Let the Sunshine In
Federal Reporting & Disclosure Requirements for Drug, Device and Biologic Manufacturers
Article Date: Thursday, May 20, 2010
Written By: C. Scott Strickland
Introduction
On March 30, 2010, President Obama closed the book on the momentous (and often contentious) push for federal health care reform by signing into law the reconciliation bill (H.R. 4872, the "Health Care and Education Affordability Reconciliation Act of 2010" or "Reconciliation Bill"), which amended the landmark health care reform legislation, H.R. 3590 (the "Patient Protection and Affordable Care Act" or "PPACA") signed by the President on March 23, 2010. The PPACA and the Reconciliation Bill are collectively referred to herein as "the Act."
Much of the public focus on the Act centers on the legislation's twin aims of coverage expansion and cost control. However, the Act also contains a number of provisions designed to shine a light on the myriad financial relationships and perceived corresponding incentives underpinning the delivery of health care in this country. This article focuses on one such provision: PPACA's "physician payment sunshine" provision, which will require that manufacturers of drugs, medical devices, biologics and medical supplies (collectively, "manufacturers") disclose and report certain payments made to health care providers.
Physician Payment Transparency Reporting
Section 6002 of PPACA requires manufacturers to annually report to the Secretary of the Department of Health and Human Services (the "Secretary") payments and other transfers of value furnished to physicians and teaching hospitals (deemed "covered recipients"). (Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 6002, (2010)). This provision borrows from legislation first introduced by Senators Charles Grassley (R - IA) and Herb Kohl (D - WI) in 2007 to encourage greater transparency in the relationships between life sciences manufacturers and physicians. (See Physician Payment Sunshine Act of 2007, S. 2029, 110th Cong. (2007)). The first transparency reports mandated by PPACA are due by March 31, 2013, for a reporting period of calendar year 2012. Reports for subsequent years will be due by the 90th day of each calendar year, for a reporting period of the previous calendar year.
Specifically, Section 6002 of PPACA adds a new Section 1128G to the Social Security Act, which requires "any applicable manufacturer that provides a payment or other transfer of value to a covered recipient (or to an entity or individual at the request of or designated on behalf of a covered recipient)" annually to report certain information regarding anything of value furnished to a covered recipient, unless such transfers of value are excluded from the disclosure requirement. Such express exclusions include:
• payments made indirectly to a covered recipient through a third party where the manufacturer does not know the identity of the covered recipient;
• payments or transfers less than $10 in value, unless the aggregate payments or transfers of value during the calendar year to the particular covered recipient exceed $100 in value (both amounts are indexed for inflation beginning in 2012);
• product samples intended for patient use;
• educational materials that directly benefit patients or are intended for patient use;
• loans of a covered medical device for a short-term trial period, not to exceed 90 days;
• certain items or services provided under a contractual warranty;
• discounts and rebates;
• in-kind items for the provision of charity care; and
• dividends and investment interest in a publicly traded security or mutual fund.
For each reportable payment or other transfer of value a manufacturer furnishes to a covered recipient, the manufacturer must disclose the name, business address and National Provider Identifier (for physicians) of the covered recipient; the date(s) on which payment was provided to the covered recipient; the amount of the payment or transfer of value; a description of the form (e.g., cash, in-kind item, stock, etc.) and nature (e.g., consulting fees, food, travel, etc.) of the payment or transfer of value; and any other category of information the Secretary deems appropriate. In addition, if the payment or other transfer of value is related to marketing, education or research specific to a covered product, the name of the product to which the payment relates must also be disclosed.
Disclosure of Physician Ownership or Investment
PPACA's Section 6002 also requires manufacturers and group purchasing organizations ("GPOs") that purchase, arrange for, or negotiate the purchase of covered products to submit to the Secretary certain information regarding ownership or investment interests held by a physician (or an immediate family member of the physician) in the manufacturer or GPO during the preceding year. Specifically, manufacturers and GPOs must provide: the dollar amount invested by each physician holding such an interest; the value and terms of each such interest; information regarding any payment or other transfer of value provided to a physician holding such an interest; and any other information the Secretary deems appropriate. This reporting requirement does not include a physician's ownership or investment interest in a publicly traded security or mutual fund.
Public Availability of Information
Beginning Sept. 30, 2013, and on June 30 of each year thereafter, the Secretary is required to make all payment, ownership interest, and enforcement information publicly available on the internet through a searchable website that is "clear and understandable." However, payments or other transfers of value to covered recipients pursuant to product research or development agreements, or in connection with clinical investigations, are subject to delayed publication on the website; specifically, publication is delayed until the reporting period after the earlier of: (1) the date of the approval or clearance of the product or (2) four calendar years after the date of the payment. In addition to detailed information on payments and ownership interests, the website will contain a description of enforcement actions taken, background information on manufacturer-physician relationships, and other information the Secretary believes would be helpful to the average consumer.
