would suffice. If a payment does not meet the above criteria, it must be reported under another category that best describes the payment (e.g., grants).

Method of Reporting Research Payments. Applicable manufacturers must report research payments in a separate template, such that each research payment is reported once and includes the entity paid as well as the name of the principal investigator(s).
Exclusion for Small Payments. The Act sets forth that payments less than $10 do not need to be reported, except when the total annual value of payments exceeds $100. These figures will be adjusted annually beginning with reporting for calendar year 2014. The statutory de minimis thresholds will remain (i.e., $10 and $100) for calendar year 2013 reporting. Applicable manufacturers will have flexibility in reporting small payments. They may either report them individually or bundled with other small payments in the same nature of payment category, so long as applicable manufacturers report them consistently and clearly indicate the method they are using.

Exclusion for Educational Materials. Educational items provided to covered recipients (such as medical textbooks and journal reprints) that are not intended for patient use do not fall within the statutory exclusion and are therefore subject to the reporting requirement. However, educational materials that are intended to be used with a patient (such as anatomical models) are subject to the exclusion. The exclusion is limited to educational materials only, not marketing or promotional materials.

Exclusion for Product Samples. According to the Act, product samples intended for patient use and not intended to be sold are excluded from the reporting requirements. The Final Rule clarifies that the exclusion applies not only to drug samples but also to devices"”including disposable devices, demonstration devices, and evaluation equipment"”so long as they are provided to covered recipients for free and intended for patient use. The exclusion also includes coupons and vouchers intended for patient use to defray the cost of the covered products.

Exclusion for Short Term Loans. The Act excludes the loan of a covered device for a short-term trial period, not to exceed 90 days, to permit evaluation of the covered device by the covered recipient. According to the Final Rule, this will also include a supply of disposable or single use devices intended to last for no more than 90 days.

Indirect Payments Through a Third Party. The Act excludes the reporting of payments that an applicable manufacturer makes indirectly to a covered recipient through a third party where the applicable manufacturer is unaware of the identity of the covered recipient. The Final Rule clarifies that the applicable manufacture is "unaware" if it does not know the identity of a covered recipient, and that "know" means the manufacturer has actual knowledge of the identity or acts in deliberate ignorance or reckless disregard of the identity.

Delayed Publication for Research Payments. All payments related to research and made pursuant to a written research agreement for research related to new products will be granted a delay in publication in accordance with the Act. However, under the Final Rule, payments related to research on new applications of existing products will not be granted a delay unless the research meets CMS' definition of "clinical investigation."

Review and Correction Period. In accordance with the Act, CMS has finalized the 45 day period for applicable manufacturers and covered recipients to review and correct data submitted prior to the data being made available to the public. If a dispute is not resolved within the 45 day period, the original data will be published but marked as disputed. Covered recipients will be responsible for reviewing payment data that relates to them via a secure website portal. Covered recipients are encouraged to register with CMS so that they may access the portal.

Attestation. Under the Final Rule, any officer of the applicable manufacturer may attest to the submission, rather than just the chief executive officer, chief financial officer, or chief compliance officer.

For additional details and assistance implementing the Final Rule, please contact Holly J. Hoehner at (315) 425-2833 or


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