March 27, 2009

The Physician Payments Sunshine Act: A Call for Transparency Could Lead to Increased Reporting Requirements

Holland & Knight Alert
Michael J. Werner

Federal policy makers continue to be suspicious of the relationships between the pharmaceutical, biotechnology, and medical device industries and physicians. A recent example is The Physician Payments Sunshine Act of 2009 (the Act). Senator Charles Grassley (R-IA), the highest ranking Republican on the Senate Finance Committee, has teamed up with six Democrats, including Senators Ted Kennedy (D-MA) and Charles Schumer (D-NY), to introduce this bill.

According to its supporters, the legislation is designed to provide greater “transparency” to the relationships between companies and physicians. In his statement in the Congressional Record upon introduction of the legislation, Grassley said transparency is necessary because there are “significant undisclosed financial ties between physicians and industry” that could influence patient care and medical research.

The Act imposes tremendous reporting and administrative responsibilities on drug, device, biologic, and medical supply manufacturers.

The Act requires drug, biologic, device and medical supply manufacturers (defined as any entity engaged in the “production, preparation, propagation, compounding, conversion, processing, marketing, or distribution” of the product) receiving funds under Medicare, Medicaid, or SCHIP to annually report to the Secretary of DHHS all payments or other transfers of value to physicians and medical practices that are greater than $100 during the previous calendar year.

The only exclusions listed in the bill are product samples not intended for sale, educational materials for patients, the loan of a device for fewer than 90 days for evaluation purposes, items or services provided under a contractual warranty, a transfer of anything of value to a physician not acting in his or her professional capacity, discounts, in-kind items used to provide charity care, and a dividend or profit distribution from a publicly traded security or mutual fund.

The first reports will be made electronically on March 31, 2011, and are to be made on the 90th day of each subsequent calendar year. Each report must list the names and addresses of the physicians, the value of the payments, and the dates the payments were made. It must also describe the nature of the payment – such as consulting fees, compensation, honoraria, gift, food, travel, education, research, and current or prospective ownership or investment interest. In addition, manufacturers are required to report the aggregate amount of all payments during the preceding year. Payments are defined broadly and include: cash, in-kind items or services, stock, a stock option, or any other ownership interest or return on investment.

Manufacturers also must report any ownership or investment interest (other than interest in a publicly traded security or mutual fund) held by a physician or an immediate family member of such physician in the manufacturer. These reports must list the dollar amount invested by each physician holding the ownership interest, the value of that interest, and any payment to a physician holding the ownership or investment interest.

In the case of payments made pursuant to an agreement for services in connection with the development of a new drug, biologic, device or medical supply, or in connection with a clinical investigation, the manufacturer may report the payment after the date of FDA approval of the product or two calendar years after the payment was made, whichever is earlier.

The Act provides for civil monetary penalties for non-compliance – up to $10,000 for each payment not reported, to reach a maximum of $150,000. If the manufacturer knowingly fails to submit information, the penalty can reach $100,000 for each payment and $1 million total.

In addition, the Act charges the Secretary of DHHS with developing a website to make this data publicly available. It requires the website to include information about any penalties imposed as well as “background information on industry-physician relationships.”

The Act contains specific pre-emption language and therefore will supersede state reporting laws that are less stringent. However, it specifically says that it will not pre-empt state laws that require disclosure or reporting information not required under the bill.

The legislation has a high likelihood of being enacted. Therefore, many manufacturers, physicians, and group practices may need to change the nature and financial terms of their relationships and be prepared for new reporting requirements.

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