Penalties for Non-Compliance
Manufacturers that fail to report payments to covered recipients "in a timely manner in accordance with rules or regulations" are subject to a civil monetary penalty of $1,000 to $10,000 for each payment or other transfer of value not reported as required, not to exceed $150,000. A "knowing" failure to report such payments will subject a manufacturer to a civil money penalty of not less than $10,000, nor more than $100,000, for each payment, transfer of value, or ownership interest not reported, not to exceed $1 million. For purposes of this provision, the term "knowing" is defined to include actual knowledge of the falsity of the information, deliberate ignorance of the truth or the falsity of the information, or reckless disregard of the truth or falsity of the information. No specific intent to defraud is required.
State Law Preemption
The public disclosure of manufacturer-provider information isn't entirely new; indeed, while the Physician Payment Sunshine Act languished in Congress, several states opted to enforce their own disclosure requirements. (
See, e.g., Mass. Gen. Law c.111N; Vt. Stat. Ann. tit. 18 § 4632.) Life sciences manufacturers have advocated for federal preemption of these disparate state requirements, and early versions of the Physician Payment Sunshine Act were endorsed by the Pharmaceutical Research and Manufacturers of America, the Advanced Medical Technology Association, the American Medical Association and individual manufacturers in hopes that such legislation would create a uniform, national reporting standard that would preempt the confusing patchwork of state and local reporting requirements. (
See Press Release, United States Senate Special Committee on the Aging, Senators Welcome Endorsements from PhRMA, AdvaMed, AstraZeneca and Merck of Physician Payment Sunshine Act (May 22, 2008) available at
http://www.aging.senate.gov/hearing_detail.cfm?id=298258&).
However, manufacturers and life sciences trade groups are likely to be disappointed by PPACA's limited preemption of state reporting requirements. Effective Jan. 1, 2012, the Act will preempt any state laws that require a manufacturer to disclose or report the type of information required under the new federal reporting requirements. The Act, however, will not preempt state reporting requirements that require the disclosure or reporting of information that falls outside the scope of the above requirements, including most information within the Act's reporting exclusions. Accordingly, manufacturers will have to continue reporting certain expenditures to state authorities, even though such expenditures are outside the scope of PPACA's reporting requirements.
Conclusion
Section 6002 of PPACA creates a uniform federal standard for reporting and public disclosure of certain financial relationships between life sciences manufacturers and physicians and teaching hospitals. It is too soon to predict what effects, if any, this increased transparency will have on the nature and scope of manufacturers' relationships with health care providers. What is clear is that PPACA's failure to fully preempt state reporting and disclosure laws will continue to force manufacturers to develop and operate multiple collection and disclosure systems for payments to physicians, teaching hospitals and other health care providers, thereby adding to the already imposing administrative burden placed upon manufacturers by state reporting requirements. In preparation for meeting these reporting requirements, manufacturers should start (or continue) developing internal procedures for documenting these transactions and ensure that the system takes into account both federal and state requirements.
Public disclosure on a national level of these payments will also likely bring increased scrutiny of manufacturer-provider financial relationships from government agencies, Congress, the media and patients. In addition, although PPACA places the onus for reporting these relationships on the manufacturers, medical centers such as Cleveland Clinic and Stanford University Medical Center already divulge their physicians' financial relationships with industry, and more organizations are likely to follow suit as transparency initiatives gain a foothold among health care providers. (
See Jonathan D. Rockoff, “Stanford Medical School to Disclose More about Industry Comp,” Wall Street Journal Health Blog , April 1, 2009,
http://blogs.wsj.com/health/2009/04/01/stanford-medical-school-to-disclose-more-about-industry-comp/tab/article/). Depending on how the reporting entities classify the payments at issue, conflicting payment data with respect to an individual physician's or academic medical center's payments received from industry sources could end up in the public sphere, which could lead to inquiries from government enforcement agencies and consumer watchdog groups. Accordingly, the effects of PPACA's physician payment reporting provisions and the march toward increased transparency of manufacturer-provider financial relationships bear watching in the coming years.
C. Scott Strickland is an associate in King & Spalding's FDA/Life Sciences Group and practices in Washington, D.C. Scott can be reached at csstrickland@kslaw.com or 202.626.9247.
Views and opinions expressed in articles published herein are the authors' only and are not to be attributed to this newsletter, the section, or the NCBA unless expressly stated. Authors are responsible for the accuracy of all citations and quotations.